##### 



FORM 10-Q   Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934 For Quarter Ended March 31, 2004
    
    Commission file number 1-5955
 Jefferson-Pilot Corporation  North Carolina
    
    56-0896180(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 100 North Greene Street, Greensboro, North Carolina
    
    
    

    27401(Address of principal executive offices)
    
    (Zip Code)
 (336) 691-3000
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [  ] Number of shares of common stock outstanding at March 31, 2004
                   139,824,510




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##### 



JEFFERSON-PILOT CORPORATION INDEX - Page No. -Part I. Financial InformationItem 1. Consolidated Unaudited Condensed Balance Sheets  March 31, 2004 and December 31, 2003
    
    
    3Consolidated Unaudited Condensed Statements of Income  Three Months ended March 31, 2004 and 2003
    
    
    4Consolidated Unaudited Condensed Statements of Cash Flows  Three Months ended March 31, 2004 and 2003
    
    
    5Notes to Consolidated Unaudited Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44Part II. Other InformationItem 1. Legal Proceedings
    
    
    45Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    45Item 4. Submission of Matters to a Vote of Security Holders
    
    
    45Item 6. Exhibits and Reports on Form 8-K
    
    
    46Signatures
    
    
    47Exhibit Index, followed by Exhibits
    
    
    48
  2




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##### 



PART I  FINANCIAL INFORMATION Item 1. Financial Statements JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
 March 31
    
    December 312004
    
    2003(Dollar Amounts inMillions ExceptShare Information)ASSETSInvestments:Debt securities available for sale, at fair value
(amortized cost $17,829 and $16,819)
    
    $
    19,061
    
    
    $
    17,706Debt securities held to maturity, at amortized cost
(fair value $2,876 and $2,918)
    
    
    2,661
    
    
    
    2,752Equity securities available for sale, at fair value
(cost $299 and $304)
    
    
    731
    
    
    
    756Mortgage loans on real estate
    
    
    3,497
    
    
    
    3,472Policy loans
    
    
    872
    
    
    
    869Real estate
    
    
    131
    
    
    
    132Other investments
    
    
    83
    
    
    
    65Total investments
    
    
    27,036
    
    
    
    25,752Cash and cash equivalents
    
    
    120
    
    
    
    72Accrued investment income
    
    
    337
    
    
    
    326Due from reinsurers
    
    
    1,322
    
    
    
    1,340Deferred policy acquisition costs and value
of business acquired
    
    
    2,195
    
    
    
    2,230Goodwill
    
    
    312
    
    
    
    312Assets held in separate accounts
    
    
    2,229
    
    
    
    2,166Other assets
    
    
    633
    
    
    
    498Total assets
    
    $
    34,184
    
    
    $
    32,696LIABILITIES AND STOCKHOLDERS EQUITYPolicy liabilities:Future policy benefits
    
    $
    3,014
    
    
    $
    2,674Policyholder contract deposits
    
    
    21,005
    
    
    
    20,642Dividend accumulations and other policyholder funds on deposit
    
    
    249
    
    
    
    251Policy and contract claims
    
    
    248
    
    
    
    165Other
    
    
    737
    
    
    
    638Total policy liabilities
    
    
    25,253
    
    
    
    24,370Commercial paper borrowings
    
    
    154
    
    
    
    654Obligations
under repurchase agreements
    
    
    454
    
    
    
    401Long-term notes payable
    
    
    600
    
    
    
    Junior subordinated debentures
    
    
    309
    
    
    
    309Currently recoverable income taxes
    
    
    (95
    )
    
    
    (72
    )Deferred income tax liabilities
    
    
    710
    
    
    
    543Liabilities related to separate accounts
    
    
    2,229
    
    
    
    2,166Accounts payable, accruals and other liabilities
    
    
    600
    
    
    
    519Total liabilities
    
    
    30,214
    
    
    
    28,890Stockholders Equity:Common stock and paid in capital, par value $1.25 per share: authorized
350,000,000 shares; issued and outstanding 2004-139,824,510 shares;
2003-140,610,540 shares
    
    
    175
    
    
    
    176Retained earnings
    
    
    2,966
    
    
    
    2,947Accumulated other comprehensive income
    
    
    829
    
    
    
    6833,970
    
    
    
    3,806Total liabilities and stockholders equity
    
    $
    34,184
    
    
    $
    32,696
 See Notes to Consolidated Financial Statements 3




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##### 



JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
 Three Months EndedMarch 312004
    
    2003(Dollar Amounts inMillions ExceptShare Information)Revenue:Premiums and other considerations
    
    $
    280
    
    
    $
    231Universal life and investment product charges
    
    
    182
    
    
    
    172Net investment income
    
    
    406
    
    
    
    410Realized investment gains (losses)
    
    
    24
    
    
    
    (19
    )Communications sales
    
    
    58
    
    
    
    50Other
    
    
    35
    
    
    
    24Total revenue
    
    
    985
    
    
    
    868Benefits and Expenses:Insurance and annuity benefits
    
    
    541
    
    
    
    498Insurance commissions, net of deferrals
    
    
    59
    
    
    
    25General and administrative expenses, net of deferrals
    
    
    38
    
    
    
    31Insurance taxes, licenses and fees
    
    
    17
    
    
    
    21Amortization
of policy acquisition costs and value of business
acquired
    
    
    67
    
    
    
    82Interest expense
    
    
    11
    
    
    
    9Communications operations
    
    
    37
    
    
    
    35Total benefits and expenses
    
    
    770
    
    
    
    701Income before income taxes and cumulative effect of change in
accounting principle
    
    
    215
    
    
    
    167Income taxes
    
    
    74
    
    
    
    58Income before cumulative effect of change in accounting principle
    
    
    141
    
    
    
    109Cumulative effect of change in accounting for long-duration
contracts,
net of taxes
    
    
    (13
    )
    
    
    Net income
    
    $
    128
    
    
    $
    109Average number of shares outstanding
    
    
    140.7
    
    
    
    142.8Net Income Per Share of Common Stock:Net income
    
    $
    0.91
    
    
    $
    0.76Net income  assuming dilution
    
    $
    0.90
    
    
    $
    0.76Dividends declared per common share
    
    $
    0.330
    
    
    $
    0.303
 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 312004
    
    2003Cash Flows from Operating Activities
    
    $
    482
    
    
    $
    89Cash Flows from Investing Activities:Securities and loans purchased, net
    
    
    (806
    )
    
    
    (184
    )Other investing activities
    
    
    (24
    )
    
    
    3Net cash used in investing activities
    
    
    (830
    )
    
    
    (181
    )Cash Flows from Financing Activities:Policyholder contract deposits
    
    
    730
    
    
    
    637Policyholder contract withdrawals
    
    
    (383
    )
    
    
    (405
    )Net borrowings (repayments)
    
    
    152
    
    
    
    (83
    )Net repurchase of common shares
    
    
    (63
    )
    
    
    (30
    )Cash
dividends paid
    
    
    (47
    )
    
    
    (43
    )Other financing activities
    
    
    7
    
    
    
    2Net cash provided by financing activities
    
    
    396
    
    
    
    78Increase (decrease) in cash and cash equivalents
    
    
    48
    
    
    
    (14
    )Cash and cash equivalents at beginning of period
    
    
    72
    
    
    
    67Cash and cash equivalents at end of period
    
    $
    120
    
    
    $
    53Supplemental Cash Flow Information:Income taxes (received) paid
    
    $
    (6
    )
    
    $
    45Interest paid
    
    $
    16
    
    
    $
    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 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, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. Certain prior year amounts have
been reclassified to conform with the current year presentation. 2. Significant Accounting Policies Stock Based Compensation The Company accounts for stock incentive awards in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees", and accordingly, recognizes
no compensation expense for stock option awards to employees or directors when
the option price is not less than the market value of the stock at the date of
award. The Company recognizes expense utilizing the fair value method in
accordance with SFAS 123 for stock options granted to non-employees,
specifically agents. SFAS 123 requires the presentation of pro forma information as if the Company
had accounted for its employee and director stock options granted after
December 31, 1994 under the fair value method of that Statement. 6




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##### 



The following is a reconciliation of reported net income and proforma
information as if the Company had adopted SFAS 123 for its employee and
director stock option awards: Three Months EndedMarch 312004
    
    2003Net income, as reported
    
    $
    128
    
    
    $
    109Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
    
    
    3
    
    
    
    3Pro forma net income available to common stockholders
    
    $
    125
    
    
    $
    106Earnings per share available to common stockholders, as reported
    
    $
    0.91
    
    
    $
    0.76Pro forma earnings per share available to common stockholders
    
    $
    0.89
    
    
    $
    0.75Earnings per share available to common stockholders  assuming
dilution, as reported
    
    $
    0.90
    
    
    $
    0.76Pro forma earnings per share available to common stockholders 
assuming dilution
    
    $
    0.88
    
    
    $
    0.74
 Except as described otherwise herein, all significant accounting policies
remain as we described in our Form 10-K for 2003. 3. Segment Reporting The Company has five reportable segments that are defined based on the nature
of the products and services offered: Individual Products, Annuity and
Investment Products (AIP), Benefit Partners, Communications, and Corporate and
Other. The segments remain as we described in our Form 10-K for 2003. The following table summarizes certain financial information regarding the
Companys reportable segments: March 31
    
    December 312004
    
    2003AssetsIndividual Products
    
    $
    18,087
    
    
    $
    17,717AIP
    
    
    10,293
    
    
    
    9,941Benefit Partners
    
    
    1,710
    
    
    
    1,079Communications
    
    
    199
    
    
    
    210Corporate & other
    
    
    3,895
    
    
    
    3,749Total assets
    
    $
    34,184
    
    
    $
    32,696
 7




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##### 



Three Months EndedMarch 312004
    
    2003RevenuesIndividual Products
    
    $
    444
    
    
    $
    442AIP
    
    
    175
    
    
    
    170Benefit Partners
    
    
    251
    
    
    
    198Communications
    
    
    58
    
    
    
    50Corporate & Other
    
    
    33
    
    
    
    27961
    
    
    
    887Realized investment gains (losses), before taxes
    
    
    24
    
    
    
    (19
    )Total revenues
    
    $
    985
    
    
    $
    868Reportable segments results and reconciliation to
net income available to common stockholdersIndividual Products
    
    $
    75
    
    
    $
    76AIP
    
    
    19
    
    
    
    21Benefit Partners
    
    
    11
    
    
    
    12Communications
    
    
    11
    
    
    
    7Corporate & Other
    
    
    10
    
    
    
