##### 



FORM 10-Q SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934  For Quarter Ended March 31, 2005
    
    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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o Number of shares of common
stock outstanding at March 31, 2005
            135,938,302




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##### 



JEFFERSON-PILOT CORPORATION INDEX - Page No. -Part I.
    
    Financial InformationItem 1.
    
    Consolidated Unaudited Condensed
Balance Sheets - March 31, 2005 and December 31, 2004
    
    
    3Consolidated Unaudited Condensed
Statements of Income - Three Months ended March 31, 2005 and 2004
    
    
    4Consolidated Unaudited Condensed
Statements of Cash Flows - Three Months ended March 31, 2005 and 2004
    
    
    5Notes to Consolidated Unaudited Condensed Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    46Item 4.
    
    Controls and Procedures
    
    
    46Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    47Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    47Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    48Item 5.
    
    Other Information
    
    
    48Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    49Signatures
    
    
    50Exhibit Index, followed by Exhibits
    
    
    51
 2




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##### 



PART I - FINANCIAL INFORMATION Item 1. Financial Statements JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Audited)March 31
    
    
    December 312005
    
    
    2004(Dollar Amounts inMillions ExceptShare Information)ASSETSInvestments:Debt securities available-for-sale, at fair value
(amortized cost $19,252 and $18,816)
    
    $
    19,835
    
    
    
    $19,725Debt securities held-to-maturity, at amortized cost
(fair value $2,433 and $2,514)
    
    
    2,309
    
    
    
    2,369Equity securities available-for-sale, at fair value
(cost $197 and $201)
    
    
    609
    
    
    
    650Mortgage loans on real estate
    
    
    3,718
    
    
    
    3,667Policy loans
    
    
    836
    
    
    
    839Real estate
    
    
    124
    
    
    
    125Other investments
    
    
    194
    
    
    
    193Total investments
    
    
    27,625
    
    
    
    27,568Cash and cash equivalents
    
    
    (26
    )
    
    
    87Accrued investment income
    
    
    355
    
    
    
    342Due from reinsurers
    
    
    1,322
    
    
    
    1,341Deferred policy acquisition costs and value
of business acquired
    
    
    2,577
    
    
    
    2,430Goodwill
    
    
    312
    
    
    
    312Assets held in separate accounts
    
    
    2,324
    
    
    
    2,373Other assets
    
    
    662
    
    
    
    652Total assets
    
    $
    35,151
    
    
    
    $35,105LIABILITIES AND STOCKHOLDERS EQUITYPolicy liabilities:Future policy benefits
    
    $
    3,091
    
    
    
    $  3,096Policyholder contract deposits
    
    
    21,868
    
    
    
    21,694Policy and contract claims
    
    
    217
    
    
    
    232Other
    
    
    1,171
    
    
    
    1,144Total policy liabilities
    
    
    26,347
    
    
    
    26,166Commercial paper and revolving credit borrowings
    
    
    154
    
    
    
    188Securities sold under repurchase agreements
    
    
    537
    
    
    
    468Notes payable
    
    
    600
    
    
    
    600Junior subordinated debentures
    
    
    309
    
    
    
    309Currently payable income taxes
    
    
    65
    
    
    
    31Deferred income tax liabilities
    
    
    530
    
    
    
    589Liabilities related to separate accounts
    
    
    2,324
    
    
    
    2,373Accounts payable, accruals and other liabilities
    
    
    454
    
    
    
    447Total liabilities
    
    
    31,320
    
    
    
    31,171Commitments and contingent liabilitiesStockholders Equity:Common stock and paid in capital, par value $1.25 per share: authorized
350,000,000 shares; issued and outstanding 2005-135,938,302 shares;
2004-136,819,214 shares
    
    
    170
    
    
    
    180Retained earnings
    
    
    3,151
    
    
    
    3,071Accumulated other comprehensive income
    
    
    510
    
    
    
    683Total stockholders equity
    
    
    3,831
    
    
    
    3,934Total liabilities and stockholders equity
    
    $
    35,151
    
    
    
    $35,105
 See Notes to Consolidated Financial Statements 3




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##### 



JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME Three Months EndedMarch 312005
    
    
    2004(Dollar Amounts inMillions ExceptShare Information)Revenue:Premiums and other considerations
    
    $
    331
    
    
    $
    280Universal life and investment product charges
    
    
    200
    
    
    
    182Net investment income
    
    
    408
    
    
    
    406Realized investment gains
    
    
    5
    
    
    
    24Communications sales
    
    
    61
    
    
    
    58Broker-dealer concessions and other
    
    
    32
    
    
    
    35Total revenue
    
    
    1,037
    
    
    
    985Benefits and Expenses:Insurance and annuity benefits
    
    
    537
    
    
    
    541Insurance commissions, net of deferrals
    
    
    65
    
    
    
    59General and administrative expenses, net of deferrals
    
    
    39
    
    
    
    38Insurance taxes, licenses and fees
    
    
    23
    
    
    
    17Amortization of policy acquisition costs and value of business acquired
    
    
    78
    
    
    
    67Interest expense
    
    
    14
    
    
    
    11Communications operations
    
    
    38
    
    
    
    37Total benefits and expenses
    
    
    794
    
    
    
    770Income before income taxes and cumulative effect of change in
accounting principle
    
    
    243
    
    
    
    215Income taxes
    
    
    82
    
    
    
    74Income before cumulative effect of change in accounting principle
    
    
    161
    
    
    
    141Cumulative effect of change in accounting for long-duration contracts,
net of taxes
    
    
    
    
    
    
    (17
    )Net income
    
    $
    161
    
    
    $
    124Average number of shares outstanding
    
    
    136.6
    
    
    
    140.7Net Income Per Share of Common Stock:Net income
    
    $
    1.18
    
    
    $
    0.88Net income - assuming dilution
    
    $
    1.17
    
    
    $
    0.87Dividends declared per common share
    
    $
    0.380
    
    
    $
    0.330
 See Notes to Consolidated Financial Statements 4




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JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED
STATEMENTS OF CASH FLOWS
(In Millions) Three Months EndedMarch 312005
    
    
    2004Cash Flows from Operating Activities
    
    $
    124
    
    
    $
    482Cash Flows from Investing Activities:Securities and loans purchased, net
    
    
    (378
    )
    
    
    (806
    )Other investing activities
    
    
    (8
    )
    
    
    (24
    )Net cash used in investing activities
    
    
    (386
    )
    
    
    (830
    )Cash Flows from Financing Activities:Policyholder contract deposits
    
    
    693
    
    
    
    730Policyholder contract withdrawals
    
    
    (489
    )
    
    
    (383
    )Net borrowings
    
    
    36
    
    
    
    152Net repurchase of common shares
    
    
    (40
    )
    
    
    (63
    )Cash dividends paid
    
    
    (52
    )
    
    
    (47
    )Other financing activities
    
    
    1
    
    
    
    7Net cash provided by financing activities
    
    
    149
    
    
    
    396Increase (decrease) in cash and cash equivalents
    
    
    (113
    )
    
    
    48Cash and cash equivalents at beginning of period
    
    
    87
    
    
    
    72Cash and cash equivalents at end of period
    
    $
    (26
    )
    
    $
    120Supplemental Cash Flow Information:Income taxes paid (received)
    
    $
    18
    
    
    $
    (6
    )Interest paid
    
    $
    25
    
    
    $
    16
 See Notes to Consolidated Financial Statements 5




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##### 



JEFFERSON-PILOT CORPORATION NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
(Dollar amounts in millions) 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 normal
recurring 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 three-month period ended March 31, 2005 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2005. Certain prior year amounts
have been reclassified to conform with the current year presentation. The Companys pretax earnings increased $49 in the first quarter of 2005 due to management actions
and experience that affected the comparability with the previous quarter. Management reduced the
rates for non-guaranteed cost of insurance bonuses (partial refunds) on certain older UL-type life
insurance products. These bonuses are paid to certain policyholders at specified policy
anniversaries for continuing coverage. Consequently, we recognized an accrual release, which
increased cost of insurance charge revenue by $13, and a related unlocking of expected gross
profits, which reduced amortization of value of business acquired by $17. Additionally, the
Company experienced strong earnings emergence from favorable claim experience and reserve
development in its group insurance business, primarily in the Canada Life block (see Note 9),
reducing insurance and annuity benefits by $25 partially offset by $5 of additional amortization of
deferred policy acquisition costs. Taken together, these items increased first quarter 2005 net
income by $32. Except as described otherwise herein, all significant accounting policies remain as we described in
our Form 10-K for 2004. 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 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 EndedMarch 312005
    
    
    2004Net income, as reported
    
    $
    161
    
    
    $
    124Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    1
    
    
    
    3Pro forma net income
    
    $
    160
    
    
    $
    121Earnings per share, as reported
    
    $
    1.18
    
    
    $
    0.88Pro forma earnings per share
    
    $
    1.17

    
    
    $
    0.86Earnings per share  assuming dilution, as reported
    
    $
    1.17
    
    
    $
    0.87Pro forma earnings per share  assuming dilution
    
    $
    1.16
    
    
    $
    0.85
 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
2004. The following table summarizes certain financial information regarding the Companys reportable
segments: March 31
    
    
    December 312005
    
    
    2004AssetsIndividual Products
    
    $
    18,965
    
    
    
    $18,776AIP
    
    
    10,543
    
    
    
    10,504Benefit Partners
    
    
    1,834
    
    
    
    1,839Communications
    
    
    219
    
    
    
    223Corporate & other
    
    
    3,590
    
    
    
    3,763Total assets
    
    $
    35,151
    
    
    
    $35,105
 7




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##### 



Three Months EndedMarch 312005
    
    
    2004RevenuesIndividual Products
    
    $
    456
    
    
    $
    444AIP
    
    
    169
    
    
    
    175Benefit Partners
    
    
    313
    
    
    
    251Communications
    
    
    60
    
    
    
    58Corporate & Other
    
    
    34
    
    
    
    331,032
    
    
    
    961Realized investment gains, before taxes
    
    
    5
    
    
    
    24Total revenues
    
    $
    1,037
    
    
    $
    985Total reportable segments results and
reconciliation to net incomeIndividual Products
    
    $
    84
    
    
    $
    75AIP
    
    
    22
    
    
    
    19Benefit Partners
    
    
    34
    
    
    
    11Communications
    
    
    11
    
    
    
    11Corporate & Other
    
    
    7
    
    
    
    10Total reportable segment results
    
    
    158
    
    
    
    126Realized investment gains, net of taxes
    
    
    3
    
    
    
    15Income before cumulative effect of change in
accounting principle
    
    
    161
    
    
    
    141Cumulative effect of change in accounting for
long-duration contracts, net of taxes
    
    
    
    
    
    
    (17
    )Net income
    
    $
    161
    
    
    $
    124
 Default charges paid to the Corporate and Other segment for Individual, AIP and Benefit Partners
were $6, $3, $1 and $6, $3, $0 for the three months ended March 31, 2005 and 2004. 8




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##### 



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 EndedMarch 312005
    
    
    2004Numerator:Net income before cumulative effect of
change in accounting principle
    
    $
    161
    
    
    $
    141Cumulative effect of change in accounting
principle, net of taxes
    
    
    
    
    
    
    (17
    )Numerator for earnings per share and
earnings per share - assuming dilution 
Net income
    
    $
    161
    
    
    $
    124Denominator:Denominator for earnings per share 
weighted-average shares outstanding
    
    
    136,611,211
    
    
    
    140,659,329Effect of dilutive securities:Stock options
    
    
    910,200
    
    
    
    1,509,952Denominator for earnings per share
assuming dilution  adjusted
weighted-average shares outstanding
    
    
    137,521,411
    
    
    
    142,169,281Income before cumulative effect of change
in accounting principle
    
    $
    1.18
    
    
    $
    1.00Cumulative effect of change in accounting
principle, net of taxes
    
    
    
    
    
    
    (0.12
    )Earnings per share
    
    $
    1.18
    
    
    $
    0.88Income before cumulative effect of change
in accounting principle
    
    $
    1.17
    
    
    $
    0.99Cumulative effect of change in accounting
principle, net of taxes
    
    
    
    
    
    
    (0.12
    )Earnings per share  assuming dilution
    
    $
    1.17
    
    
    $
    0.87
 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 9




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##### 



position or liquidity, although it could have a material adverse effect on the results of
operations for a specified period. 6. New Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Share Based Payment(SFAS 123-R), which prescribes
fair value expense recognition for stock options and is effective for interim and annual periods
ending after June 15, 2005. In April 2005, the Securities and Exchange Commission announced the
adoption of a new rule that delays our required effective date of SFAS 123-R to January 1, 2006. As discussed above, the Company currently accounts for employee stock options using the intrinsic
value method of APB 25, and related interpretations, and discloses the impact of the fair value
method prescribed by SFAS 123 through footnote disclosure only. Under APB 25, the Company does not
recognize any stock-based compensation expense for employee stock options because all options
granted have an exercise price equal to the market value of the underlying stock on the date of
grant. The Company plans to adopt the provisions of SFAS 123-R under the modified prospective
method on January 1, 2006. Under this method, the fair value of all employee stock options vesting
on or after the adoption date will be included in the determination of net income. The Company
also plans to restate prior periods using the modified retrospective application described in SFAS
123-R. The fair value of stock options will be estimated using an appropriate fair value
option-pricing model considering assumptions for dividend yield, expected volatility, risk-free
interest rate, and expected life of the option. The fair value of the option grants will be
amortized on a straight-line basis over the three-year vesting period of the awards. The adoption
of SFAS 123-R will reduce our earnings per share similar to what is described in our proforma
disclosures discussed earlier within Note 2. However, the implementation of more sophisticated
modeling techniques may affect this impact. On May 19, 2004, the FASB issued FSP 106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003. In accordance with FSP
106-2, the Company remeasured its plan assets and Accumulated Postretirement Benefit Obligation
(APBO) as of July 1, 2004 to account for the subsidy and other effects of the Act, which resulted
in an immaterial reduction in postretirement benefit cost. The reduction in the APBO for the
subsidy related to past service was insignificant. In March 2004, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on Issue 03-1,
The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments(EITF
03-1). This issue establishes impairment models for determining whether to record impairment
losses associated with investments in certain equity and debt securities. In September 2004, the
FASB issued FSP EITF 03-1-1, Effective Date of Paragraphs 1020 of EITF Issue No. 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which
indefinitely deferred the effective date of the other-than-temporary impairment provisions of EITF
03-1 related to interest rates and sector spreads until such time as the FASB issues further
implementation guidance. The Company continues to monitor developments concerning this guidance
and is currently unable to estimate the potential effects of implementing the impairment provisions
of EITF 03-1 on the Companys consolidated financial position or results of operations. 10




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##### 



In July 2003, the Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants (AcSEC) 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 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 originally amounting to $13. In
September 2004, AcSEC issued Technical Practice Aids (the TPAs) addressing certain provisions of
the SOP. As a result of this additional guidance, we restated our cumulative effect adjustment as
of January 1, 2004 to record an additional $4 of expense. The following table reflects our results
for the first quarter of 2004 as originally reported and as adjusted by the addition to the
cumulative effect adjustment recorded in the third quarter of 2004. Please refer to Note 2 of the
Consolidated Financial Statements included within our Form 10-K for greater detail and discussion. Three Months Ended
    
    
    
    
    
    
    Three Months EndedMarch 31, 2004 As
    
    
    Adoption
    
    
    March 31, 2004Reported
    
    
    of TPAs
    
    
    RestatedIncome before
cumulative effect of
change in accounting
principle
    
    $
    141
    
    
    $
    
    
    
    $
    141Cumulative effect of
change in accounting
principle, net of
taxes
    
    
    (13
    )
    
    
    (4
    )
    
    
    (17
    )Net income
    
    $
    128
    
    
    $
    (4
    )
    
    $
    124Per share informationIncome before
cumulative effect of
change in accounting
principle
    
    $
    1.00
    
    
    $
    
    
    
    $
    1.00Cumulative effect of
change in accounting
principle, net of
taxes
    
    
    (0.09
    )
    
    
    (0.03
    )
    
    
    (0.12
    )Net income
    
    $
    0.91
    
    
    $
    (0.03
    )
    
    $
    0.88Per share
information 
assuming dilutionIncome before
cumulative effect of
change in accounting
principle
    
    $
    0.99
    
    
    $
    
    
    
    $
    0.99Cumulative effect of
change in accounting
principle, net of
taxes
    
    
    (0.09
    )
    
    
    (0.03
    )
    
    
    (0.12
    )Net income
    
    $
    0.90
    
    
    $
    (0.03
    )
    
    $
    0.87
 Our cumulative effect of $17 related primarily to the establishment of additional policy
liabilities for secondary guarantees contained in our newer products and accounting for sales
inducements resident in certain of our older policies. 11




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##### 



7. Retirement Benefit Plans The following table illustrates the components of net periodic benefit cost for our pension plans: Three Months EndedMarch 312005
    
    
    2004Service cost
    
    $
    4
    
    
    $
    4Interest cost
    
    
    6
    
    
    
    6Expected return on plan assets
    
    
    (8
    )
    
    
    (8
    )Net periodic benefit cost
    
    $
    2
    
    
    $
    2
 The Company expects to make contributions of $14 to $18 during 2005 related to our nonqualified
plans. Contributions of $12 were made during the three months ended March 31, 2005. 8. Comprehensive Income The components of comprehensive income, net of related effects of DAC/VOBA and income taxes, are as
follows: Three Months EndedMarch 312005
    
    
    2004Net income
    
    $
    161
    
    
    $
    124Change in unrealized gains (losses) on securities
    
    
    (169
    )
    
    
    143Change in minimum pension liability
    
    
    (1
    )
    
    
    Change in the fair value of derivative financial instruments
    
    
    (3
    )
    
    
    3Comprehensive income (loss)
    
    $
    (12
    )
    
    $
    270
 9. Reinsurance Transaction Effective March 1, 2004, the Company 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
(Canada Life), an indirect subsidiary of Great-West Lifeco Inc. Upon closing, Canada Life ceded, and the Company assumed, approximately $400 of policy liabilities.
The Company also received assets, primarily comprised of cash, in support of those liabilities.
The deferred policy acquisition costs of $35 recorded in the transaction are being amortized over
15 years, subject to dynamic persistency adjustments, representing the premium-paying period of the
blocks of policies acquired. An intangible asset of $25, attributable to the value of the
distribution system acquired in the transaction, was recorded in other assets within the
consolidated balance sheets and is being amortized over 30 years, representing the period over
which the Company expects to earn premiums from new sales stemming from the added distribution
capacity. The revenues and benefits and expenses associated with these blocks are 12




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##### 



presented in the Companys consolidated statements of income in a manner consistent with the
Companys accounting policies. 13




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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 months ended March 31, 2005, as compared to the same period of 2004, 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, 2004, 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, supplemented by the discussion herein. Our segments revenues as a percentage of total revenues, excluding realized gains and losses, were
as follows: Three Months EndedMarch 312005
    
    2004Individual Products
    
    
    44
    %
    
    
    46
    %AIP
    
    
    16
    %
    
    
    18
    %Benefit Partners
    
    
    31
    %
    
    
    26
    %Communications
    
    
    6
    %
    
    
    6
    %Corporate and Other
    
    
    3
    %
    
    
    4
    %
 Critical Accounting Policies and Estimates Our Form 10-K described our accounting policies that are critical to the understanding of our
results of operations and our financial position for which management uses significant judgments
and estimates concerning future results or other developments including the likelihood, timing or
amount of one or more future events. They relate to deferred acquisition costs (DAC), value of
business acquired (VOBA), unearned revenue reserves, 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, policy liabilities, pension plans,
goodwill and accruals relating to legal and administrative proceedings. These policies were applied in a consistent manner during the first quarter of 2005. 14




---



##### 



Results of Operations The following tables illustrate our results before and after the cumulative effect of change in
accounting principle: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Consolidated Summary of IncomeIncome before cumulative
effect of change in
accounting principle
    
    $
    161.2
    
    
    $
    141.2
    
    
    
    14.2
    %Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    (16.6
    )
    
    
    Net income
    
    $
    161.2
    
    
    $
    124.6
    
    
    
    29.4
    %Consolidated Earnings Per ShareBasic:Income before cumulative
effect of change in
accounting principle
    
    $
    1.18
    
    
    $
    1.00
    
    
    
    18.0
    %Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    (0.12
    )
    
    
    Net income
    
    $
    1.18
    
    
    $
    0.88
    
    
    
    34.1
    %Fully-diluted:Income before cumulative
effect of change in
accounting principle
    
    $
    1.17
    
    
    $
    0.99
    
    
    
    18.2
    %Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    (0.12
    )
    
    
    Net income
    
    $
    1.17
    
    
    $
    0.87
    
    
    
    34.5
    %
 Three Months EndedMarch 312005
    
    
    2004Average number of shares outstanding
    
    
    136,611,211
    
    
    
    140,659,329Average number of shares outstanding  assuming dilution
    
    
    137,521,411
    
    
    
    142,169,281
 The increase in income before cumulative effect of change in accounting principle in the first
quarter of 2005 reflected earnings growth in each of our segments, except for Corporate & Other,
partially offset by lower realized gains. The Individual Products segment benefited from management
actions to reduce non-guaranteed bonuses on certain older universal life products that resulted in
a reserve release and an unlocking adjustment to DAC and VOBA, partially offset by higher
mortality. AIP results were favorably impacted by lower interest credited resulting in higher
investment spreads. Benefit Partners results for the quarter continue to be positively impacted
from the business added via the Canada Life transaction, which was included for only one month in
the 2004 quarter, and by improved loss ratios from favorable experience during the first quarter of
2005. Communications achieved earnings growth from higher advertising revenues in the sports
operation that offset lower political advertising revenues, which are favorable in even-numbered
years. Corporate & Other results were negatively impacted by higher short-term interest rates. 15




---



##### 



Realized investment gains, net of taxes, were $3.5 for the first quarter of 2005 versus $14.7
during the same period in 2004. Effective January 1, 2004, the Company adopted SOP 03-1, which relates to secondary guarantees and
other benefit features. The implementation of this new standard created both a cumulative effect
upon adoption as well as a reduction to ongoing net income. The cumulative effect now shown for
the first quarter of 2004 reflects the revision recognized in the third quarter of 2004 to reflect
additional implementation guidance issued in that quarter. Refer to Note 6 to the Consolidated
Condensed Financial Statements. Earnings per share growth was more favorable than the growth in absolute earnings due to share
repurchases in the first quarter of 2005 and the first six months of 2004. 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. We determine reportable segments in a manner
consistent with the way we make operating decisions and assess performance. Sales are one of the
statistics we use to track performance. Our sales, which are primarily of long-duration contracts
in the Individual Products and AIP segments, have little immediate impact on revenues for these two
segments as described in the segment discussions below. 16