    5Total reportable segment results
    
    
    126
    
    
    
    121Realized investment gains (losses), net of taxes
    
    
    15
    
    
    
    (12
    )Income before cumulative effect of change
in accounting principle
    
    
    141
    
    
    
    109Cumulative effect of change in accounting
principle, net of taxes
    
    
    (13
    )
    
    
    Net income
    
    $
    128
    
    
    $
    109
 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 312004
    
    2003Numerator:Net income before cumulative
effect of change in accounting
principle
    
    $
    141
    
    
    $
    109Cumulative effect of change in
accounting principle, net of taxes
    
    
    (13
    )
    
    
    Numerator for earnings per share
and earnings per share  assuming
dilution  Net income available to
common stockholders
    
    $
    128
    
    
    $
    109Denominator:Denominator for earnings per share
 weighted-average shares
outstanding
    
    
    140,659,329
    
    
    
    142,804,138Effect of dilutive securities:Stock options
    
    
    1,509,952
    
    
    
    858,199Denominator for earnings per share
assuming dilution  adjusted
weighted-average shares
outstanding
    
    
    142,169,281
    
    
    
    143,662,337Income before cumulative effect of
change in accounting principle
    
    $
    1.00
    
    
    $
    0.76Cumulative effect of change in accounting
principle, net of taxes
    
    
    (0.09
    )
    
    
    Earnings per share
    
    $
    0.91
    
    
    $
    0.76Income before cumulative effect of
change in accounting principle
    
    $
    0.99
    
    
    $
    0.76Cumulative effect of change in accounting
principle, net of taxes
    
    
    (0.09
    )
    
    
    Earnings per share  assuming dilution
    
    $
    0.90
    
    
    $
    0.76
 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. Accounting Pronouncements FIN 46 The Financial Accounting Standards Board (FASB) has issued Interpretation No.
46 (revised December 2003), Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51(FIN 46). Under FIN 46,
an enterprise consolidates a variable interest entity (VIE), as defined, if the
enterprise absorbs a majority of the VIEs expected losses, receives a majority
of its expected residual returns, or both, as a result of ownership,
contractual or other financial interests in the VIE. Prior to FIN 46, entities
were generally consolidated by an enterprise only when it had a controlling
financial interest through ownership of a majority voting interest in the
entity. In accordance with FIN 46, effective December 31, 2003, the Company
deconsolidated Jefferson Pilot Capital Trust A and Jefferson Pilot Capital
Trust B (the Trusts), VIEs that issued $300 of redeemable preferred securities
in private placement transaction in 1997. All periods presented have been
restated accordingly. The redeemable preferred securities were previously
presented in the Companys financial statements as Capital Securities in the
consolidated balance sheets. Dividends on the Capital Securities were
presented in the consolidated statements of income as a deduction to arrive at
net income available to common stockholders, and as a financing outflow on the
consolidated statements of cash flows. As a result of the deconsolidation of
the Trusts, the consolidated balance sheets now reflect junior subordinated
debentures purchased from the Company by the Trusts in 1997, which had
previously been eliminated in consolidation. Interest expense on the junior
subordinated debentures is presented as interest expense in the consolidated
statements of income and is presented as an operating cash outflow on the
consolidated statements of cash flow. SOP 03-1 In July 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 03-1
Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts (the SOP or SOP 03-1). The
SOP addresses: (i) separate account presentation; (ii) accounting for an
insurance companys proportionate interest in separate accounts; (iii)
transfers of assets from the general account to a separate account; (iv)
valuation of certain insurance liabilities and policy features such as
guaranteed minimum death benefits and annuitization benefits; and (v)
accounting for sales inducements. The SOP was effective January 1, 2004 and
was adopted through an adjustment for the cumulative effect of a change in
accounting principle. Our cumulative effect of adjustment of $13 related
primarily to accounting for sales inducements resident in certain of our older
policies and the establishment of additional policy liabilities for secondary
guarantees contained in our newer products. While we had previously provided
for these items in our financial statements, the SOP prescribed new methods of
valuation. Each of these items was at least partially offset by adjustments to
related balances of deferred acquisition costs (DAC) or value of business
acquired (VOBA), or in the case of sales inducements, by the establishment of a
deferred sales inducement asset. The gross amount of additional policy
liabilities established was approximately $9, with $0.1 pertaining to
guaranteed minimum death benefits on variable universal life (VUL) products.
No additional reserves were necessary related to minimum guaranteed death
benefits on variable annuities (VAs), as our already- 10




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##### 



existing policy liabilities (which are less than $0.9) proved to be adequate
under the new standard with respect to this feature. In addition to the
cumulative effect of adoption, the SOP reduced our income before cumulative
effect of change in accounting principle for the three months ended March 31,
2004 by $2. The Company has policies in force containing two primary types of sales
inducements: 1) day one bonuses on fixed annuities, which are in the form of
either an increased interest rate for a stated period or an additional premium
credit; and 2) persistency-related interest credited bonuses. The fixed
annuity bonuses were previously being capitalized and amortized as a component
of DAC. Thus, there was no cumulative impact upon adoption other than a
balance sheet reclassification of the deferred amount out of DAC into deferred
sales inducements. The persistency-related bonuses were previously expensed on
a pay-as-you-go basis. These bonuses are now accrued over the period in which
the policy must remain in force for the policyholder to qualify for the
inducement. Capitalized sales inducements are amortized using the same
methodology and assumptions used to amortize DAC. The following table rolls
forward our deferred sales inducement asset for the three months ended March
31, 2004. Balance, December 31, 2003
    
    $
    Cumulative impact of adoption, including $30 reclassified from DAC
    
    
    68Additional amounts deferred
    
    
    3Amortization
    
    
    (2
    )Balance, March 31, 2004
    
    $
    69
 Separate account assets and liabilities represent funds segregated for the
benefit of certain policyholders who bear the investment risk. SOP 03-1 did
not impact our accounting policies with respect to separate accounts, as they
meet the criteria for summary presentation contained in the SOP. Separate
account assets and liabilities are equal and are recorded at fair value.
Policyholder deposits and withdrawals, investment income and related realized
investment gains and losses are excluded from the amounts reported in our
income statement. Fees charged on policyholder deposits are included in
universal life and investment product charges. The policies reported in our
separate accounts are VA and VUL policies. As indicated above, the amounts of
minimum guarantees or other similar benefits related to these policies are
negligible. Implementation and accounting guidance pertaining to the SOP is still evolving.
While we do not expect this additional guidance to affect the amounts we have
reported related to our implementation of the SOP, there is no assurance it
will not. 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 312004
    
    2003Service cost
    
    $
    4
    
    
    $
    3Interest cost
    
    
    6
    
    
    
    5Expected return on plan assets
    
    
    (8
    )
    
    
    (8
    )Amortization of prior service cost
    
    
    
    
    
    
    Amortization of net (gain) loss
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    2
    
    
    $
    
 The Company expects to make
payments of $6 to $10 during 2004 related to our nonqualified plans,
which are unfunded. No
contributions were made during the three months ended March 31, 2004. Other Postretirement
Benefit Plans In December 2003, the
Medicare Prescription Drug, Improvement and Modernization Act (the
Act) was signed into law. The Act includes a federal subsidy to
sponsors of retiree health plans that provide a prescription drug
benefit that is at least actuarially equivalent to the benefit to be
provided under Medicare Part D. While we are still evaluating
the provisions of the Act, we expect it will have a favorable impact
on our postretirement benefits liability. We do not expect the
impact to be material to our results of operations or our financial
position. The Company has elected to defer recognition of any
accounting effects of the Act until authoritative guidance is issued
by the Financial Accounting Standards Board. 8. Canada Life Transaction Effective March 1, 2004, we acquired via a reinsurance transaction
substantially all of the in-force U.S. group life, disability and dental
business of The Canada Life Assurance Company, an indirect subsidiary of
Great-West Lifeco Inc. Upon closing, Canada Life ceded, and the Company
assumed, approximately $400 million of policy liabilities. The company also
received assets, primarily cash, to back the liabilities. As a result of the
transaction we recorded DAC in the amount of $35 and an intangible asset of $25
representing the value of the sales force acquired as part of the transaction.
The DAC will be amortized over 15 years, representing the premium-paying period
of the acquired blocks. The sales force asset will be amortized over 30 years,
representing the period over which we expect to earn premiums from new sales
stemming from the added distribution capacity. 12




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##### 



Item 2.Managements Discussion and Analysis of Financial Condition
and Results of Operations JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS Managements Discussion and Analysis of Financial Condition and Results of
Operations analyzes the consolidated financial condition, changes in financial
position and results of operations for the three months ended March 31, 2004,
as compared to the same period of 2003, of Jefferson-Pilot Corporation and
consolidated subsidiaries. The discussion supplements Managements Discussion
and Analysis in Form 10-K for the year ended December 31, 2003, and should be
read in conjunction with the interim financial statements and notes contained
herein. All dollar amounts are in millions except share and per share amounts. Company Profile Overview and Segment Revenues We have five reportable segments: Individual Products, Annuity and Investment
Products (AIP), Benefit Partners, Communications, and Corporate and Other. See
our Form 10-K for an overview of the Company and our reportable segments and a
discussion of key drivers and trends in our businesses. Our reportable segments revenues as a percentage of total revenues, excluding
realized investment gains and losses, were as follows: Three Months EndedMarch 312004
    
    2003Individual Products
    
    
    46
    %
    
    
    50
    %AIP
    
    
    18
    %
    
    
    19
    %Benefit Partners
    
    
    26
    %
    
    
    22
    %Communications
    
    
    6
    %
    
    
    6
    %Corporate and Other
    
    
    4
    %
    
    
    3
    %
 Update on Critical Accounting Policies Our Form 10-K described our accounting policies that are critical to the
understanding of our results of operations and our financial position. They
relate to deferred acquisition costs (DAC), value of business acquired (VOBA)
and unearned revenue, assumptions and judgments utilized in determining if
declines in fair values of investments are other-than-temporary, valuation
methods for infrequently traded securities and private placements, and accruals
relating to legal and administrative proceedings. We believe that these policies were applied in a consistent manner during the
first quarter of 2004. Legal proceedings are discussed in Note 5 to the
Consolidated Condensed Financial Statements. 13




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##### 



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)2004
    
    2003
    
    2004 vs. 2003Consolidated Summary of IncomeIncome before cumulative
effect of change in
accounting principle
    
    $
    141.2
    
    
    $
    109.1
    
    
    