---



##### 



The following table illustrates our results before and after realized investment gains and losses,
and reconciles reportable segment results to net income, the most directly comparable GAAP
financial measure: Results by Reportable Segment Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005
    
    
    2004
    
    

2005 vs. 2004Individual Products
    
    $
    84.3
    
    
    $
    75.0
    
    
    
    12.4
    %AIP
    
    
    21.7
    
    
    
    19.1
    
    
    
    13.6Benefit Partners
    
    
    33.8
    
    
    
    11.5
    
    
    
    193.9Communications
    
    
    11.0
    
    
    
    10.6
    
    
    
    3.8Corporate and Other
    
    
    6.9
    
    
    
    10.3
    
    
    
    (33.0
    )Total reportable segment results
    
    
    157.7
    
    
    
    126.5
    
    
    
    24.7Realized investment gains (losses), net of taxes
    
    
    3.5
    
    
    
    14.7
    
    
    
    (76.2
    )Net income before cumulative effect of change
in accounting principle
    
    
    161.2
    
    
    
    141.2
    
    
    
    14.2Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (16.6
    )
    
    
    Net income
    
    $
    161.2
    
    
    $
    124.6
    
    
    
    29.4
    %
 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 and communications 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. Segment assets as of March
31 were as follows: March 312005
    
    
    2004Individual Products
    
    $
    18,965
    
    
    $
    18,087AIP
    
    
    10,543
    
    
    
    10,293Benefit Partners
    
    
    1,834
    
    
    
    1,710Communications
    
    
    219
    
    
    
    199Corporate and Other
    
    
    3,590
    
    
    
    3,895Total assets
    
    $
    35,151
    
    
    $
    34,184
 17




---



##### 



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. Reportable segment results(1) for Individual Products were as follows: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004UL-Type Products:Net investment income
    
    $
    184.1
    
    
    $
    184.1
    
    
    
    0.0
    %Interest credited to policyholders
    
    
    (127.1
    )
    
    
    (125.7
    )
    
    
    (1.1
    )Interest margin
    
    
    57.0
    
    
    
    58.4
    
    
    
    (2.4
    )Product charge revenue:Cost of insurance charges
    
    
    153.2
    
    
    
    132.6
    
    
    
    15.5Expense charges
    
    
    37.6
    
    
    
    37.4
    
    
    
    0.5Surrender charges
    
    
    8.0
    
    
    
    11.0
    
    
    
    (27.3
    )Total product charge revenue
    
    
    198.8
    
    
    
    181.0
    
    
    
    9.8Death benefits and other insurance benefits
    
    
    (90.3
    )
    
    
    (77.2
    )
    
    
    (17.0
    )Expenses excluding amortization of DAC and VOBA
    
    
    (18.9
    )
    
    
    (22.5
    )
    
    
    16.0Amortization of DAC and VOBA
    
    
    (38.7
    )
    
    
    (45.0
    )
    
    
    14.0Miscellaneous
income (expense)
    
    
    0,2
    
    
    
    
    
    
    
    100.0UL-type product income before taxes
    
    
    108.1
    
    
    
    94.7
    
    
    
    14.2Traditional Products:Premiums and other considerations
    
    
    36.2
    
    
    
    40.2
    
    
    
    (10.0
    )Net investment income
    
    
    36.7
    
    
    
    38.5
    
    
    
    (4.7
    )Benefits
    
    
    (43.4
    )
    
    
    (47.4
    )
    
    
    8.4Expenses excluding amortization of DAC and VOBA
    
    
    (6.3
    )
    
    
    (7.2
    )
    
    
    12.5Amortization of DAC and VOBA
    
    
    (3.8
    )
    
    
    (4.0
    )
    
    
    5.0Traditional product income before taxes
    
    
    19.4
    
    
    
    20.1
    
    
    
    (3.5
    )Reportable segment results before income taxes (1)
    
    
    127.5
    
    
    
    114.8
    
    
    
    11.1Income taxes
    
    
    (43.2
    )
    
    
    (39.8
    )
    
    
    (8.5
    )Reportable segment results (1)
    
    $
    84.3
    
    
    $
    75.0
    
    
    
    12.4
    %
   (1)
    
    Reportable segment results is a non-GAAP measure. See Note 15 of the Consolidated
Financial Statements in our Form 10-K for further discussion. 18




---



##### 



The following table summarizes key data for Individual Products that we believe are our
important drivers and indicators of future profitability: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Annualized life insurance premium sales:Individual Markets excluding Community
Banks and BOLI
    
    $
    57
    
    
    $
    49
    
    
    
    16.3
    %Community Banks and BOLI
    
    
    
    
    
    $
    1
    
    
    
    Average UL policyholder fund balances
    
    $
    11,411
    
    
    $
    10,931
    
    
    
    4.4
    %Average VUL separate account assets
    
    
    1,663
    
    
    
    1,489
    
    
    
    11.7$
    13,074
    
    
    $
    12,420
    
    
    
    5.3
    %Average face amount of insurance
in force:Total
    
    $
    165,929
    
    
    $
    166,444
    
    
    
    (0.3
    )%UL-type policies
    
    $
    128,397
    
    
    $
    126,103
    
    
    
    1.8
    %Average assets
    
    $
    18,871
    
    
    $
    17,935
    
    
    
    5.2
    %
 Sales from our Individual Markets, excluding Community Banks and bank-owned life insurance (BOLI),
increased in the first quarter of 2005 compared to 2004 due to product, distribution and service
initiatives. Approximately 50% and 53% of life insurance sales were attributable to products with secondary
guarantee benefits for the first quarter of 2005 and 2004. 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 that 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. See Capital Position for discussion of statutory-basis
reserving methodologies for these types of products. Interest margin on UL-type products decreased 2.4% during the first quarter of 2005. Lower
investment yields more than offset growth in policyholder fund balances and the effect of lower
crediting rates. As discussed further below, the lower investment yield was primarily due to the
general interest rate environment and lower investment prepayments. 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 (up or down), subject to minimum rate guarantees,
while considering product pricing targets, policyholder value, and competitive conditions. The
average investment spread on fixed UL products declined 1 basis point to 1.83% for the quarter
compared to the 2004 quarter. Our mortgage-backed securities portfolio is primarily a discount
portfolio. We estimate that prepayments on mortgage-backed securities in excess of expected levels
and prepayments of commercial mortgage loans increased effective investment yields by 7 basis
points in the first quarter of 2004, but had no impact in 2005. Our ability to manage
interest-crediting rates on fixed UL-type products is limited by minimum guaranteed rates provided
in 19




---



##### 



policyholder contracts. Therefore, continued low general market interest rates likely will impact
future profitability, as the investment of cash flows at current interest rates reduces our average
portfolio yield. For the first quarter of 2005 and 2004, our average crediting rates were
approximately 40 and 55 basis points in excess of our average minimum guaranteed rates (spread to
guarantee), including 56% and 55% of our average UL policyholder fund balances that were already at
their minimum guaranteed rates. The spread to guarantee excludes crediting rate cuts we
implemented on April 1, 2005, which will have the effect of reducing the average crediting rate
across the entire UL-type block by 4 basis points in future quarters. Additionally, the spread to
guarantee presented above was revised to include the effect of non-guaranteed interest bonuses that
management has the discretion to reduce. A large portion of the remaining spread to guarantee
relates to products that are currently being marketed, sales of which could be negatively impacted
if we reduced crediting rates. The increase in product charge revenue was due to continued growth and aging of our insurance
blocks and the impact of a management action to reduce non-guaranteed cost of insurance bonuses
(partial refunds) on certain older UL-type life products. Cost of insurance charges (COIs) grew
15.5% compared to the 2004 quarter largely due to a $12.7 accrual release associated with this
reduction in certain non-guaranteed COI bonus rates. These bonuses are paid to certain
policyholders at specified policy anniversaries for continuing coverage. This reduction in bonus
rates will favorably impact quarterly COI charges prospectively by $1 after tax, through lower
refunds of COIs, on a comparative basis. Excluding this impact, COIs grew 6.0% over the 2004
quarter from an increase in the average age of our insureds (this contributes to increased death
benefits as well) and growth in face amount of UL-type policies. We defer expense charges received
in excess of ultimate annual expense charges and amortize them into income relative to future
estimated gross profits. Products issued in recent years are designed to generate a higher
proportion of their revenues from expense charges. We adjusted our assumptions primarily for
mortality on certain blocks of business and recognized an unlocking adjustment of $1.9 that reduced
amortization of unearned expense charges. Excluding this impact, expense charges increased over
the 2004 quarter due to changes in product mix. Surrenders of policies subject to a surrender
charge decreased during the quarter resulting in lower surrender charge income compared to the 2004
quarter. UL-type death benefits increased $8.7 over the prior year quarter. UL-type death benefits,
net of reinsurance, per thousand dollars of average net face amount at risk (average face amount of
insurance in force net of reinsurance and reduced by average policyholder fund balances) were
$0.68, in the high end of the normal first quarter range, compared to $0.62 in the 2004 quarter.
Aging of our blocks will continue to contribute to increasing levels of UL-type death benefits.
While over the long term death benefits should emerge within actuarial expectations, the level of
death benefits will fluctuate from period to period. Other UL-type insurance benefits increased
$4.4 over the prior year quarter primarily due to growth in reserves related to secondary
guarantees and other benefit features. Consistent with the trend in recent years, traditional premiums and other considerations declined
from the first quarter of 2004, reflecting customer preferences for UL-type products. Net
investment income from our traditional blocks declined period over period due to a decline in
investment yields, partly due to lower prepayments of mortgage-backed securities, and the
decreasing size of the block. 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 119.9%, up slightly from 117.9% in the 2004 quarter. 20




---



##### 



Total Individual expenses (including the net deferral and amortization of DAC and VOBA) were as
follows: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Commissions
    
    $
    80.4
    
    
    $
    63.8
    
    
    
    (26.0
    )%General and administrative  acquisition
related
    
    
    17.4
    
    
    
    18.9
    
    
    
    7.9General and administrative  maintenance
related
    
    
    9.4
    
    
    
    10.9
    
    
    
    13.8Taxes, licenses and fees
    
    
    12.7
    
    
    
    11.0
    
    
    
    (15.5
    )Total commissions and expenses incurred
    
    
    119.9
    
    
    
    104.6
    
    
    
    (14.6
    )Less commissions and expenses capitalized
    
    
    (94.7
    )
    
    
    (74.9
    )
    
    
    26.4Expenses excluding amortization of DAC
and VOBA
    
    
    25.2
    
    
    
    29.7
    
    
    
    15.2Amortization of DAC and VOBA
    
    
    42.5
    
    
    
    49.0
    
    
    
    13.3Total expense
    
    $
    67.7
    
    
    $
    78.7
    
    
    
    14.0
    %
 Expenses, excluding amortization of DAC and VOBA, decreased in the first quarter of 2005 from the
2004 quarter due to lower general and administrative expenses and higher capitalization of
commission expenses. Gross commissions increased from higher sales. Taxes, licenses and fees
showed an increase due to a state income tax accrual release recognized in the 2004 quarter. The
expense amounts we capitalize as DAC include first-year commissions and deferrable acquisition
expenses. We recognized unlocking adjustments in the first quarter of 2005 for the effect of the
COI bonus accrual release, which reduced amortization of DAC and VOBA for UL-type products by
$16.5, and for adjusting our assumptions primarily for mortality on certain blocks of business,
which increased amortization of DAC and VOBA for UL-type products by $0.5. During the first
quarter of 2004, we adjusted our assumptions for interest spreads, mortality and lapsation on
certain blocks of business resulting in a reduction in DAC amortization on UL-type products of
$8.5. Excluding these impacts, growth in our insurance blocks for UL-type products was the primary
contributor to the increase in the amortization of DAC and VOBA period over period. The growth in average Individual Products assets in 2005 was primarily due to growth in UL
policyholder fund balances, partially offset by declines in assets supporting our traditional block
of business and market values of separate account assets. Our financial and operating risks for this segment include failure to achieve pricing assumptions
for interest margins, mortality, withdrawals and expenses; variances between actual and underlying
assumptions of estimated gross profits, increased lapses when interest rates rise, particularly in
fixed interest UL-type products subject to low or no surrender charges; increased lapses for $2
billion of UL policyholder fund balances sold to community banks that are serviced by two marketing
organizations and are generally not subject to surrender charges; changes in taxation or other
regulatory changes related to our products and competing offerings; changes in generally accepted
or statutory accounting principles (such as the AXXX actuarial guideline discussed in Capital
Resources); and the effects of unresolved litigation. We discuss these risks in more detail in the
Critical Accounting Policies and Estimates, Capital Resources, Liquidity, and Market Risk Exposures
sections of our Form 10-K. 21




---



##### 



Annuity and Investment Products Annuity and Investment Products (AIP) 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. 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(1) for AIP were as follows: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Investment product charges and premiums
    
    $
    2.9
    
    
    $
    2.4
    
    
    
    20.8
    %Net investment income
    
    
    135.8
    
    
    
    143.5
    
    
    
    (5.4
    )Broker-dealer concessions and other
    
    
    29.9
    
    
    
    29.4
    
    
    
    1.7Total revenue
    
    
    168.6
    
    
    
    175.3
    
    
    
    (3.8
    )Policy benefits (including interest credited)
    
    
    82.5
    
    
    
    103.6
    
    
    
    20.4Insurance expenses
    
    
    24.7
    
    
    
    14.9
    
    
    
    (65.8
    )Broker-dealer expenses
    
    
    28.5
    
    
    
    27.5
    
    
    
    (3.6
    )Total benefits and expenses
    
    
    135.7
    
    
    
    146.0
    
    
    
    7.1Reportable segment results before income
taxes (1)
    
    
    32.9
    
    
    
    29.3
    
    
    
    12.3Income taxes
    
    
    11.2
    
    
    
    10.2
    
    
    
    (9.8
    )Reportable segment results (1)
    
    $
    21.7
    
    
    $
    19.1
    
    
    
    13.6
    %
   (1)
    
    Reportable segment results is a non-GAAP measure. See Note 15 of the Consolidated
Financial Statements in our Form 10-K for further discussion. 22




---



##### 



The following table summarizes key information for AIP that we believe to be important drivers
and indicators of our future profitability. Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Fixed annuity premium sales
    
    $
    244
    
    
    $
    310
    
    
    
    (21.3
    )%Investment product sales
    
    $
    1,297
    
    
    $
    1,324
    
    
    
    (2.0
    )%Average fixed policyholder fund balances
    
    $
    9,445
    
    
    $
    8,876
    
    
    
    6.4
    %Average separate account policyholder
fund balances
    
    
    312
    
    
    
    350
    
    
    
    (10.9
    )$
    9,757
    
    
    $
    9,226
    
    
    
    5.8
    %Average assets
    
    $
    10,524
    
    
    $
    10,117
    
    
    
    4.0
    %Effective investment spreads for fixed
annuities, including SFAS 133
adjustment
    
    
    2.13
    %
    
    
    1.71
    %Fixed annuity surrenders as a
percentage of beginning fund balances
    
    
    12.4
    %
    
    
    9.5
    %
 Fixed annuity premium sales decreased in the first quarter of 2005 versus 2004 from the effects of
a flattening interest rate yield curve and from competition from other products. Equity-indexed
annuities (EIAs) comprised over three-fourths of our AIP sales during the first quarter of
2005. We continue to develop differentiated annuity products designed to create new
distribution opportunities and strengthen existing marketing relationships. Profitability of EIAs is influenced by the management of derivatives to hedge the index performance
of the policies. These contracts permit the holder to elect an interest rate return or an equity
market component, where interest credited to the contracts is linked to the performance of the S&P
500 Index®. Policyholders may elect to rebalance index options at renewal dates, either annually
or biannually. At each renewal date, we have the opportunity to re-price the equity-indexed
component by establishing participation rates, subject to minimum guarantees. We purchase options
that are highly correlated to the portfolio allocation decisions of our policyholders, such that we
are economically hedged with respect to equity returns for the current reset period. The
mark-to-market of the options we hold impacts investment income and interest credited in
approximately equal and offsetting amounts. For the first quarter of 2005 this adjustment
decreased both net investment income and interest credited by $8.9 compared to an increase of $0.6
for the prior period, with no net impact on reportable segment results. However, SFAS 133 requires
that we calculate the fair values of index options we will purchase in the future to
hedge policyholder index allocations applicable to future reset periods. These fair values
represent an estimate of the cost of the options we will purchase in the future, discounted back to
the date of the balance sheet, using current market indicators of volatility and interest rates.
Changes in the fair values of these liabilities result in volatility that is reported in interest
credited. Interest credited was decreased by $6.2 and $0.2 in the first quarter of 2005 and 2004.
The notional amounts of policyholder fund balances allocated to the index options were $1,151 at
March 31, 2005 and $476 at March 31, 2004. 23




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##### 



Excluding the impact of the options market value adjustment described above, net investment income
increased at a lower rate than the growth in average policyholder fund balances due to a decline in
investment yields. Lower investment yields resulted from a decline in our base earned rate caused
by declining interest rates, partially offset by an increase in excess investment income items.
The effect of these excess investment income items in the AIP segment increased effective yields by
18 and 10 basis points in the first quarter of 2005 and 2004. 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. 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
that lag behind growth in average fund balances for a period of time. Effective investment
spreads on fixed annuities increased in the first quarter of 2005 compared to 2004 because the
decline in investment yields was mitigated by a reduction in crediting rates (including the effect
of MYG lapses discussed below), the effect of SFAS 133 and excess investment income items. Our ability to manage interest crediting rates on fixed annuity products is limited by
continued low general market interest rates, as the investment of cash flows at current interest
rates reduces our average portfolio yield, and crediting rate actions are limited by minimum
guaranteed rates provided in policyholder contracts. We have approximately $4.3 billion of average
fixed annuity policyholder fund balances with crediting rates that are reset on an annual basis,
for which our average crediting rates in the first quarter of 2005 were approximately 11 basis
points in excess of average minimum guaranteed rates, including 55% that were already at their
minimum guaranteed rates. Approximately $3.1 billion of fixed annuity policyholder fund balances
have multi-year guaranteed rates (MYG), approximately $700 of which have begun to reset in 2005
with an additional $2.4 billion resetting in 2006 and thereafter. As multi-year guarantees expire,
policyholders have the opportunity to renew their annuities at rates in effect at that time. Our
ability to retain these annuities will be subject to then-current competitive conditions. The
average spread to the minimum underlying guarantee on these products is approximately 250 basis
points. In the first quarter of 2005, $106 of fixed annuity policyholder fund balances reset, of
which approximately $74 lapsed where the holder did not select another product that we offer.
These lapses reduced policyholder fund balances and increased DAC amortization but also increased
investment spreads. Surrenders are affected by factors such as crediting rates on MYG annuities
compared to current crediting rates at reset dates and the absence of surrender charges at reset
dates. Fixed annuity surrenders as a percentage of beginning fund balances increased in the first quarter
of 2005 reflecting, in part, the surrender of annuities with expiring MYGs. The increase in fixed
annuity surrenders, other than resetting MYG annuities, favorably impacted surrender charge
revenues. The surrender rate in the AIP segment is influenced by many other 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 some degree of protection from disintermediation in a rising interest
rate environment. Fixed annuity fund balances subject to surrender charges of at least 5% or an MVA
were 47% at March 31, 2005 and 2004, as strong sales of EIAs offset the decline in the existing
inforce that is subject to these surrender charges or an MVA. 24




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##### 



Total AIP expenses (including the net deferral and amortization of DAC and VOBA) were as follows: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Insurance companies:Commissions
    
    $
    14.3
    
    
    $
    18.4
    
    
    
    22.3
    %General and administrative
 acquisition related
    
    
    3.9
    
    
    
    3.3
    
    
    
    (18.2
    )General and administrative
 maintenance related
    
    
    1.4
    
    
    
    1.6
    
    
    
    12.5Taxes, licenses and fees
    
    
    0.8
    
    
    
    0.6
    
    
    
    (33.3
    )Total commissions and
expenses incurred
    
    
    20.4
    
    
    
    23.9
    
    
    
    14.6Less commissions and
expenses capitalized
    
    
    (16.5
    )
    
    
    (20.5
    )
    
    
    (19.5
    )Amortization of DAC and VOBA
    
    
    20.8
    
    
    
    11.5
    
    
    
    (80.9
    )Net expense  insurance
companies
    
    
    24.7
    
    
    
    14.9
    
    
    
    (65.8
    )Broker/Dealer:Commissions
    
    
    25.8
    
    
    
    24.8
    
    
    
    (4.0
    )Other
    
    
    2.7
    
    
    
    2.7
    
    
    
    Net expense  broker/dealer
    
    
    28.5
    
    
    
    27.5
    
    
    
    (3.6
    )Net expense
    
    $
    53.2
    
    
    $
    42.4
    
    
    
    (25.5
    )%
 Commissions and capitalized expenses decreased from lower sales compared to the first quarter of
2004. General and administrative acquisition expenses increased despite the sales decline due to
an increase in distribution expenses. In the first quarter of 2005, we updated our assumptions for
lapsation of MYG annuities through an unlocking adjustment that increased amortization of DAC and
VOBA by $4.4. Additionally, amortization of DAC and VOBA increased in the first quarter of 2005
from true-ups of $3.4, resulting from the favorable change in the fair value of EIA option
liabilities and excess investment income. In the first quarter of 2005, broker/dealer expenses
increased at a slightly higher rate than revenues due to higher effective commission rates and
higher taxes, licenses and fees versus the first quarter of last year. Risks in the annuity business are spread compression; increased lapses from maturity of MYG
annuities which could result in increased DAC amortization; increased lapses when interest rates
rise, particularly in the portion of business subject to low or no surrender charges or MVA;
execution risk on EIA hedges; the possible effects of litigation; changes in taxation of our
products or products they might compete with; 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 Capital Resources and Liquidity sections and in the Market Risk Exposures section of
our Form 10-K. 25




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##### 



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 (1) for Benefit Partners were as follows: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Premiums and other considerations
    
    $
    289.5
    
    
    $
    232.5
    
    
    