    29.4
    %Cumulative effect of
change in accounting
principle
    
    
    (12.9
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    128.3
    
    
    $
    109.1
    
    
    
    17.6
    %Consolidated Earnings Per ShareBasic:Income before cumulative
effect of change in
accounting principle
    
    $
    1.00
    
    
    $
    0.76
    
    
    
    31.6
    %Cumulative effect of
change in accounting
principle
    
    
    (0.09
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    0.91
    
    
    $
    0.76
    
    
    
    19.7
    %Fully-diluted:Income before cumulative
effect of change in
accounting principle
    
    $
    0.99
    
    
    $
    0.76
    
    
    
    30.3
    %Cumulative effect of
change in accounting
principle
    
    
    (0.09
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    0.90
    
    
    $
    0.76
    
    
    
    18.4
    %
 Three Months EndedMarch 312004
    
    2003Average number of shares outstanding
    
    
    140,659,329
    
    
    
    142,804,138Average number of shares outstanding  assuming dilution
    
    
    142,169,281
    
    
    
    143,662,337
 The first quarter 2004 increase in income before cumulative effect of change in
accounting principle reflected earnings growth in the Communications and
Corporate segments. Also, realized investment gains (losses) net of taxes
contributed $14.7 due primarily to gains on equity securities versus ($12.4) in
the first quarter of 2003 when we experienced higher losses on
other-than-temporary bond impairments. Individual Products, AIP and Benefit
Partners reportable segment results declined in the first quarter 2004 versus
2003. A modest increase in UL-type product results was more than
offset by a decline in earnings from traditional products, resulting
in the slight decrease in individual products overall. The rate of
decline in traditional product results was exacerbated by the low
interest rate environment. Lower income from repayments of mortgage
backed securities drove the decline in AIP results. Our results
for Benefit Partners were impacted by an elevated long term disability loss
ratio. 14




---



##### 



The Company adopted SOP 03-1 in the first quarter of 2004. SOP 03-1 created
both a cumulative effect upon adoption as well as a reduction to current
quarter net income. See Note 6 for further discussion of SOP 03-1. Growth in earnings per share was more favorable than the absolute growth in
dollar earnings amounts due to repurchases of 1,884,200 shares in the first
quarter of 2004 in addition to share repurchases during the second through
fourth quarters of 2003. Results by Business Segment Throughout this Form 10-Q, reportable segment results is defined as net
income before realized investment gains and losses (and cumulative effect of
change in accounting principle, if applicable). Reportable segment results is
a non-GAAP measure. We believe reportable segment results provides relevant
and useful information to investors, as it represents the basis on which we
assess the performance of our business segments. We deem reportable segment
results to be a meaningful measure for this purpose because, except for losses
from other-than-temporary impairments, realized investment gains and losses
occur primarily at our sole discretion. Note that reportable segment results
as described above may not be comparable to similarly titled measures reported
by other companies. We assess profitability by business segment and measure other operating
statistics as detailed in the separate segment discussions that follow. Sales
are one of the statistics we use to track performance. Our sales in the
Individual Products and AIP segments have little immediate impact on revenues
for these two segments as described in the segment discussions below. Results by Reportable Segment Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Individual Products
    
    $
    75.0
    
    
    $
    76.0
    
    
    
    (1.3
    )%AIP
    
    
    19.1
    
    
    
    21.2
    
    
    
    (9.9
    )Benefit Partners
    
    
    11.5
    
    
    
    11.9
    
    
    
    (3.4
    )Communications
    
    
    10.6
    
    
    
    7.1
    
    
    
    49.3Corporate and Other
    
    
    10.3
    
    
    
    5.3
    
    
    
    94.3Total reportable segment results
    
    
    126.5
    
    
    
    121.5
    
    
    
    4.1Realized investment gains (losses), net of taxes
    
    
    14.7
    
    
    
    (12.4
    )
    
    
    218.5Net income before cumulative effect of change
in accounting principle
    
    
    141.2
    
    
    
    109.1
    
    
    
    29.4Cumulative effect of change in accounting
principle
    
    
    (12.9
    )
    
    
    
    
    
    
    (100.0
    )Net income
    
    $
    128.3
    
    
    $
    109.1
    
    
    
    17.6
    %
 15




---



##### 



Segment Assets We assign invested assets backing insurance liabilities to our segments in
relation to policyholder funds and reserves. We assign net DAC and VOBA,
reinsurance receivables, communications assets and certain other assets to the
respective segments where those assets originate. We also assign invested
assets to back capital allocated to each segment in relation to our philosophy
for managing business risks, reflecting appropriate conservatism. We assign
the remainder of invested and other assets, including all defaulted securities,
to the Corporate and Other segment. March 312004
    
    2003Individual Products
    
    $
    18,087
    
    
    $
    16,829AIP
    
    
    10,293
    
    
    
    9,412Benefit Partners
    
    
    1,710
    
    
    
    945Communications
    
    
    199
    
    
    
    200Corporate and Other
    
    
    3,895
    
    
    
    3,429Total assets
    
    $
    34,184
    
    
    $
    30,815
 16




---



##### 



Individual Products The Individual Products segment markets individual life insurance policies
primarily through independent general agents, independent national account
marketing firms, and agency building general agents. We also sell products
through home service agents, broker/dealers, banks and other strategic
alliances. Segment results were: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003UL-Type Products:Net investment income
    
    $
    184.1
    
    
    $
    185.1
    
    
    
    (0.5
    )%Interest credited to policyholders
    
    
    (125.7
    )
    
    
    (126.4
    )
    
    
    0.6Interest margin
    
    
    58.4
    
    
    
    58.7
    
    
    
    (0.5
    )Product charge revenue:Cost of insurance charges
    
    
    132.6
    
    
    
    125.4
    
    
    
    5.7Expense charges
    
    
    37.4
    
    
    
    35.6
    
    
    
    5.1Surrender charges
    
    
    11.0
    
    
    
    10.3
    
    
    
    6.8Total product charge revenue
    
    
    181.0
    
    
    
    171.3
    
    
    
    5.7Death benefits and other insurance benefits
    
    
    (77.2
    )
    
    
    (71.3
    )
    
    
    (8.3
    )Expenses excluding amortization of DAC and
VOBA
    
    
    (22.5
    )
    
    
    (23.8
    )
    
    
    5.5Amortization of DAC and VOBA
    
    
    (45.0
    )
    
    
    (40.9
    )
    
    
    (10.0
    )UL-type product income before taxes
    
    
    94.7
    
    
    
    94.0
    
    
    
    0.7Traditional Products:Premiums and other considerations
    
    
    40.2
    
    
    
    44.2
    
    
    
    (9.0
    )Net investment income
    
    
    38.5
    
    
    
    41.9
    
    
    
    (8.1
    )Benefits
    
    
    (47.4
    )
    
    
    (53.3
    )
    
    
    11.1Expenses excluding amortization of DAC and
VOBA
    
    
    (7.2
    )
    
    
    (5.2
    )
    
    
    (38.5
    )Amortization of DAC and VOBA
    
    
    (4.0
    )
    
    
    (4.7
    )
    
    
    14.9Traditional product income before taxes
    
    
    20.1
    
    
    
    22.9
    
    
    
    (12.2
    )Total income before income taxes
    
    
    114.8
    
    
    
    116.9
    
    
    
    (1.8
    )Income taxes
    
    
    (39.8
    )
    
    
    (40.9
    )
    
    
    2.7Reportable segment results
    
    $
    75.0
    
    
    $
    76.0
    
    
    
    (1.3
    )%
 17




---



##### 



The following table summarizes key data for Individual Products that we believe
are important drivers and indicators of future profitability: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Annualized life insurance premium sales:Individual Markets excluding Community
Banks and BOLI
    
    $
    49
    
    
    $
    56
    
    
    
    (12.5
    )%Community Banks and BOLI
    
    $
    1
    
    
    $
    5
    
    
    
    (80.0
    )%Average UL policyholder fund balances
    
    $
    10,931
    
    
    $
    10,351
    
    
    
    5.6
    %Average VUL separate account assets
    
    
    1,489
    
    
    
    1,106
    
    
    
    34.6$
    12,420
    
    
    $
    11,457
    
    
    
    8.4
    %Average face amount of insurance in
force:Total
    
    $
    166,444
    
    
    $
    163,794
    
    
    
    1.6
    %UL-type policies
    
    $
    126,103
    
    
    $
    122,245
    
    
    
    3.2
    %Average assets
    
    $
    17,935
    
    
    $
    16,750
    
    
    
    7.1
    %
 Sales from our Individual markets excluding Community Banks and bank-owned life
insurance (BOLI) declined 12.5% from first quarter 2003 when we recorded record
sales. As a result of new product offerings in the latter part of 2003, sales
were well distributed with no single product comprising more than 28% of first
quarter sales. In recent quarters we have de-emphasized our sales to Community
Banks to help preserve portfolio yields for the existing blocks. Community
Bank and BOLI business will vary widely between periods as we respond to sales
opportunities for these single premium products only when the market
accommodates our required returns. Interest margin on UL-type products was essentially flat versus 2003, despite
lower investment yields, due to growth in policyholder fund balances and
effective management of interest spreads. The lower investment yield was due
to the general interest rate environment and an increase in default charges
paid from the Individual Products segment to the Corporate and Other segment of
$1.5 as discussed under Corporate and Other. We actively manage interest
spreads on our fixed UL-type products in response to changes in investment
yields by adjusting the rates credited to policyholder fund balances while
considering our competitive strategies as well. The average investment spread
on fixed UL products declined 6 basis points to 1.88% for the quarter compared
to the 2003 quarter. During 2003, repayments of mortgage backed securities
significantly increased as a result of continued declines in long-term mortgage
rates. Our mortgage backed securities portfolio is primarily a discount
portfolio. We estimate that repayments in excess of expected levels increased
effective investment yields by 5 and 12 basis points in the first quarter of
2004 and 2003. The decrease in excess accretion of discount caused the decline
in effective investment spreads on fixed UL products. Our ability to manage
interest crediting rates on fixed UL-type products is limited by minimum
guaranteed rates provided in policyholder contracts. Therefore, continued low
general market interest rates may impact future profitability, as the
investment of cash flows at current interest rates reduces our average
portfolio yield. At March 31, 2004 and December 31, 2003, our crediting rates
were approximately 44 and 49 basis points on average in excess of our minimum
guaranteed rates. Policies representing approximately half of the UL
policyholder fund balances are already at their minimum guaranteed rates. 18