    24.5
    %Net investment income
    
    
    23.8
    
    
    
    18.4
    
    
    
    29.3Total revenues
    
    
    313.3
    
    
    
    250.9
    
    
    
    24.9Policy benefits
    
    
    188.3
    
    
    
    180.4
    
    
    
    (4.4
    )Expenses
    
    
    73.1
    
    
    
    52.9
    
    
    
    (38.2
    )Total benefits and expenses
    
    
    261.4
    
    
    
    233.3
    
    
    
    (12.0
    )Reportable segment results before
income taxes(1)
    
    
    51.9
    
    
    
    17.6
    
    
    
    194.9Income taxes
    
    
    18.1
    
    
    
    6.1
    
    
    
    (196.7
    )Reportable segment results(1)
    
    $
    33.8
    
    
    $
    11.5
    
    
    
    193.9
    %
   (1)
    
    Reportable segment results is a non-GAAP measure. See Note 15 of the Consolidated
Financial Statements in our Form 10-K for further discussion. 26




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##### 



The following table summarizes key information for Benefit Partners that we believe to be
important drivers and indicators of our future profitability. Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Life, Disability and Dental annualized
sales
    
    $
    70.5
    
    
    $
    53.9
    
    
    
    30.8
    %Premiums and other considerations:Life
    
    $
    108.4
    
    
    $
    85.5
    
    
    
    26.8
    %Disability
    
    
    117.1
    
    
    
    89.4
    
    
    
    31.0Dental
    
    
    32.0
    
    
    
    29.4
    
    
    
    8.8Other
    
    
    32.0
    
    
    
    28.2
    
    
    
    13.5Total
    
    $
    289.5
    
    
    $
    232.5
    
    
    
    24.5
    %Reportable segment results:Life
    
    $
    16.0
    
    
    $
    3.5
    
    
    
    357.1
    %Disability
    
    
    17.2
    
    
    
    6.8
    
    
    
    152.9Dental
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    (116.7
    )Other
    
    
    0.7
    
    
    
    0.6
    
    
    
    16.7Total
    
    $
    33.8
    
    
    $
    11.5
    
    
    
    193.9
    %Loss ratios:Life
    
    
    59.6
    %
    
    
    79.0
    %Disability
    
    
    60.2
    %
    
    
    72.9
    %Dental
    
    
    78.9
    %
    
    
    78.3
    %Combined
    
    
    62.3
    %
    
    
    76.2
    %Gross general and administrative
expenses as a % of premium income
    
    
    9.3
    %
    
    
    9.9
    %Total expenses as a % of premium income
    
    
    25.3
    %
    
    
    22.8
    %Average assets
    
    $
    1,836
    
    
    $
    1,395
    
    
    
    31.6
    %
 Total revenues and reportable segment results for Benefit Partners increased substantially in the
first quarter over the 2004 quarter. The increase reflects a full quarters results from the
Canada Life business (the Canada Life block) in 2005 versus one month in 2004. The 2005 quarter
also reflected strong earnings emergence from favorable claim experience and reserve development of
approximately $16 after tax that may not repeat, partially offset by $3 after tax of elevated DAC
amortization that is discussed later. See Note 9 for further discussion of the Canada Life
transaction. Excluding the Canada Life block, premiums and other considerations increased 16.5% over the 2004
quarter due to strong growth in the life and disability business. Annualized sales increased 30.8%
during the first quarter of 2005, due to strong growth in the number of our field
representatives, 27




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##### 



in part due to representatives added from acquiring the Canada Life block, and from good sales
execution. Policy benefits increased only 4.4% in the first quarter of 2005 compared to the prior period
due to a significantly improved combined loss ratio of 62.3%, driven by favorable life and
long-term disability results. In our life business, we experienced favorable waiver claims
incidence and favorable waiver claim terminations. In long-term disability, we experienced
favorable claims incidence and favorable claims terminations. In each product line, effective
claims management contributed to the favorable claims termination experience. In addition to these
impacts, emerging experience and the related claim reserve development were very favorable for the
quarter. Together, these factors significantly decreased our loss ratios. We believe the loss
ratios experienced during calendar 2004 (low-to-mid 70s) to be more representative of longer-term
expectations. Expenses were as follows: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005 vs.2005
    
    
    2004
    
    
    2004Commissions
    
    $
    34.2
    
    
    $
    26.9
    
    
    
    (27.1
    )%General and administrative
    
    
    26.8
    
    
    
    23.0
    
    
    
    (16.5
    )Taxes, licenses and fees
    
    
    8.0
    
    
    
    5.0
    
    
    
    (60.0
    )Total commissions and expenses
incurred
    
    
    69.0
    
    
    
    54.9
    
    
    
    (25.7
    )Less commissions and expenses
capitalized
    
    
    (10.6
    )
    
    
    (8.2
    )
    
    
    29.3Amortization of DAC
    
    
    14.7
    
    
    
    6.2
    
    
    
    (137.1
    )Total expense
    
    $
    73.1
    
    
    $
    52.9
    
    
    
    (38.2
    )%
 Total expense growth for the first quarter of 2005 reflects the overall growth in the business and
a full quarter impact of Canada Life as compared to the prior quarter. DAC amortization for the
2005 quarter reflects $5.3 of accelerated amortization related to a dynamic adjustment for
persistency on the Canada Life block. Although we had anticipated a certain amount of shock
lapse to occur on the Canada Life business as it is renewed with the Company, the actual lapsation
during the quarter was higher than forecasted. Absent this item, the increase in the expense ratio
for the 2005 quarter relative to the 2004 quarter was driven by a slightly higher average
commission ratio during the 2005 quarter, and higher unit expenses for taxes, licenses and fees,
without the benefit of favorable state taxes in the 2004 quarter. Risks beyond normal competition that may impact this segment include the potential for increased
loss ratios in our disability business as it continues to grow; lower investment spreads on
investments backing longer-tail liabilities that could require us to lower our discount rate;
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; mortality risks including concentration risks from acts of terrorism not priced for or
reinsured; and regulatory or litigation risks such as might result from matters the Office of the
New York Attorney General and others have investigated, although we have not received any
subpoenas. A 28




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##### 



discontinuation of our Exec-U-Care® program would have a significant impact on segment revenues,
but only a minimal effect on reportable segment results. 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(1) for Communications were as follows: Three Months Ended
    
    
    Favorable/March 31
    
    
    (Unfavorable)2005
    
    
    2004
    
    
    2005 vs. 2004Communications revenues (net)
    
    $
    60.9
    
    
    $
    58.5
    
    
    
    4.1
    %Cost of sales
    
    
    15.0
    
    
    
    14.7
    
    
    
    (2.0
    )Operating expenses
    
    
    22.9
    
    
    
    22.0
    
    
    
    (4.1
    )Broadcast cash flow
    
    
    23.0
    
    
    
    21.8
    
    
    
    5.5Depreciation and amortization
    
    
    2.1
    
    
    
    2.2
    
    
    
    4.5Corporate general and administrative
expenses
    
    
    1.9
    
    
    
    1.6
    
    
    
    (18.8
    )Net interest expense
    
    
    0.5
    
    
    
    0.4
    
    
    
    (25.0
    )Operating revenue before income taxes
    
    
    18.5
    
    
    
    17.6
    
    
    
    5.1Provision for income taxes
    
    
    7.5
    
    
    
    7.0
    
    
    
    (7.1
    )Reportable segment results(1)
    
    $
    11.0
    
    
    $
    10.6
    
    
    
    3.8
    %
   (1)
    
    Reportable segment results is a non-GAAP measure. See Note 15 of the
Consolidated Financial Statements in our Form 10-K for further discussion. .
Communications revenues increased 4.1% over the first quarter of 2004 due to growth in radio
and sports. Combined revenues for radio and television increased 1.7% over the first quarter of
2004 due to improved revenue shares in several markets, combined with modest growth in our markets.
Advertising revenues from Sports operations increased $1.6 or 14.2% over the first quarter of 2004
due to increased demand for our basketball products. Typically, political advertising favorably
impacts television revenues in even numbered years and as a result, television revenues declined
1.1% compared to the first quarter of 2004. Excluding the impact of political advertising,
television revenues increased 1.1%. Broadcast cash flow, a non-GAAP measure that is commonly used in the broadcast industry, is
calculated as communications revenues less operating costs and expenses before depreciation and
amortization. Broadcast cash flow increased by 5.5% over the first quarter of 2004 due to
increases in revenues combined with effective operating expense control in all the businesses. Cost of sales represents direct and variable costs, consisting primarily of sales commissions,
rights fees, and sports production costs. Operating expenses represent other costs to operate
broadcast properties, including salaries, marketing, research, purchased programming and station
overhead costs. Total expenses, excluding interest expense, increased 3.5% over the first quarter
of 2004. As a percent of communication revenues, these expenses were 68.8% and 69.2% for the first
quarter of 2005 and 2004. Radio and television stations require a license, subject to periodic renewal, from the FCC to
operate. While management considers the likelihood of a failure to renew remote, any station that
fails to 29




---



##### 



receive renewal would be forced to cease operations. We currently have two television stations
that are operating under expired licenses pending renewal, as allowed by the FCC. The FCC is
delaying all commercial broadcast license renewals in these states until all complaints against any
commercial broadcast station in that state are resolved. We are unaware of any complaints
involving JP stations. Because our broadcasting businesses rely on advertising revenues, they are sensitive to cyclical
changes in both the general economy and in the economic strength of local markets. Furthermore,
our stations derived 24.8% of their advertising revenues from the automotive industry in the first
quarter of 2005 and 25.5% in the first quarter of 2004. If automobile advertising is severely
curtailed, it could have a negative impact on broadcasting revenues. In the 2005 quarter, 7.8% of
television revenues came from a network agreement with our CBS-affiliated stations that expires in
2011. The trend in the industry is away from the networks compensating affiliates for carrying
their programming and there is a possibility those revenues will be eliminated when the contract is
renewed. Many different businesses compete for available advertising sales in our markets,
including newspapers, magazines, billboards and other radio and television broadcasters.
Technological media changes, such as satellite radio and the internet, and consolidation in the
broadcast and advertising industries, may increase competition for audiences and advertisers. 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. The reportable segment results primarily
contain the earnings on the invested excess capital, interest expense related to the corporate
debt, and operating expenses that are corporate in nature (such as advertising and charitable and
civic contributions). All net realized capital gains and losses, which include
other-than-temporary impairments of securities, are reported in this segment. 30




---



##### 



Reportable segment results(1) for Corporate and Other were as follows: Three Months EndedMarch 312005
    
    
    2004Earnings on investments and other income
    
    $
    28.1
    
    
    $
    25.9Interest expense on debt
    
    
    (13.8
    )
    
    
    (10.8
    )Operating expenses
    
    
    (7.2
    )
    
    
    (3.0
    )Income taxes
    
    
    (0.2
    )
    
    
    (1.8
    )Total expenses
    
    
    (21.2
    )
    
    
    (15.6
    )Reportable segment results(1)
    
    
    6.9
    
    
    
    10.3Realized investment gains, net of taxes
    
    
    3.5
    
    
    
    14.7Reportable segment results, including realized
gains(1)
    
    $
    10.4
    
    
    $
    25.0
   (1)
    
    Reportable segment results is a non-GAAP measure. See Note 15 of the Consolidated
Financial Statements in our Form 10-K for further discussion. Earnings on investments and other income increased $2.2 in the first quarter of 2005,
including an increase in default charges received from the operating segments (see Note 3), real
estate income, income recovery on defaulted bonds and growth in invested assets. Partially
offsetting this increase is $3.6 from a Bank of America merger class action suit that settled in
the first quarter of 2004. Default charges are received from the operating segments for this
segments assumption of all credit-related losses on the invested assets of those segments. We
discuss these charges in more detail in the Corporate and Other section of our Form 10-K. 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 by $3.0 in the first quarter of 2005 versus 2004 due primarily
to an increase in short-term interest rates. See Note 8 of the Consolidated Financial Statements
in our Form 10-K for details of our debt structure and interest costs. Operating expenses vary
from period to period based upon the level of corporate activities and strategies. Realized investment gains and losses were as follows: Three Months EndedMarch 312005
    
    
    2004Stock gains
    
    $
    6.4
    
    
    $
    28.5Stock losses
    
    
    (1.1
    )
    
    
    (2.4
    )Bond gains
    
    
    8.2
    
    
    
    17.7Bond losses from sales
    
    
    (4.5
    )
    
    
    (3.5
    )Bond losses from write downs
    
    
    (5.8
    )
    
    
    (15.9
    )Other gains and losses (net)
    
    
    2.6
    
    
    
    Total pretax gains
    
    
    5.8
    
    
    
    24.4DAC amortization
    
    
    (0.4
    )
    
    
    (0.9
    )Income taxes
    
    
    (1.9
    )
    
    
    (8.8
    )Realized investment gains, net of taxes
    
    $
    3.5
    
    
    $
    14.7
 31




---



##### 



The decline in realized investment gains was due to lower bond and stock gains, partially offset by
lower bond impairments in the first quarter of 2005, as a result of improvement in the corporate
credit environment. 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 amortization on realized
gains and losses on investments that back UL-type products. Modeling of expected gross profits
related to DAC and VOBA is discussed further in the Critical Accounting Policies and Estimates
section of our Form 10-K. The following table summarizes assets assigned to this segment. Favorable/March 31
    
    
    Unfavorable2005 vs.2005
    
    
    2004
    
    
    2004Parent company, passive investment companies
and Corporate line assets of insurance
subsidiaries
    
    $
    1,258
    
    
    $
    1,068
    
    
    
    17.8
    %Unrealized gain on fixed interest investments
    
    
    402
    
    
    
    855
    
    
    
    (53.0
    )Coinsurance receivables on acquired blocks
    
    
    911
    
    
    
    963
    
    
    
    (5.4
    )Employee benefit plan assets
    
    
    390
    
    
    
    378
    
    
    
    3.2Goodwill arising from insurance acquisitions
    
    
    270
    
    
    
    270
    
    
    
    Other
    
    
    359
    
    
    
    361
    
    
    
    (0.6
    )Total
    
    $
    3,590
    
    
    $
    3,895
    
    
    
    (7.8
    )%
 Total assets for the Corporate and Other segment decreased primarily as a result of the decrease in
unrealized gains on fixed interest investments as well as the decrease in coinsurance receivables
on acquired blocks of business. Risks for this segment include investment impairments due to weakening in the economy or in
specific industries, the risk of rising interest rates on our floating rate debt, our ability to
replace existing debt agreements with comparable terms, declines in the dividends on or 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 our subsidiaries. Dividends from our insurance subsidiaries depend
upon regulatory approval when above certain limits, and their ratings depend upon maintaining
strong levels of capital and surplus. 32




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##### 



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,
junior subordinated debentures, and stockholders equity. We also have a bank credit agreement,
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
agreements, liquid assets, such as equity securities, and other resources to retire these
obligations. The weighted-average interest rates for commercial paper borrowings outstanding of
$155 and $188 at March 31, 2005 and December 31, 2004 were 2.79% and 2.30%. The maximum amount
outstanding was $233 compared to $298 in the 2004 quarter. Our commercial paper is currently rated by two rating agencies. Agency
    
    RatingFitch
    
    F1+Standard & Poors
    
    A1+
 These are both the highest ratings that the agencies issue and were reaffirmed in 2005. 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 may use proceeds to purchase securities with
longer durations as an asset/liability management strategy. At March 31, 2005 and December 31,
2004, repurchase agreements, including accrued interest, were $538 and $468. The securities
involved had a fair value and amortized cost of $432 and $414 at March 31, 2005 versus $489 and
$459 at December 31, 2004. The maximum principal amounts outstanding for the first three months
were $446 in 2005 and $528 in 2004. See our Form 10-K for detailed discussion of our junior subordinated debentures and the EXLs. We are pursuing the issuance of funding-agreement-backed notes, which would be secured by deposit
administration contracts issued by one of our life insurance subsidiaries and would be included in
the AIP segment. In April 2005, we executed a forward interest rate swap agreement for a notional
amount of $250 to hedge interest rate risk for a future issuance of funding-agreement-backed notes.
The effective date of the interest rate swap is June 1, 2005, the date we plan to issue the
related notes. The swap will be terminated upon issuance of the notes, and we expect to be able to
apply cash flow hedge accounting to the transaction, whereby any gain or loss will be amortized
into the effective cost of the borrowing. This initial issuance of notes is part of a planned
program to issue approximately $1 billion of such notes over the next one to two years. Initially,
we will use note proceeds to manage the cash flows of the AIP segment during this period of higher
surrender activity related to resetting MYG annuities. However, we might consider issuing
additional notes for other purposes. 33




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##### 



Stockholders equity decreased $103 in 2005 compared to the year end amount. Unrealized gains on
available-for-sale securities, which are included as a component of stockholders equity, decreased
$236 as of March 31, 2005 from year end 2004. The remaining change in stockholders equity
reflects net income, dividends to stockholders, changes in the fair values of derivatives, changes
in the minimum pension liability, and common share activity due to issuance of shares under our
stock option plans and share repurchases. Our ratio of stockholders equity to assets excluding
separate accounts was 11.7% and 12.0% at March 31, 2005 and December 31, 2004. During the first quarter of 2005, we repurchased 1,014,600 of our common shares at an average cost
of $48.75 per share compared to 1,884,200 shares at an average cost of $53.70 in 2004. At March
31, 2005, we had authorization from our board to repurchase 3.1 million additional shares. Our insurance subsidiaries have statutory surplus and risk based capital levels well above current
regulatory required levels. As mentioned earlier, approximately half of our life sales consists of
products containing no-lapse guarantees (secondary guarantees), for which statutory reserving
practices under Actuarial Guideline 38 (referred to as AXXX or the Guideline) are currently
under review by the National Association of Insurance Commissioners. Regulators are considering
various proposals and certain of these could require us, and other companies, to hold additional
policy reserves. If such proposals were subsequently adopted, the Company and other insurers could
be forced to increase pricing or otherwise limit the availability of guaranteed no-lapse features
and other benefits included in current life insurance products. Our understanding of these
discussions leads us to believe that a change to the Guideline could require higher reserves than
the current version of AXXX for some period in the future, potentially followed by a long term
change to reserving methods for these products. We continue to review other strategic alternatives
in the event that regulatory requirements ultimately result in provision of higher statutory
reserves. We cannot estimate the cost of potential alternative solutions. Our insurance subsidiaries have statutory surplus and risk based capital levels well above
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
financial strength 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, while the ratings by Fitch Ratings is that agencys second highest rating. All of these
ratings were reaffirmed in 2005. 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 subsidiaries
and have the ability to generate adequate cash flows for operations on a short-term basis and a
long-term basis. Net cash provided by operations during the first quarter of 2005 and 2004 was $124 and $482. The
2004 quarter included proceeds received in the Canada Life transaction. 34




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##### 



Net cash used in investing activities was $386 and $830 for the first three months of 2005 and
2004. The decline from 2004 is primarily due to higher investment purchases last year from cash
received in the Canada Life transaction and due to lower sales of EIAs in 2005. Net cash provided by financing activities was $149 and $396 for the first three months of 2005 and
2004, including cash inflows from policyholder contract deposits net of withdrawals of $204 and
$347. The fluctuations in net policyholder contract deposits reflect lower sales of EIAs and
higher surrenders of annuities during the first quarter of 2005. Net borrowings declined compared
to 2004 due to higher borrowings principally to support the Canada Life transaction. In order to meet the parent companys dividend payments, debt servicing obligations and other
expenses, we rely on dividends from our insurance subsidiaries. Cash dividends received from
subsidiaries by the parent company were $78 and $19 in the first quarter of 2005 and 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
are negatively impacted by bond losses, write downs and by increases in reserves. Approval of
these dividends will depend upon the circumstances at the time, but we have not experienced
problems with state approvals in the past. Cash and cash equivalents were $(26) and $87 at March 31, 2005 and December 31, 2004. The decline
in cash and cash equivalents is due to a temporary decrease in cash equivalent short-term
investments that normally offset the negative cash balance created by the Companys use of
zero-balance disbursement accounts. The parent company and non-regulated subsidiaries held equity
and fixed income securities of $600 and $678 at these dates, the decline reflecting the effect of
equity markets. We consider the majority of these securities to be a source of liquidity to
support our strategies. Total assets increased $46 from year end 2004 primarily due to net policyholder contract deposits
and growth in DAC, which more than offset declines in unrealized gains on investments, dividends,
stock repurchases and impairment losses. Total debt and equity securities available-for-sale at March 31, 2005 and December 31, 2004 were
$20,444 and $20,375. Gross unrealized gains and losses at March 31, 2005 were $1,171 and $(176)
compared to gross unrealized gains and losses at December 31, 2004 of $1,415 and $(57). We have reinsurance receivables and policy loans that are related to the businesses of JP Financial
that are coinsured with Household International (HI) affiliates. There were no material changes in
these balances since year end 2004. Please refer to the Liquidity section of our Form 10-K for a
detailed discussion of this arrangement. Contractual Obligations The composition and maturity of our contractual obligations remained essentially unchanged during
the first quarter of 2005. During 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 agreement is not yet final, we
included an estimate of future obligations that will be required under the present terms of this
new arrangement in the Contractual Obligations section of our Form 10-K. 35




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##### 



Off Balance Sheet Arrangements and Commitments We have no 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 March 31, 2005 approximates $160. These commitments will be funded through cash
flows from operations and investment maturities during 2005. Investments Portfolio Description Our strategy for managing the investment portfolio of our insurance subsidiaries is to consistently
meet pricing assumptions while appropriately managing credit 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 90% of our securities 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 and Estimates section within our Form 10-K. Changes in fair values of AFS
securities are reflected in other comprehensive income. The remainder of our securities 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. The following table shows the carrying
values of our invested assets. March 31
    
    
    December 312005
    
    
    2004Publicly-issued bonds
    
    $
    16,987
    
    
    
    61.6
    %
    
    $
    16,871
    
    
    
    61.0
    %Privately-placed bonds
    
    
    5,145
    
    
    
    18.6
    
    
    
    5,210
    
    
    
    18.8Total bonds
    
    
    22,132
    
    
    
    80.2
    
    
    
    22,081
    
    
    
    79.8Redeemable preferred stock
    
    
    12
    
    
    
    0.1
    
    
    
    13
    
    
    
    0.1Total debt securities
    
    
    22,144
    
    
    
    80.3
    
    
    
    22,094
    
    
    