---



##### 



Product charge revenue grew at a rate consistent with the growth in average UL
policyholder fund balances. Products issued in recent years are designed to
generate more of their revenues from expense charges. We defer expense charges
received in excess of ultimate annual expense charges and amortize them into
income relative to future estimated gross profits. Surrender charges grew due
to an increase in the average surrender charge as a percentage of fund balance. UL-type death benefits and other insurance benefits for the first quarter 2004
included $3.2 of benefits related to SOP 03-1. See Note 6 for further
discussion of this newly effective accounting principle. Approximately half
this amount relates to bonus interest on certain blocks of older products no
longer offered for sale, while the other half relates to secondary guarantees
contained in our newer products. Excluding the impact of SOP 03-1, the
increase in first quarter 2004 over 2003 was 3.8%. Death benefits, net of
reinsurance, per thousand dollars of face amount of insurance in-force were
$0.76 compared to $0.79 in the 2003 quarter. Cost of insurance charges have
grown first quarter 2004 over 2003. These trends relate to growth in
average face amount of insurance in force and aging of our blocks. Changes in
product design can also impact cost of insurance charges. Consistent with the trend in recent
years, traditional premiums and other
considerations declined from the first quarter 2003. Net investment income
from our traditional blocks declined period over period due to lower investment
yields, the decreasing size of the block and lower repayments of mortgage
backed securities. 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 117.9%, down slightly from 120.6% in the 2003 quarter. Total expenses (including the net deferral and amortization of DAC and VOBA)
are as follows: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Commissions
    
    $
    63.8
    
    
    $
    79.2
    
    
    
    19.4
    %General and administrative  acquisition
related
    
    
    18.9
    
    
    
    20.9
    
    
    
    9.6General and administrative  maintenance
related
    
    
    10.9
    
    
    
    9.2
    
    
    
    (18.5
    )Taxes, licenses and fees
    
    
    11.0
    
    
    
    14.9
    
    
    
    26.2Total commissions and expenses incurred
    
    
    104.6
    
    
    
    124.2
    
    
    
    15.8Less commissions and expenses capitalized
    
    
    (74.9
    )
    
    
    (95.2
    )
    
    
    (21.3
    )Expenses excluding amortization of DAC
and VOBA
    
    
    29.7
    
    
    
    29.0
    
    
    
    (2.4
    )Amortization of DAC and VOBA
    
    
    49.0
    
    
    
    45.6
    
    
    
    (7.5
    )Total expense
    
    $
    78.7
    
    
    $
    74.6
    
    
    
    (5.5
    )%
 19




---



##### 



Expenses excluding amortization of DAC and VOBA increased in the first quarter
2004 from the prior quarter driven by an increase in maintenance expense. The
increase in net commissions and general and administrative expenses was
partially offset by a reduction in taxes, licenses and fees, resulting from a
$1.9 accrual adjustment following the settlement of a state tax liability in
the first quarter 2004, and a reduction in the effective premium tax rate. The
expense amounts we capitalize as DAC include first year commissions and
deferrable acquisition expenses. We generally limit our capitalization of
deferrable acquisition expenses to the lower of product specific pricing
allowables or actual deferrable acquisition costs. See further discussion of
DAC and VOBA under the Financial Position section. Growth in our interest
sensitive blocks from recent years sales growth, combined with higher
emergence of gross profits on UL-type products, were the primary contributors
to the increase in the amortization of DAC and VOBA. During the quarter, we
adjusted our assumptions for mortality and interest spreads earned as a
component of estimated gross profits. The impact of these adjustments was a
reduction of $8.5 in DAC amortization. DAC unlocking and true-ups reduced DAC
amortization by $7.0 in the first quarter of 2003. The growth in average Individual Products assets in 2004 was primarily due to
growth in UL and VUL policyholder fund balances, partially offset by a decline
in assets supporting our traditional block of business. Our financial and operating risks for this segment include, among others,
interest margin risks, mortality risks, variances between actual and underlying
assumptions of DAC and VOBA, changes in taxation of our products and competing
offerings, and the effects of unresolved litigation. We discuss these risks in
more detail in the Financial Position, Capital Resources and Liquidity, and
Market Risk Exposures sections of this filing and in our Form 10-K. See Note 6
for further discussion of SOP 03-1, for which accounting guidance continues to
evolve. While we do not expect additional guidance to affect amounts reported
related to our implementation of the SOP, there is no assurance it will not. Annuity and Investment Products Annuity and Investment Products are marketed through most of the distribution
channels discussed in Individual Products above as well as through financial
institutions, investment professionals and annuity marketing organizations.
JPSC markets primarily variable life insurance written by our insurance
subsidiaries and other carriers, and also sells other securities and mutual
funds. 20




---



##### 



Reportable segment results were: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Investment product charges
and premiums
    
    $
    2.4
    
    
    $
    2.0
    
    
    
    20.0
    %Net investment income
    
    
    143.5
    
    
    
    145.5
    
    
    
    (1.4
    )Broker-dealer concessions
and other
    
    
    29.4
    
    
    
    22.2
    
    
    
    32.4Total revenue
    
    
    175.3
    
    
    
    169.7
    
    
    
    3.3Policy benefits (including
interest credited)
    
    
    103.6
    
    
    
    103.6
    
    
    
    Insurance expenses
    
    
    14.9
    
    
    
    13.1
    
    
    
    (13.7
    )Broker-dealer expenses
    
    
    27.5
    
    
    
    20.3
    
    
    
    (35.5
    )Total benefits and expenses
    
    
    146.0
    
    
    
    137.0
    
    
    
    (6.6
    )Income before income taxes
    
    
    29.3
    
    
    
    32.7
    
    
    
    (10.4
    )Income taxes
    
    
    10.2
    
    
    
    11.5
    
    
    
    11.3Reportable segment results
    
    $
    19.1
    
    
    $
    21.2
    
    
    
    (9.9
    )%
 The following table summarizes key information for AIP: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Fixed annuity premium sales
    
    $
    310
    
    
    $
    115
    
    
    
    169.6
    %Variable annuity premium sales
    
    
    
    
    
    
    1
    
    
    
    $
    310
    
    
    $
    116
    
    
    
    167.2
    %Investment product sales
    
    $
    1,324
    
    
    $
    615
    
    
    
    115.3
    %Average policyholder fund balances
    
    $
    8,876
    
    
    $
    8,242
    
    
    
    7.7
    %Average separate account
policyholder fund balances
    
    
    350
    
    
    
    335
    
    
    
    4.5$
    9,226
    
    
    $
    8,577
    
    
    
    7.6
    %Average assets
    
    $
    10,117
    
    
    $
    9,404
    
    
    
    7.6
    %Effective investment spreads for
fixed annuities
    
    
    1.71
    %
    
    
    1.89
    %Fixed annuity surrenders as a
percentage of beginning fund
balances
    
    
    9.5
    %
    
    
    7.9
    %
 21




---



##### 



Fixed annuity premium sales increased in the first quarter 2004 versus 2003 as
a result of our product focus shifting more towards annuities with
equity-indexed components. We continue to develop differentiated annuity
products designed to create new distribution opportunities and strengthen
existing marketing relationships. Net investment income growth was lower than the growth in average policyholder
fund balances, due to a decline in investment yields. We estimate that
repayments of mortgage backed securities in excess of expected levels in the
AIP segment increased effective yields by 5 and 16 basis points in the first
quarter 2004 and 2003. This decrease in excess accretion of discount accounted
for the majority of the decline in effective investment spreads on fixed
annuities. We actively manage spreads on fixed annuity products in response to changes in
our investment portfolio yields by adjusting the interest rates we credit on
annuity policyholder fund balances while considering our competitive
strategies. Effective investment spreads on fixed annuities compressed in the
first quarter 2004 versus 2003. Our ability to manage interest crediting rates
on fixed annuity products is limited by minimum guaranteed rates provided in
policyholder contracts, and continued low general market interest rates will
impact future profitability, as the investment of cash flows at current
interest rates reduces our average portfolio yield. We have approximately $4
billion of fixed annuity policyholder fund balances with crediting rates that
are reset on an annual basis, and our crediting rates on average were
approximately 25 basis points in excess of our minimum guaranteed rates at
March 31, 2004. Of the remaining $4 billion of fixed annuity policyholder fund
balances, approximately $3 billion have multi-year guaranteed rates, which will
begin to reset in the second half of 2004. The average spread to the minimum
underlying guarantee on these products is approximately 275 basis points. Our
recent sales have been of products with lower guaranteed minimum rates and
lower spread requirements, developed in response to the declining interest rate
environment. Profitability of equity-indexed annuities (EIA), which comprised
over three-fourths of our AIP sales during the first quarter 2004, depends on
the management of the purchase price of derivatives to hedge the index
performance of the policies. Beginning with first quarter 2004 and in accordance with SOP 03-1 (see Note 6),
net deferral and amortization of bonus interest is presented in policy
benefits. Previously, it had been included as a component of DAC and was
included in insurance expenses. Excluding this $1.6 reclassification, policy
benefits increased 1.5%, as growth in average policyholder fund balances was
largely offset by interest crediting rate actions. The surrender rate in the AIP segment is influenced by many factors such as: 1)
the portion of the business that has low or no remaining surrender charges; 2)
competition from annuity products including those which pay up-front interest
rate bonuses or higher market rates; and 3) rising interest rates that may make
returns available on new annuities or investment products more attractive than
our older annuities. Fixed annuity fund balances with surrender charges of 5%
or more decreased to 47% from 54% for the first quarter 2004 and 2003. 22




---



##### 



Total expenses (including the net deferral and amortization of DAC and VOBA)
were as follows: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Insurance companies:Commissions
    
    $
    18.4
    
    
    $
    6.0
    
    
    
    (206.7
    )%General and administrative
- acquisition related
    
    
    3.3
    
    
    
    3.2
    
    
    
    (3.1
    )General and administrative
- maintenance related
    
    
    1.6
    
    
    
    1.2
    
    
    
    (33.3
    )Taxes, licenses and fees
    
    
    0.6
    
    
    
    0.5
    
    
    
    (20.0
    )Total commissions and
expenses incurred
    
    
    23.9
    
    
    
    10.9
    
    
    
    (119.3
    )Less commissions and
expenses capitalized
    
    
    (20.5
    )
    
    
    (9.3
    )
    
    
    120.4Amortization of DAC and VOBA
    
    
    11.5
    
    
    
    11.5
    
    
    
    Net expense  insurance
companies
    
    
    14.9
    
    
    
    13.1
    
    
    
    (13.7
    )Broker/Dealer:Commissions
    
    
    24.8
    
    
    