    79.9Mortgage loans on real property
    
    
    3,718
    
    
    
    13.5
    
    
    
    3,667
    
    
    
    13.3Common stock
    
    
    607
    
    
    
    2.2
    
    
    
    647
    
    
    
    2.3Non-redeemable preferred stock
    
    
    2
    
    
    
    
    
    
    
    3
    
    
    
    Policy loans
    
    
    836
    
    
    
    3.0
    
    
    
    839
    
    
    
    3.0Real estate
    
    
    124
    
    
    
    0.4
    
    
    
    125
    
    
    
    0.5Other
    
    
    194
    
    
    
    0.7
    
    
    
    193
    
    
    
    0.7Cash and equivalents
    
    
    (26
    )
    
    
    (0.1
    )
    
    
    87
    
    
    
    0.3Total
    
    $
    27,599
    
    
    
    100.0
    %
    
    $
    27,655
    
    
    
    100.0
    %
 36




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##### 



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 March 31, 2005. 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
    
    $
    228
    
    
    $
    11
    
    
    $
    (1
    )
    
    $
    238
    
    
    $
    238Federal agency mortgage-backed
securities (including collateralized
mortgage obligations)
    
    
    1,521
    
    
    
    50
    
    
    
    (10
    )
    
    
    1,561
    
    
    
    1,561Obligations of states and political
subdivisions
    
    
    57
    
    
    
    5
    
    
    
    
    
    
    
    62
    
    
    
    62Corporate obligations
    
    
    16,689
    
    
    
    668
    
    
    
    (158
    )
    
    
    17,199
    
    
    
    17,199Corporate private-labeled
mortgage-backed securities
(including collateralized mortgage
obligations)
    
    
    746
    
    
    
    24
    
    
    
    (7
    )
    
    
    763
    
    
    
    763Redeemable preferred stock
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    12
    
    
    
    12Subtotal, debt securities
    
    
    19,252
    
    
    
    759
    
    
    
    (176
    )
    
    
    19,835
    
    
    
    19,835Non-redeemable preferred stock
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2Common stock
    
    
    196
    
    
    
    411
    
    
    
    
    
    
    
    607
    
    
    
    607Securities available-for-sale
    
    
    19,449
    
    
    
    1,171
    
    
    
    (176
    )
    
    
    20,444
    
    
    
    20,444Held-to-maturity, carried at
amortized cost:Obligations of state and political
subdivisions
    
    
    5
    
    
    
    1
    
    
    
    
    
    
    
    6
    
    
    
    5Corporate obligations
    
    
    2,304
    
    
    
    136
    
    
    
    (13
    )
    
    
    2,427
    
    
    
    2,304Debt securities held-to-maturity
    
    
    2,309
    
    
    
    137
    
    
    
    (13
    )
    
    
    2,433
    
    
    
    2,309Total AFS and HTM securities
    
    $
    21,758
    
    
    $
    1,308
    
    
    $
    (189
    )
    
    $
    22,877
    
    
    $
    22,753
 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, 2004 were $1,569 and $(66). 37




---



##### 



The following table shows the diversification of unrealized gains and losses for our debt
securities portfolio across industry sectors as of March 31, 2005: Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    CarryingCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    ValueIndustrialsBasic Materials
    
    $
    1,005
    
    
    $
    38
    
    
    $
    (7
    )
    
    $
    1,036
    
    
    $
    1,029Capital Goods
    
    
    1,320
    
    
    
    58
    
    
    
    (10
    )
    
    
    1,368
    
    
    
    1,354Communications
    
    
    1,369
    
    
    
    57
    
    
    
    (13
    )
    
    
    1,413
    
    
    
    1,397Consumer Cyclical
    
    
    1,247
    
    
    
    46
    
    
    
    (21
    )
    
    
    1,272
    
    
    
    1,259Consumer Non-Cyclical
    
    
    2,314
    
    
    
    106
    
    
    
    (18
    )
    
    
    2,402
    
    
    
    2,390Energy
    
    
    1,392
    
    
    
    51
    
    
    
    (8
    )
    
    
    1,435
    
    
    
    1,431Technology
    
    
    365
    
    
    
    5
    
    
    
    (4
    )
    
    
    366
    
    
    
    366Transportation
    
    
    790
    
    
    
    46
    
    
    
    (7
    )
    
    
    829
    
    
    
    825Other Industrials
    
    
    664
    
    
    
    30
    
    
    
    (5
    )
    
    
    689
    
    
    
    687Utilities
    
    
    3,900
    
    
    
    207
    
    
    
    (27
    )
    
    
    4,080
    
    
    
    4,049FinancialsBanks
    
    
    2,499
    
    
    
    96
    
    
    
    (24
    )
    
    
    2,571
    
    
    
    2,559Insurance
    
    
    830
    
    
    
    22
    
    
    
    (11
    )
    
    
    841
    
    
    
    837Other Financials
    
    
    1,600
    
    
    
    59
    
    
    
    (17
    )
    
    
    1,642
    
    
    
    1,637Mortgage-backed Securities
(including Commercial
Mortgage-backed
Securities)
    
    
    2,266
    
    
    
    75
    
    
    
    (17
    )
    
    
    2,324
    
    
    
    2,324Total
    
    $
    21,561
    
    
    $
    896
    
    
    $
    (189
    )
    
    $
    22,268
    
    
    $
    22,144
 The Consumer Cyclical category includes $396 of carrying value and $400 of fair value relating to
holdings in the auto industry. This industry has experienced credit rating downgrades in recent
weeks. We have not yet completed our assessment of the specific impacts on the carrying value of
our holdings, but do not expect a material impact to our financial
position. 38




---



##### 



Credit Risk Management Our internal guidelines require an average quality of an S&P or equivalent rating of A or higher
for the entire bond portfolio. At March 31, 2005, the average quality rating of our bond portfolio
was A , 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
    
    $
    2,755
    
    
    $
    2,825
    
    
    $
    2,821
    
    
    
    12.7
    %1
    
    AA
    
    
    2,001
    
    
    
    2,078
    
    
    
    2,069
    
    
    
    9.41
    
    A
    
    
    7,461
    
    
    
    7,742
    
    
    
    7,688
    
    
    
    34.82
    
    BBB
    
    
    8,075
    
    
    
    8,317
    
    
    
    8,263
    
    
    
    37.33
    
    BB
    
    
    781
    
    
    
    809
    
    
    
    807
    
    
    
    3.64
    
    B
    
    
    423
    
    
    
    430
    
    
    
    430
    
    
    
    1.95
    
    CCC and lower
    
    
    49
    
    
    
    49
    
    
    
    49
    
    
    
    0.26
    
    In or near default
    
    
    16
    
    
    
    18
    
    
    
    17
    
    
    
    0.1Total
    
    $
    21,561
    
    
    $
    22,268
    
    
    $
    22,144
    
    
    
    100
    %
 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 March
31, 2005. 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 ValueWachovia
    
    Financial Institutions
    
    $
    154JP Morgan Chase
    
    Financial Institutions
    
    
    140HSBC Holdings PLC
    
    Financial Institutions
    
    
    119General Electric Co
    
    Capital Goods
    
    
    105Cargill Incorporated
    
    Consumer, Noncyclical
    
    
    104Goldman Sachs Group
    
    Financial Institutions
    
    
    104Weingarten Realty Investors
    
    Financial Institutions
    
    
    103Wells Fargo & Co
    
    Financial Institutions
    
    
    100Prudential Insurance America
    
    Financial Institutions
    
    
    99UnitedHealth Group Inc
    
    Consumer, Noncyclical
    
    
    99
 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. 39




---



##### 



The following table shows the ten largest below investment grade debt security exposures by
individual issuer at March 31, 2005. 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 amortized cost of the securities and their carrying values. Gross UnrealizedCreditor
    
    Sector
    
    Amortized Cost
    
    
    Carrying Value
    
    
    Gain/(Loss)Ahold, Royal
    
    Consumer Noncyclical
    
    $
    45
    
    
    $
    48
    
    
    $
    3El Paso Corp
    
    Utilities
    
    
    48
    
    
    
    48
    
    
    
    Nova Chem Ltd/Nova Chem
    
    Basic Materials
    
    
    36
    
    
    
    36
    
    
    
    Rite Aid Corp
    
    Consumer Cyclical
    
    
    33
    
    
    
    35
    
    
    
    2Thomas & Betts Co
    
    Technology
    
    
    31
    
    
    
    32
    
    
    
    1Homer City Funding LLC
    
    Utilities
    
    
    25
    
    
    
    28
    
    
    
    3Williams Cos Inc
    
    Utilities
    
    
    26
    
    
    
    27
    
    
    
    1Quest Communications Intl
    
    Communications
    
    
    28
    
    
    
    27
    
    
    
    (1
    )Allied Waste N America
    
    Capital Goods
    
    
    29
    
    
    
    25
    
    
    
    (4
    )Timken Co
    
    Other Industrials
    
    
    23
    
    
    
    24
    
    
    
    1
 At March 31, 2005 and December 31, 2004, below investment grade bonds were $1,297 or 5.9% and
$1,299 or 5.9% of the carrying value of the bond portfolio, reflecting increases in market prices
of below investment grade bonds that occurred in 2004. 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. Impairment Review In identifying potentially distressed securities we first screen for all securities that have a
fair value to amortized cost ratio of less than 80%. However, as part of this identification
process, management must make assumptions and judgments using the following information:  
    current fair value of the security compared to amortized cost
    length of time the fair value was below amortized cost
    industry factors or conditions related to a geographic area that are negatively
affecting the security
    downgrades by a rating agency
    past due interest or principal payments or other violation of covenants
    deterioration of the overall financial condition of the specific issuer In analyzing securities for other-than-temporary impairments, we then pay special attention to
securities that have been potentially distressed for a period greater than six months. We assume
that, absent reliable contradictory evidence, a security that is potentially distressed for a
continuous period greater than twelve months has incurred an other-than-temporary impairment. Such
reliable contradictory evidence might include, among other factors, a liquidation analysis
performed by our 40




---



##### 



investment professionals and consultants, improving financial performance or valuation of
underlying assets specifically pledged to support the credit. When we identify a security as potentially impaired, we add it to our potentially distressed
security list and determine if the impairment is other-than-temporary. Various committees
comprised of senior management and investment analysts intensively review the potentially
distressed security list to determine if a security is deemed to be other-than-temporarily
impaired. In this review, we consider the following criteria:  
    fundamental analysis of the liquidity and financial condition of the specific issuer
    underlying valuation of assets specifically pledged to support the credit
    time period in which the fair value has been significantly below amortized cost
    industry sector or geographic area applicable to the specific issuer
    our ability and intent to retain the investment for a sufficient time to recover
its value When this intensive review determines that the decline is other-than-temporary based on
managements judgment, the security is written down to fair value through a charge to realized
investment gains and losses. We adjust the amortized cost for both AFS and HTM securities that
have experienced other-than-temporary impairments to reflect fair value at the time of the
impairment. We consider factors that lead to an other-than-temporary impairment of a particular
security in order to determine whether these conditions have impacted other similar securities. We monitor unrealized losses through further analysis according to maturity date, credit
quality, individual creditor exposure and the length of time the individual security has
continuously been in an unrealized loss position. The following table shows the maturity date distribution of our debt securities in an unrealized
loss position at March 31, 2005. The fair values of these securities could fluctuate over the
respective periods to maturity or any sale. GrossAmortized
    