    18.1
    
    
    
    (37.0
    )Other
    
    
    2.7
    
    
    
    2.2
    
    
    
    (22.7
    )Net expense  broker/dealer
    
    
    27.5
    
    
    
    20.3
    
    
    
    (35.5
    )Net expense
    
    $
    42.4
    
    
    $
    33.4
    
    
    
    (26.9
    )%
 The increase in our insurance companies net expenses was largely attributable
to the SOP 03-1 reclassification of the net deferral of bonus interest to
benefits as discussed above. Commissions, acquisition related general and
administrative expenses and DAC capitalization all increased with the strong
sales increase over first quarter 2003. Broker/dealer revenues and expenses
increased commensurately due to the improved condition of the equity market
versus the first quarter of last year. Risks in the annuity business other than those mentioned in our Overview in the
Form 10-K are that equity market volatility could reduce demand for our
products with interest credited rates indexed to those markets, spread
compression, increased lapses when interest rates rise, particularly in the
portion of business subject to low or no surrender charges, risk on EIA hedges
and changes in taxation of our products and competing offerings. We discuss
these risks in more detail in the Financial Position, Capital Resources and
Liquidity, and Market Risk Exposures sections of this filing and in our Form
10-K. 23




---



##### 



Benefit Partners The Benefit Partners segment markets products primarily through a national
distribution system of regional group offices. These offices develop business
through employee benefit brokers, third party administrators and other employee
benefit firms. Reportable segment results were: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Premiums and other considerations
    
    $
    232.5
    
    
    $
    181.8
    
    
    
    27.9
    %Net investment income
    
    
    18.4
    
    
    
    15.9
    
    
    
    15.7Total revenues
    
    
    250.9
    
    
    
    197.7
    
    
    
    26.9Policy benefits
    
    
    180.4
    
    
    
    137.7
    
    
    
    (31.0
    )Expenses
    
    
    52.9
    
    
    
    41.7
    
    
    
    (26.9
    )Total benefits and expenses
    
    
    233.3
    
    
    
    179.4
    
    
    
    (30.0
    )Income before income taxes
    
    
    17.6
    
    
    
    18.3
    
    
    
    (3.8
    )Income taxes
    
    
    6.1
    
    
    
    6.4
    
    
    
    4.7Reportable segment results
    
    $
    11.5
    
    
    $
    11.9
    
    
    
    (3.4
    )%
 The following table summarizes key information for Benefit Partners: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Life, Disability and Dental
annualized sales
    
    $
    53.9
    
    
    $
    73.0
    
    
    
    (26.2
    )%Reportable segment results:Life
    
    $
    3.5
    
    
    $
    2.5
    
    
    
    40.0
    %Disability
    
    
    6.8
    
    
    
    8.4
    
    
    
    (19.0
    )Dental
    
    
    0.6
    
    
    
    0.3
    
    
    
    100.0Other
    
    
    0.6
    
    
    
    0.7
    
    
    
    (14.3
    )Total
    
    $
    11.5
    
    
    $
    11.9
    
    
    
    (3.4
    )%Loss ratios:Life
    
    
    79.0
    %
    
    
    82.0
    %Disability
    
    
    72.9
    
    
    
    63.4Dental
    
    
    78.3
    
    
    
    79.8Combined
    
    
    76.2
    %
    
    
    74.1
    %Total expenses as a % of
premium income
    
    
    22.8
    %
    
    
    23.0
    %Average assets
    
    $
    1,395
    
    
    $
    927
    
    
    
    50.5
    %
 24




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##### 



Total revenues for Benefit Partners increased over the first quarter 2003 due
to the March 1, 2004 acquisition of substantially all of the group life,
disability and dental business of Canada Life (the Canada Life block) and due
to organic growth from strong sales during 2003. See Note 8 for further
discussion of the Canada Life transaction. Excluding the Canada Life block,
premiums and other considerations increased 13.1% over the 2003 quarter.
Annualized sales declined from first quarter 2003 levels due to the
extraordinarily strong sales results in last years first quarter as well as,
across the industry, continued customer focus on their medical benefit plans
with greater tendency to retain existing carriers for their non-medical
coverages during first quarter 2004. Also, our sales results reflect the
actions we implemented in 2003 and have continued into 2004 to
tighten certain underwriting rules in the life line and to strengthen our sales focus on higher
margin, smaller case business across all lines. Excluding the Canada Life block, policy benefits increased 16.9%, reflecting
strong growth in our business, but also a higher overall loss ratio driven by
adverse experience in our LTD line, particularly in March. Excluding the LTD
line, loss ratios were down from first quarter 2003 levels in all lines of
business. Expenses were as follows: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Commissions
    
    $
    26.9
    
    
    $
    20.8
    
    
    
    (29.3
    )%General and administrative
    
    
    23.0
    
    
    
    19.5
    
    
    
    (17.9
    )Taxes, licenses and fees
    
    
    5.0
    
    
    
    5.3
    
    
    
    5.7Total commissions and expenses
incurred
    
    
    54.9
    
    
    
    45.6
    
    
    
    (20.4
    )Less commissions and expenses
capitalized
    
    
    (8.2
    )
    
    
    (28.3
    )
    
    
    (71.0
    )Amortization of DAC
    
    
    6.2
    
    
    
    24.4
    
    
    
    74.6Total expense
    
    $
    52.9
    
    
    $
    41.7
    
    
    
    (26.9
    )%
 Total expenses for the first quarter 2004 are in line with the overall growth
in the business. Despite higher expenses due to the Canada Life integration
activities, our total unit expense ratio declined for the quarter relative to
the first quarter 2003. Expenses in the quarter were reduced by $1.2 million
due to the successful resolution of a state tax item. In the first quarter
2004 we changed our presentation of commissions, which are paid and expensed on
a monthly basis. In the past, we reflected such commissions as capitalized and
fully amortized each month. We no longer flow these commissions through DAC.
This change has no impact on total expenses or reportable segment results. Risks beyond normal competition that may impact this segment include: 1)
increased morbidity risk due to a weak economy that may increase disability
claim costs (an industry-wide phenomenon); 2) continued medical cost inflation
that can put pressure on non-medical benefit premium rates because employers
may focus more on the employers cost of non-medical programs; and 3) mortality
risks including concentration risks from acts of terrorism not priced for or
reinsured. We discuss these risks in more detail in the Benefit Partners
section of our Form 10-K. 25




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##### 



Communications JPCC operates radio and television broadcast properties and produces syndicated
sports programming. Reportable segment results were: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Communications revenues (net)
    
    $
    58.5
    
    
    $
    50.5
    
    
    
    15.8
    %Cost of sales
    
    
    14.7
    
    
    
    13.4
    
    
    
    (9.7
    )Operating expenses
    
    
    22.0
    
    
    
    21.3
    
    
    
    (3.3
    )Broadcast cash flow
    
    
    21.8
    
    
    
    15.8
    
    
    
    38.0Depreciation and amortization
    
    
    2.2
    
    
    
    2.1
    
    
    
    (4.8
    )Corporate general and
administrative expenses
    
    
    1.6
    
    
    
    1.5
    
    
    
    (6.7
    )Net interest expense
    
    
    0.4
    
    
    
    0.6
    
    
    
    33.3Operating revenue before
income taxes
    
    
    17.6
    
    
    
    11.6
    
    
    
    51.7Provision for income taxes
    
    
    7.0
    
    
    
    4.5
    
    
    
    (55.6
    )Reportable segment results
    
    $
    10.6
    
    
    $
    7.1
    
    
    
    49.3
    %
 Communications revenues increased 15.8% over first quarter 2003 due to growth
in all our operations, particularly in our Sports operations. Combined revenues
for Radio and Television increased 11.3% over first quarter 2003 due to
improved revenue shares in markets which gained momentum throughout the
quarter. Typically, political advertising favorably impacts television
revenues in even numbered years and first quarter 2004 benefited from $0.6 in
political advertising. Excluding the impact of political, Television revenues
increased 9.4% over first quarter 2003. Advertising revenues from Sports
operations increased $3.2 during first quarter 2004 due to increased demand for
our basketball products. Broadcast cash flow, a non-GAAP measure of operating income that is commonly
used in the broadcast industry, is calculated as communications revenues less
station operating costs and expenses before depreciation and amortization.
Broadcast cash flow increased by 38.0% during first quarter 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 the broadcast properties, including salaries,
marketing, research, purchased programming and station overhead costs. Total
expenses, excluding interest expense, increased 5.7% over first quarter 2003.
As a percent of communication revenues, these expenses were 69.2% and 75.8% for
first quarter 2004 and 2003. Risks for this segment include sensitivity to cyclical changes in both the
general economy and the economic strength of local markets, concentration of
our advertising revenues from the automotive industry, the ability to
periodically renew FCC licenses, technological changes and consolidation in the
broadcast industry. We discuss these risks in more detail in the Communications
section of our Form 10-K. 26




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##### 



Corporate and Other The Corporate and Other segment includes the excess capital of the insurance
subsidiaries, other corporate investments including other-than-temporarily
impaired 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
investment gains and losses, which include other-than-temporary impairments of
securities, are reported in this segment. The following table summarizes results for this segment. Prior year amounts
have been restated to conform to the current year presentation for the adoption
of FIN 46, under which, as discussed in Note 2 of our 10-K, we no longer
consolidate two affiliated Capital Trusts. Three Months EndedMarch 312004
    
    2003Earnings on investments and other income
    
    $
    25.9
    
    
    $
    21.8Interest expense on debt
    
    
    (10.8
    )
    
    
    (8.8
    )Operating expenses
    
    
    (3.0
    )
    
    
    (6.3
    )Income taxes
    
    
    (1.8
    )
    
    
    (1.4
    )Reportable segment results
    
    
    10.3
    
    
    
    5.3Realized investment gains/(losses), net of taxes
    
    
    14.7
    
    
    
    (12.4
    )Reportable segment results, including realized
gains (losses)
    
    $
    25.0
    
    
    $
    (7.1
    )
 Earnings on investments increased $4.1 in the first quarter 2004 compared to
2003 driven by income from a one-time after tax settlement of $2.6 from a Bank
of America merger class action suit, an increase in default charges received
from the operating segments, and increased dividends on equity securities,
offset by an allocation of bond calls to the segments,lower invested assets and
earned yields. 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. These charges are calculated in part as a percentage of
invested assets. In response to the default environment in the securities
market, during second quarter 2003 we increased default charges assessed to the
other operating segments resulting in default charge income of $9.0 compared to
$6.9 for the first quarter 2004 and 2003. 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 in the first quarter 2004 versus 2003 due
primarily to the issuance of ten-year notes on January 27, 2004 at an effective
interest rate of 4.77%, partially offset by lower short-term interest rates.
See Note 8 of our Form 10-K for details of our debt structure and interest
costs. Operating expenses declined in the first quarter 2004 versus 2003 reflecting
current corporate activities. Income tax expense increased in line with the
changes in pre-tax income, offset by an increase in the dividends received
deduction and other tax favored investments. 27




---



##### 



Realized investment gains and losses were as follows: Three Months EndedMarch 312004
    
    2003Stock gains
    
    $
    28.5
    
    
    $
    Stock losses
    
    
    (2.4
    )
    
    
    Bond gains
    
    
    17.7
    
    
    
    14.3Bond losses from sales and calls
    
    
    (3.5
    )
    
    
    (2.8
    )Bond losses from writedowns
    
    
    (15.9
    )
    
    
    (29.0
    )Other gains and losses (net)
    
    
    
    
    
    
    (0.6
    )Total pretax gains (losses)
    
    
    24.4
    
    
    
    (18.1
    )DAC amortization
    
    
    (0.9
    )
    
    
    (1.0
    )Income taxes
    
    
    (8.8
    )
    
    
    6.7Net realized gains (losses)
    
    $
    14.7
    
    
    $
    (12.4
    )
 Realized gains and losses reflect several initiatives designed to enhance our
long-term investment portfolio performance. Bond impairments declined in the
first quarter 2004 as a result of significant improvement in the corporate
credit environment and proactive portfolio management. We reflect provisions for credit related losses in our estimated gross profits
when calculating DAC and VOBA amortization. As reflected in the preceding
table, we record DAC and VOBA amortization on realized gains and losses on
investments that back UL-type products. The following table summarizes assets assigned to this segment: Three Months Ended
    
    Favorable/March 31
    
    (Unfavorable)2004
    
    2003
    
    2004 vs. 2003Parent company, passive investment companies
and Corporate line assets of insurance
subsidiaries
    
    $
    1,068
    
    
    $
    854
    
    
    
    25.1
    %Unrealized gain on fixed interest investments
    
    
    855
    
    
    
    634
    
    
    
    34.9Coinsurance receivables on acquired blocks
    
    
    963
    
    
    
    1,045
    
    
    
    (7.8
    )Employee benefit plan assets
    
    
    378
    
    
    
    316
    
    
    
    19.6Goodwill arising from insurance acquisitions
    
    
    270
    
    
    
    270
    
    
    
    Other
    
    
    361
    
    
    
    310
    
    
    
    16.5Total
    
    $
    3,895
    
    
    $
    3,429
    
    
    
    13.6
    %
 Total assets for the Corporate and Other segment increased as a result of
improvement in the corporate credit environment, growth of our excess capital
levels, and an increase of approximately $85 in unrealized gains on equity
securities. Risks for this segment include investment impairments due to continuing
economic weakness or further economic decline, the risk of rising interest
rates on our floating rate debt, the ability to replace existing debt
agreements with comparable terms, declines in the values of our equity
securities which would limit our potential for realized gains, general
uncertainty regarding litigation, and the potential for future impairment of
goodwill. Also, as discussed in the Liquidity 28




---



##### 



section, to service our debt and to pay shareholder dividends, we rely on
excess cash flows through dividends from subsidiaries. Insurance subsidiary
dividends depend on regulatory approval when above certain limits. Financial Position Our primary resources are investments related to our Individual Products, AIP
and Benefit Partners segments, properties and other assets utilized in all
segments and investments backing corporate capital. This section identifies
several items on our balance sheet that are important to the overall
understanding of our financial position. The Investments section reviews our
investment portfolio and key portfolio management strategies. Total assets increased $1,488 from year end 2003 due to net policyholder
contract deposits, unrealized gains on investments and growth in separate
account assets. Intangible assets on our balance sheet include DAC, VOBA, deferred sales
inducements, goodwill and FCC licenses. DAC, VOBA and Unearned Revenue Both DAC and VOBA are amortized through expenses as revenues are recognized in
the future. Some of the assumptions regarding future experience that can
affect the carrying value of DAC and VOBA balances include mortality, interest
spreads, lapse rates and policy fees earned. Significant differences between
actual experience and assumptions we use can impact the carrying balance of DAC
and VOBA and therefore produce changes that must be reflected in earnings.
These changes can be positive or negative. Our traditional individual and group insurance products are long-duration
contracts. DAC and VOBA related to these products are amortized in proportion
to premium revenue recognized. The DAC and VOBA balances on these products
were $303.6 or 11.7% of the gross balances (before adjustments for unrealized
gains and losses) at March 31, 2004, and are generally subject to little
volatility. We amortize DAC and VOBA on UL-type products and annuity products relative to
the future estimated gross profits (EGP) over the life of these products. In
calculating the EGP for these products, management must make assumptions
regarding the following components: 1) estimates of fees charged to
policyholders to cover mortality, surrenders and maintenance costs; 2)
estimated mortality in excess of fund balances accumulated; 3) expected
interest rate spreads between income earned, including default charges paid to
the Corporate and Other segment, and amounts credited to policyholder accounts;
and 4) estimated costs of policy administration (maintenance). As mentioned
earlier, certain UL-type products sold in our Individual Products segment are
designed with larger up-front expense charges. Significant portions of these
up-front expense charges are deferred as unearned revenue reserves and are
amortized into income over time using assumptions similar to those used for DAC
and VOBA. The EGP used in our DAC and VOBA calculations include these up-front
expense charges net of the deferrals but exclude the related amortization. DAC
and VOBA calculations are sensitive to changes in our assumptions regarding EGP
components, and any significant change in these assumptions will immediately
impact the current DAC and VOBA balances with the change reflected through the
income statement. We regularly review the models and the assumptions regarding
EGP used in the calculation of amortization 29




---



##### 



expense for these products so that the assumptions reflect managements current
view of future events. We consider the following assumptions to be most significant to UL-type
products: 1) estimated mortality; 2) estimated interest spreads; and 3)
estimated future policy lapses. DAC and VOBA on UL-type products were $1,944.4
or 75.1% of the gross balances at March 31, 2004. In addition to these three assumptions, VUL and VA products contain an
additional assumption that affects the DAC and VOBA amortization. This
critical assumption is the rate of growth of the separate account mutual funds
that generate additional policy fees utilized in the EGP on VUL and VA
products. We assume a long-term total net return on separate account assets,
including dividends and market value increases, of 8.25% and a five-year
reversion period. The reversion period is a period over which a short-term
return assumption is used to maintain the models overall long-term rate of
return. We cap the reversion rate of return at 8.25% for one year and 10% for
years two through five. The effect of this limitation is to reduce the
cumulative effective long-term rate. As discussed under Individual Products, during first quarter 2004 we unlocked
our DAC assumptions regarding mortality and interest spreads. In our form
10-K, we provided a sensitivity analysis of changes in significant assumptions
to DAC and VOBA relating to UL-type products. That analysis continues to
accurately portray the estimated sensitivity of DAC and VOBA to the significant
underlying assumptions used therein. We consider estimated interest spreads and estimated future policy lapses to be
the most significant assumptions related to our annuity products. DAC and VOBA
on these products were $340.6 or 13.2% of the gross balances at March 31, 2004.
We provided a sensitivity analysis of changes in significant assumptions to
DAC and VOBA relating to annuity products in our Form 10-K. We also adjust the carrying value of DAC and VOBA to reflect changes in the
unrealized gains and losses in available-for-sale securities backing UL-type
and annuity products, since this impacts the timing of and possible realization
of EGPs. Goodwill and Other Status and trends related to goodwill, reinsurance receivables and defined
benefit pension plans were essentially unchanged during the first quarter of
2004. See our Form 10-K for further discussion. 30




---



##### 



Capital Resources Our capital structure consists of term notes, floating rate EXtendible
Liquidity Securities® (EXLs), short-term commercial paper, securities sold
under repurchase agreements, long-term junior subordinated debentures, and
stockholders equity. We also have a bank credit agreement backing a portion
of unsecured revolving credit, under which we have the option to borrow at
various interest rates. The agreement, as amended on May 7, 2004, aggregates
to $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
$154 and $654 at March 31, 2004 and December 31, 2003 were 1.05% and 1.13%.
The maximum amount outstanding was $656 during 2003 and the maximum amount
outstanding in 2004 after we issued the term debt and EXLs in January was $298. 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 have been
affirmed in the past six months. A significant drop in these ratings, while
not anticipated, could cause us to pay higher rates on commercial paper
borrowings or lose access to the commercial paper market. Our insurance subsidiaries have sold collateralized mortgage obligations and
agency debentures under repurchase agreements involving various counterparties,
accounted for as financing arrangements with maturities less than six months.
We use proceeds to purchase securities with longer durations as an
asset/liability management strategy. At March 31, 2004 and December 31, 2003,
repurchase agreements, including accrued interest, were $454 and $401. The
securities involved had a fair value and amortized cost of $470 and $443 at
March 31, 2004 versus $428 and $406 at December 31, 2003. The maximum
principal amount outstanding for the first three months of 2004 was $528 versus
$597 during 2003. On January 27, 2004, we issued $300 of 4.75% 10-year term notes and $300 of
EXLs with an initial maturity of February 17, 2005 subject to periodic
extension through 2011. The proceeds from the debt issuances were used to
finance the Canada Life acquisition and to pay down commercial paper while
rebalancing the mix of fixed and floating rate debt and short and long term
maturities in our capital structure. Both Fitch and S&P have reaffirmed our
ratings subsequent to the debt issuance. Stockholders equity increased $164 in 2004 over the yearend amount.
Unrealized gains on available-for-sale securities, which are included as a
component of stockholders equity, increased to $146 as of March 31, 2004
versus yearend 2003. The remaining change in stockholders equity is due to
net income, dividends to stockholders, and common share activity due to
issuance of shares under our stock option plans and our share repurchases. Our
ratio of stockholders equity to assets excluding separate
accounts was 12.4%
and 12.5% at March 31, 2004 and December 31, 2003. 31




---



##### 



During the first quarter 2004, we repurchased 1,884,200 of our common shares at
an average cost of $53.70. In February 2004, our board refreshed its share
repurchase authorization to 5 million shares, with 3.1 million remaining at
March 31. 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 claims paying ratings: JP Life
    