    
    
    
    
    
    Unrealized
    
    
    CarryingCost
    
    
    Fair Value
    
    
    Losses
    
    
    ValueDue in one year or less
    
    $
    77
    
    
    $
    75
    
    
    $
    (2
    )
    
    $
    75Due after one year through five years
    
    
    2,209
    
    
    
    2,158
    
    
    
    (51
    )
    
    
    2,165Due after five years through ten years
    
    
    4,310
    
    
    
    4,207
    
    
    
    (103
    )
    
    
    4,215Due after ten years through twenty years
    
    
    739
    
    
    
    721
    
    
    
    (18
    )
    
    
    721Due after twenty years
    
    
    317
    
    
    
    304
    
    
    
    (13
    )
    
    
    304Amounts not due at a single maturity
date
    
    
    83
    
    
    
    81
    
    
    
    (2
    )
    
    
    81Subtotal
    
    
    7,735
    
    
    
    7,546
    
    
    
    (189
    )
    
    
    7,561Redeemable preferred stocks
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    4Total
    
    $
    7,739
    
    
    $
    7,550
    
    
    $
    (189
    )
    
    $
    7,565
 41




---



##### 



The following table shows the credit quality of our debt securities with unrealized losses at March
31, 2005: S&P or
    
    
    
    
    
    
    
    
    
    % of
    
    
    Gross
    
    
    % of GrossSVO
    
    
    Equivalent
    
    Amortized
    
    
    Fair
    
    
    Fair
    
    
    Unrealized
    
    
    Unrealized
    
    
    CarryingRating
    
    
    Designation
    
    Cost
    
    
    Value
    
    
    Value
    
    
    Losses
    
    
    Losses
    
    
    Value1
    
    
    AAA/AA/A
    
    $
    4,407
    
    
    $
    4,312
    
    
    
    57.0
    %
    
    
    (95
    )
    
    
    50.3
    %
    
    $
    4,3162
    
    
    BBB
    
    
    3,021
    
    
    
    2,942
    
    
    
    39.0
    
    
    
    (79
    )
    
    
    41.8
    
    
    
    2,9513
    
    
    BB
    
    
    154
    
    
    
    148
    
    
    
    2.0
    
    
    
    (6
    )
    
    
    3.2
    
    
    
    1494
    
    
    B
    
    
    116
    
    
    
    108
    
    
    
    1.4
    
    
    
    (8
    )
    
    
    4.2
    
    
    
    1095
    
    
    CCC and lower
    
    
    37
    
    
    
    36
    
    
    
    0.5
    
    
    
    (1
    )
    
    
    0.5
    
    
    
    366
    
    
    In or near default
    
    
    4
    
    
    
    4
    
    
    
    0.1
    
    
    
    
    
    
    
    0.0
    
    
    
    4Total
    
    $
    7,739
    
    
    $
    7,550
    
    
    
    100.0
    %
    
    
    (189
    )
    
    
    100.0
    %
    
    $
    7,565
 No individual creditor has an unrealized loss of $10 or greater at March 31, 2005. The following table shows the length of time that individual debt securities have been in a
continuous unrealized loss position. Gross
    
    
    % of GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    CarryingValue
    
    
    Losses
    
    
    Losses
    
    
    ValueMore than 1 year
    
    $
    1,204
    
    
    $
    (55
    )
    
    
    29.1
    %
    
    $
    1,2116 months  1 year
    
    
    1,623
    
    
    
    (47
    )
    
    
    24.9
    
    
    
    1,629Less than 6 months
    
    
    4,723
    
    
    
    (87
    )
    
    
    46.0
    
    
    
    4,725Total
    
    $
    7,550
    
    
    $
    (189
    )
    
    
    100.0
    %
    
    $
    7,565
 Of the $189 gross unrealized losses on debt securities at March 31, 2005, less than $3.5 was
included in our potentially distressed securities list, and has been on the list for less than six
months. 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. 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. However, we may subsequently identify securities for which
we no longer have a positive intent and ability to hold until forecasted recovery. This
determination may be made due to a change in facts and circumstances regarding the specific
investments. At such time, we will write down the security to fair value to recognize any
unrealized losses. 42




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##### 



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 first quarter of 2005, we had other-than-temporary impairments on securities of $7 as
compared to $16 for 2004. There were no individual impairments in excess of $10 for the first
quarter of 2005 or 2004. For the first quarter of 2005, we incurred losses of $4.4 on sales of securities. There were no
individually material losses on sales of securities in 2005. 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: March 31,
    
    
    December 31,2005
    
    
    2004Federal agency issued mortgage-backed securities
    
    $
    1,561
    
    
    $
    1,670Corporate private-labeled mortgage-backed
securities
    
    
    763
    
    
    
    688Total
    
    $
    2,324
    
    
    $
    2,358
 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. Because of the decline in interest rates in 2003, the mortgage market experienced record levels of
refinancings and the structural protection of our MBS portfolio eroded. We experienced MBS
prepayments totaling $149 or 6.4% and $285 or 10.0% of the average carrying value of the MBS
portfolio for the first quarter of 2005 and 2004. Our MBS portfolio is primarily a discount
portfolio; therefore, prepayments accelerate the accretion of discount into income. The excess
accretion of discount insignificantly impacted investment income in both 2005 and 2004. These
prepayments are reinvested at yields that are lower than our current portfolio yields, producing
less investment income going forward. As shown above, our MBS portfolio has continued to decline
in 2005 and we have 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 March 31, 2005 and
December 31, 2004, our allowance for mortgage loan credit losses was $19.2 and $21.2. Prepayments
on 43




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mortgage loans may result from sales of the related properties or loan refinancings.
Prepayments on mortgage loans were not significant in the first quarters of 2005 and 2004. Derivative Instruments We purchase S&P 500 Index® options in conjunction with our sales of equity-indexed annuities. As
discussed in Capital Resources, we recently issued an interest rate swap with a notional value of
$250 related to the planned future issuance of funding-agreement-backed notes. Also, our investment guidelines permit use of derivative financial instruments such as futures
contracts and interest rate swaps in conjunction with specific direct investments. Except as
described above, our actual use of derivatives through March 31, 2005 has been limited to managing
well-defined interest rate risks. Interest rate swaps utilized in our asset/liability management
strategy with a current notional value of $347 and $339 were open as of March 31, 2005 and December
31, 2004. During 2002, we began using interest rate swaps to hedge prospective bond purchases to
back deposits on certain 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. 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 April 29,
2005, the average daily 10-year U.S. Treasury rate had increased 4 basis points to 4.30% during
2005. 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 or declining new money rates would reduce reported earnings due to the
effect of minimum rate guarantees in our insurance and annuity 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. 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. 44




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##### 



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 the duration and rate of the
current economic recovery), the impact on the economy from further terrorist activities or US
military engagements, and interest rate levels, changes and fluctuations, all of which can impact
our sales, investment portfolios, and earnings; re-estimates of policy and contract liabilities;
competitive factors, including pricing pressures, technological developments, new product offerings
and the emergence of new competitors; changes in federal and state taxes (including the recent or
future changes to general tax rates, dividends, capital gains, retirement savings, and estate
taxes); changes in the regulation of the insurance industry or financial services industry; changes
in generally accepted or statutory accounting principles (such as Actuarial Guideline 38, referred
to as AXXX, discussed in Capital Resources) or changes in other laws and regulations and their
impact; and the various risks discussed earlier in this managements discussion and analysis. 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. 45




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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 control over financial reporting that occurred
during the first quarter 2005 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. 46




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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 PlansJanuary 1-31, 2005
    
    
    0
    
    
    $
    0.00
    
    
    
    0
    
    
    
    4,071,000February 1-28, 2005
    
    
    382,800
    
    
    $
    49.04
    
    
    
    382,800
    
    
    
    3,688,200March 1-31, 2005
    
    
    631,800
    
    
    $
    48.57
    
    
    
    631,800
    
    
    
    3,056,400Total for Quarter
    
    
    1,014,600
    
    
    $
    48.75
    
    
    
    1,014,600
 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 domestic shares held in the Trust. This arrangement is disclosed in our proxy
statement. Trust purchases in the first quarter 2005 were: January, none; February, 369
shares, average price $50.07; and March, 500 shares, average price $49.12.2.
    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 the first
quarter 2005 were: January, 2,411 shares, average price $50.45; February, 1,096 shares,
average price $49.80; and March, none. 47




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##### 



Item 4. Submission of Matters to a Vote of Security Holders The following information relates to the registrants May 2, 2005 annual meeting of shareholders. (a) Election of Directors: Class I Directors
    
    Term
    
    
    Votes For
    
    
    WithheldWilliam Porter Payne
    
    Three Years
    
    
    113,039,597
    
    
    
    6,537,184David A. Stonecipher
    
    Three Years
    
    
    116,752,687
    
    
    
    2,824,094Isaiah Tidwell
    
    Three Years
    
    
    117,101,331
    
    
    
    2,475,450
 (b) Ratify the appointment of Ernst & Young LLP as independent auditors: Votes For
    
    Votes Against
    
    
    Withheld114,090,951
    
    
    4,584,663
    
    
    
    901,163
 Item 5. Other Information This information is furnished with respect to Form 8-K, Item 1.01, Entry into a Material Agreement. On February 13, 2005 the Compensation Committee of the Registrants Board of Directors took action
on annual incentive compensation awards for 2004 performance. As described in our March 2005 Proxy
Statement, for most executive officers and other officers, except for our new CEO and in our
Benefit Partners and Communications units, bonuses were below last years bonuses, reflecting
earnings performance below our targets corporately and for the other units. Dennis R. Glass, our
CEO, was awarded a target bonus of $925,000 in recognition of his performance in assuming the CEO
position. David A. Stonecipher, whose salary was reduced when he stepped out of the CEO position
on March 1, 2004, was awarded a target bonus of $800,000 based on this lower salary level, for his
leadership role in the transition of the chief executive officer position in 2004. For officers
whose bonuses included performance measures based on life and/or annuity operating earnings,
including certain other executive officers, the Committee waived the threshold earnings
requirements, which were not met for a year when these businesses faced many external challenges.
The Committee noted that these businesses preserved a strong ROE and held expenses
below plan, as well as attaining other objectives during the year.  The Committee
then awarded bonuses well below target levels to these officers.
Bonuses were higher in the Communications and Benefit Partners units
because their earnings were higher than targets and the prior year
levels. The Committee also established the performance measures, targets and ranges to be used for
determining 2005 bonuses for our executive officers and other officers, consistent with the various
measures described in our March 2003 Proxy Statement. For Mr. Glass, the Committee determined to
use the formula contained in his Employment Agreement. 48




---



##### 



Item 6. Exhibits  (a)
    Exhibits. See Exhibit Index on page 51. 49




---



##### 



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. JEFFERSON-PILOT CORPORATION By
(Signature) /s/ Theresa M. Stone
(Name and Title) Theresa M. Stone, Executive Vice President and Chief Financial Officer Date: May 9, 2005 By
(Signature) /s/ Reggie D. Adamson
(Name and Title) Reggie D. Adamson, Senior Vice President and Treasurer             Principal
Accounting Officer Date: May 9, 2005 50




---



##### 



EXHIBIT INDEX ExhibitNumber
    
    Description31.1
    
    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 2002.31.2
    
    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.
 51