    JPFIC
    
    JPLAA.M. Best
    
    A++
    
    A++
    
    A++Standard & Poors
    
    AAA
    
    AAA
    
    AAAFitch Ratings
    
    AA+
    
    AA+
    
    AA+
 The ratings by A.M. Best and Standard & Poors are currently the highest
available by those rating agencies and have been recently reaffirmed, while the
ratings by Fitch Ratings is that agencys second highest rating. A significant
drop in our ratings, while not anticipated, could potentially impact future
sales and/or accelerate surrenders on our business in force. Liquidity We meet liquidity requirements primarily by positive cash flows from the
operations of subsidiaries. Primary sources of cash from our insurance
operations are premiums, other insurance considerations, receipts for
policyholder accounts, investment sales and maturities and investment income.
Primary uses of cash for our insurance operations include purchases of
investments, payment of insurance benefits, operating expenses, withdrawals
from policyholder accounts, costs related to acquiring new business, dividends
and income taxes. Primary sources of cash from the Communications operations
are revenues from broadcast advertising, and primary uses include payments for
commissions, compensation and related costs, sports rights, interest, income
taxes and purchases of fixed assets. Cash provided by operations in the first three months of 2004 and 2003 was $482
and $89. The primary driver for the increase over 2003 related to the
acquisition of Canada Lifes non-medical group blocks via coinsurance. Net cash used in investing activities was $830 and $181 for the first three
months of 2004 and 2003. In 2004, investment purchases increased substantially
due to cash received in the Canada Life transaction and to growth in annuity
sales. Net cash provided by
financing activities was $396 and $78 for the first three
months of 2004 and 2003, including cash inflows from policyholder contract
deposits net of withdrawals of $347 and $232. The fluctuation in net
policyholder contract deposits reflects increased annuity sales in 2004. Stock
repurchases increased $33 in the first three months of 2004 over prior period
levels. Net borrowings increased in the 2004 quarter largely due to the
financing of the Canada Life acquisition. In order to meet the parent companys dividend payments, debt servicing
obligations and other expenses, we rely on dividends from our subsidiaries.
Cash dividends received from subsidiaries by the parent company during the
first quarter were $19 and $76 in 2004 and 2003. The lower level of 32




---



##### 



dividends was in accordance with our capital planning strategies for 2004. Our
life insurance subsidiaries are subject to laws in their states of domicile
that limit the amount of dividends that can be paid without the prior approval
of the respective states insurance regulator. The limits are based in part on
the prior years statutory income and capital, which are negatively impacted by
bond losses and write downs. 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 $120 and $72 at March 31, 2004 and December 31,
2003. The increase in cash was attributable to proceeds from our first quarter
acquisition that we did not fully invest prior to quarter end. The parent
company and non-regulated subsidiaries held equity and fixed income securities
of $728 and $753 at these dates. We consider the majority of these securities
to be a source of liquidity to support our strategies. Total debt and equity securities available-for-sale at March 31, 2004 and
December 31, 2003 were $19,792 and $18,462. Contractual Obligations The following table details our contractual obligations at March 31, 2004: Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsDebt
    
    $
    1,517
    
    
    $
    608
    
    
    $
    300
    
    
    $
    
    
    
    $
    609Purchase obligations
    
    
    357
    
    
    
    33
    
    
    
    166
    
    
    
    87
    
    
    
    71Total
    
    $
    1,874
    
    
    $
    641
    
    
    $
    466
    
    
    $
    87
    
    
    $
    680
 Reverse repurchase agreements
and external commercial paper represent
debt due in less than one year. The junior subordinated debentures and the
term debt mentioned earlier are due in five years or more. We have
classified the EXLs as due in 1 to 3 years, as this represents
the earliest timeframe in which they could mature if the holders
elect not to extend the maturity date. Purchase obligations consist of JPCC commitments for purchases of syndicated
television programming and commitments on other contracts and future sports
programming rights of approximately $357 as of March 31, 2004, payable through
the year 2011. We have commitments to sell a portion of the sports programming
rights to other entities for $226 over the same period. These commitments are
not reflected as an asset or liability in our balance sheets because the
programs are not currently available for use. We expect advertising revenues
that are sold generally on an annual basis to fund the purchase commitments. Our total policy liabilities also represent contractual obligations, where the
timing of payments is unknown because it depends on insurable events or
policyholder surrenders. Our asset/liability management process, discussed
further in Market Risk Exposures, is designed to appropriately match our
invested assets with the actuarially estimated timing of amounts payable to our
policyholders. Off Balance Sheet Arrangements and Commitments We have no material off balance sheet arrangements of a financing nature. 33




---



##### 



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, 2004 and December 31, 2003 approximated $158 and
$86. These commitments will be funded through cash flows from operations and
investment maturities. Investments Portfolio Description Our strategy for managing the investment portfolio of our insurance
subsidiaries is to consistently meet pricing assumptions while appropriately
managing credit 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 87% of our portfolio has been designated as available-for-sale
(AFS) and is carried on the balance sheet at fair value. We determine fair
values of our securities, including securities not actively traded, using the
methodology described in the Critical Accounting Policies section above.
Changes in fair values of AFS securities are reflected in other comprehensive
income. The remainder of our portfolio has been designated as held-to-maturity
(HTM). As prescribed by generally accepted accounting principles, HTM
securities are carried at amortized cost, and accordingly there is a difference
between fair value and carrying value for HTM securities. The following table
shows the carrying values of our invested assets: March 31
    
    December 312004
    
    2003Publicly-issued bonds
    
    $
    16,773
    
    
    
    61.8
    %
    
    $
    15,823
    
    
    
    61.3
    %Privately-placed bonds
    
    
    4,934
    
    
    
    18.1
    
    
    
    4,621
    
    
    
    17.9Total bonds
    
    
    21,707
    
    
    
    79.9
    
    
    
    20,444
    
    
    
    79.2Redeemable preferred stock
    
    
    15
    
    
    
    0.1
    
    
    
    14
    
    
    
    Total debt securities
    
    
    21,722
    
    
    
    80.0
    
    
    
    20,458
    
    
    
    79.2Mortgage loans on real property
    
    
    3,497
    
    
    
    12.9
    
    
    
    3,472
    
    
    
    13.4Common stock
    
    
    729
    
    
    
    2.7
    
    
    
    754
    
    
    
    2.9Non-redeemable preferred stock
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Policy loans
    
    
    872
    
    
    
    3.2
    
    
    
    869
    
    
    
    3.4Real estate
    
    
    131
    
    
    
    0.5
    
    
    
    132
    
    
    
    0.5Other
    
    
    83
    
    
    
    0.3
    
    
    
    65
    
    
    
    0.3Cash and equivalents
    
    
    120
    
    
    
    0.4
    
    
    
    72
    
    
    
    0.3Total
    
    $
    27,156
    
    
    
    100.0
    %
    
    $
    25,824
    
    
    
    100.0
    %
 Unrealized Gains and Losses The majority of our unrealized gains and losses can be attributed to changes in
interest rates and market changes in credit spreads. 34




---



##### 



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, 2004: Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    CarryingCost
    
    Gains
    
    Losses
    
    Value
    
    ValueAvailable-for-sale, carried at fair
value:US Treasury obligations and direct
obligations of US Government
agencies
    
    $
    258
    
    
    $
    24
    
    
    $
    
    
    
    $
    282
    
    
    $
    282Federal agency mortgage backed
securities (including collateralized
mortgage obligations)
    
    
    2,028
    
    
    
    104
    
    
    
    (2
    )
    
    
    2,130
    
    
    
    2,130Obligations of states and political
subdivisions
    
    
    102
    
    
    
    5
    
    
    
    
    
    
    
    107
    
    
    
    107Corporate obligations
    
    
    14,786
    
    
    
    1,112
    
    
    
    (53
    )
    
    
    15,845
    
    
    
    15,845Corporate private-labeled mortgage
backed securities (including
collateralized mortgage obligations)
    
    
    642
    
    
    
    41
    
    
    
    (1
    )
    
    
    682
    
    
    
    682Redeemable preferred stock
    
    
    13
    
    
    
    2
    
    
    
    
    
    
    
    15
    
    
    
    15Subtotal, debt securities
    
    
    17,829
    
    
    
    1,288
    
    
    
    (56
    )
    
    
    19,061
    
    
    
    19,061Non-redeemable preferred stock
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Common stock
    
    
    297
    
    
    
    434
    
    
    
    (2
    )
    
    
    729
    
    
    
    729Securities available-for-sale
    
    
    18,128
    
    
    
    1,722
    
    
    
    (58
    )
    
    
    19,792
    
    
    
    19,792Held-to-maturity, carried at
amortized cost:Obligations of state and political
subdivisions
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    7
    
    
    
    6Corporate obligations
    
    
    2,655
    
    
    
    225
    
    
    
    (11
    )
    
    
    2,869
    
    
    
    2,655Debt securities held-to-maturity
    
    
    2,661
    
    
    
    226
    
    
    
    (11
    )
    
    
    2,876
    
    
    
    2,661Total AFS and HTM securities
    
    $
    20,789
    
    
    $
    1,948
    
    
    $
    (69
    )
    
    $
    22,668
    
    
    $
    22,453
 These unrealized gains and losses do not necessarily represent future gains or
losses that will be realized. Changing conditions related to specific bonds,
overall market interest rates, credit spreads or equity securities markets as
well as general portfolio management decisions might impact values we
ultimately realize. Gross unrealized gains and losses at December 31, 2003
were $1,633 and $(128). 35




---



##### 



The following table shows the diversification of unrealized gains and losses
for our debt securities portfolio across industry sectors as of March 31, 2004: Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Fair
    
    CarryingCost
    
    Gains
    
    Losses
    
    Value
    
    ValueIndustrialsBasic Materials
    
    $
    954
    
    
    $
    69
    
    
    $
    (5
    )
    
    $
    1,018
    
    
    $
    1,009Capital Goods
    
    
    1,340
    
    
    
    103
    
    
    
    (4
    )
    
    
    1,439
    
    
    
    1,413Communications
    
    
    1,232
    
    
    
    100
    
    
    
    (2
    )
    
    
    1,330
    
    
    
    1,305Consumer Cyclical
    
    
    953
    
    
    
    70
    
    
    
    (5
    )
    
    
    1,018
    
    
    
    1,002Consumer Non-Cyclical
    
    
    2,276
    
    
    
    168
    
    
    
    (5
    )
    
    
    2,439
    
    
    
    2,411Energy
    
    
    1,307
    
    
    
    88
    
    
    
    (1
    )
    
    
    1,394
    
    
    
    1,387Technology
    
    
    332
    
    
    
    15
    
    
    
    
    
    
    
    347
    
    
    
    345Transportation
    
    
    734
    
    
    
    73
    
    
    
    (14
    )
    
    
    793
    
    
    
    784Other Industrials
    
    
    789
    
    
    
    62
    
    
    
    
    
    
    
    851
    
    
    
    844Utilities
    
    
    3,827
    
    
    
    308
    
    
    
    (16
    )
    
    
    4,119
    
    
    
    4,070FinancialsBanks
    
    
    2,041
    
    
    
    178
    
    
    
    (6
    )
    
    
    2,213
    
    
    
    2,189Insurance
    
    
    681
    
    
    
    35
    
    
    
    (1
    )
    
    
    715
    
    
    
    712Other Financials
    
    
    1,354
    
    
    
    100
    
    
    
    (5
    )
    
    
    1,449
    
    
    
    1,439Mortgage Backed Securities
(including CommercialMortgage Backed
Securities)
    
    
    2,670
    
    
    
    145
    
    
    
    (3
    )
    
    
    2,812
    
    
    
    2,812Total
    
    $
    20,490
    
    
    $
    1,514
    
    
    $
    (67
    )
    
    $
    21,937
    
    
    $
    21,722
 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, 2004, the
average quality rating of our bond portfolio was A. 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
    
    $
    3,194
    
    
    $
    3,374
    
    
    $
    3,369
    
    
    
    15.5
    %1
    
    AA
    
    
    1,831
    
    
    
    1,983
    
    
    
    1,965
    
    
    
    9.11
    
    A
    
    
    6,944
    
    
    
    7,525
    
    
    
    7,432
    
    
    
    34.22
    
    BBB
    
    
    7,152
    
    
    
    7,667
    
    
    
    7,565
    
    
    
    34.83
    
    BB
    
    
    676
    
    
    
    702
    
    
    
    702
    
    
    
    3.24
    
    B
    
    
    509
    
    
    
    511
    
    
    
    513
    
    
    
    2.45
    
    CCC and lower
    
    
    144
    
    
    
    135
    
    
    
    136
    
    
    
    0.66
    
    In or near default
    
    
    40
    
    
    
    40
    
    
    
    40
    
    
    
    0.2Total
    
    $
    20,490
    
    
    $
    21,937
    
    
    $
    21,722
    
    
    
    100.0
    %
 36




---



##### 



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, 2004. 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 ValueWeingarten Realty Investors
    
    Financial Institutions
    
    $
    90Piedmont Natural Gas
    
    Utilities
    
    
    89National Rural Utilities
    
    Utilities
    
    
    89HSBC Holdings PLC
    
    Financial Institutions
    
    
    89Goldman Sachs Group
    
    Financial Institutions
    
    
    89US Bancorp
    
    Financial Institutions
    
    
    89Wachovia Corp
    
    Financial Institutions
    
    
    88Scana Corp
    
    Utilities
    
    
    86Cargill Inc
    
    Consumer, Noncyclical
    
    
    86Verizon Communications
    
    Communications
    
    
    85
 We monitor those securities that are rated below investment grade as to
individual exposures and in comparison to the entire portfolio, as an
additional credit risk management strategy. The following table shows the ten largest below investment grade debt security
exposures by individual issuer at March 31, 2004. Investment grade bonds of
issuers listed below are not included in these values. The gross unrealized
gain or loss shown below is calculated as the difference between the fair value
of the securities and their carrying values. Gross UnrealizedCreditor
    
    Sector
    
    Amortized Cost
    
    Carrying Value
    
    Gain/(Loss)El Paso Corp
    
    Utilities
    
    $
    61

    
    
    $
    58
    
    
    $
    (3
    )Ahold, Royal
    
    Consumer Noncyclical
    
    
    41
    
    
    
    44
    
    
    
    3Discovery Communications
    
    Communications
    
    
    40
    
    
    
    40
    
    
    
    2Rite Aid Corp
    
    Consumer Cyclicals
    
    
    38
    
    
    
    36
    
    
    
    (3
    )Intertape Polymer Group
    
    Capital Goods
    
    
    35
    
    
    
    35
    
    
    
    1Thomas & Betts Co
    
    Technology
    
    
    31
    
    
    
    33
    
    
    
    2Homer City Funding LLC
    
    Utilities
    
    
    25
    
    
    
    28
    
    
    
    3Williams Cos Inc
    
    Utilities
    
    
    25
    
    
    
    27
    
    
    
    2Qwest Communications Intl
    
    Communications
    
    
    25
    
    
    
    25
    
    
    
    (1
    )Delta Airlines
    
    Transportation
    
    
    31
    
    
    
    25
    
    
    
    (8
    )
 At March 31, 2004 and December 31, 2003, below investment grade bonds were
$1,391 or 6.4% and $1,452 or 7.1% of the carrying value of the bond portfolio,
reflecting increased upgrades of bonds previously classified as below
investment grade, as well as past efforts to reduce our exposure to below
investment grade positions. As noted above, credit risk is inherent in our bond portfolio. We manage this
risk through a structured approach in which we assess the effects of the
changing economic landscape. We devote a significant amount of effort of both
highly specialized, well-trained internal resources and external experts in our
approach to managing credit risk. 37




---



##### 



Impairment Review 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 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. 38




---



##### 



The following table shows the maturity date distribution of our debt securities
in an unrealized loss position at March 31, 2004. The fair values of these
securities could fluctuate over the respective periods to maturity or any sale. Gross UnrealizedAmortized Cost
    
    Fair Value
    
    Losses
    
    Carrying ValueDue in one year or less
    
    $
    56
    
    
    $
    51
    
    
    $
    (5
    )
    
    $
    51Due after one year through five years
    
    
    116
    
    
    
    109
    
    
    
    (7
    )
    
    
    111Due after five years through ten years
    
    
    768
    
    
    
    748
    
    
    
    (20
    )
    
    
    752Due after ten years through twenty years
    
    
    658
    
    
    
    631
    
    
    
    (27
    )
    
    
    636Due after twenty years
    
    
    156
    
    
    
    152
    
    
    
    (4
    )
    
    
    152Amounts not due at a single maturity
date
    
    
    81
    
    
    
    77
    
    
    
    (4
    )
    
    
    77Subtotal
    
    
    1,835
    
    
    
    1,768
    
    
    
    (67
    )
    
    
    1,779Redeemable preferred stocks
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    4Total
    
    $
    1,839
    
    
    $
    1,772
    
    
    $
    (67
    )
    
    $
    1,783
 The following table shows the credit quality of our debt securities with
unrealized losses at March 31, 2004: S&P or Equivalent
    
    
    
    
    
    
    
    
    
    % of
    
    Gross Unrealized
    
    % of GrossSVO Rating
    
    Designation
    
    Amortized Cost
    
    Fair Value
    
    Fair Value
    
    Losses
    
    Unrealized Losses
    
    Carrying Value1
    
    AAA/AA/A
    
    $
    657
    
    
    $
    638
    
    
    
    35.9
    %
    
    $
    (19
    )
    
    
    28.4
    %
    
    $
    6392
    
    BBB
    
    
    669
    
    
    
    657
    
    
    
    37.1
    
    
    
    (12
    )
    
    
    17.9
    
    
    
    6593
    
    BB
    
    
    183
    
    
    
    173
    
    
    
    9.8
    
    
    
    (10
    )
    
    
    14.9
    
    
    
    1774
    
    B
    
    
    205
    
    
    
    189
    
    
    
    10.7
    
    
    
    (16
    )
    
    
    23.9
    
    
    
    1925
    
    CCC and lower
    
    
    120
    
    
    
    110
    
    
    
    6.2
    
    
    
    (10
    )
    
    
    14.9
    
    
    
    1116
    
    In or near default
    
    
    5
    
    
    
    5
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    5Total
    
    $
    1,839
    
    
    $
    1,772
    
    
    
    100.0
    %
    
    $
    (67
    )
    
    
    100.0
    %
    
    $
    1,783
 No individual issuer has an unrealized loss of $10 or greater at March 31,
2004. The following table shows the length of time that individual debt securities

have been in a continuous unrealized loss position: Fair
    
    Gross Unrealized
    
    % of GrossValue
    
    Losses
    
    Unrealized Losses
    
    Carrying ValueMore than 1 year
    
    $
    608
    
    
    $
    (42
    )
    
    
    62.7
    %
    
    $
    5756 months
 1 year
    
    
    752
    
    
    
    (16
    )
    
    
    23.9
    
    
    
    738Less than 6 months
    
    
    479
    
    
    
    (9
    )
    
    
    13.4
    
    
    
    470Total
    
    $
    1,839
    
    
    $
    (67
    )
    
    
    100.0
    %
    
    $
    1,783
 Of the $67 gross unrealized losses on debt securities at March 31, 2004,
approximately $6 was included in our potentially distressed securities list
mentioned above. All of this amount has been continuously included in our
potentially distressed securities list for more than twelve months. 39




---



##### 



Information about unrealized gains and losses is subject to rapidly changing
conditions. Securities with unrealized gains and losses will fluctuate, as
will those securities that we have identified as potentially distressed. The
recent volatility of financial markets and declines in market interest rates
has led to an increase in both unrealized gains and losses. We consider all of
the factors discussed earlier when we determine if an unrealized loss is
other-than-temporary, including our ability and intent to hold the security
until the value recovers. However, we may subsequently decide to sell certain
of these securities in future periods within the overall context of our
portfolio management strategies. If we make the decision to dispose of a
security with an unrealized loss, we will write down the security to its fair
value if we have not sold it by the end of the reporting period. Realized Losses  Write Downs and Sales Realized losses are comprised of both write downs on other-than-temporary
impairments and actual sales of securities. For the first quarter 2004, we had other-than-temporary impairments on bonds of
$16 as compared to $29 for the 2003 period. The larger individual impairments,
how they were measured, the circumstances giving rise to the losses, and the
impact those circumstances have on other material investments we held at the
time are as follows:  2004  
    
    $6.5 write down on secured notes of a telephone cable
provider. As the telecommunications industry has suffered
several bankruptcies, and this issuer has had to accept
renegotiated terms on its cable leases. As a result, this bond
has become other-than-temporarily impaired. This position does
not impact other holdings in our portfolio.
    
    $3.1 write down on US Airways. Given the softness in
the passenger airline industry, increasing fuel prices and company
specific factors, such as an assessment of relative cost structures in
the industry, these bonds were written down to
fair market value and then sold. These bonds do not impact
other holdings in our portfolio.
    
    $3.3 write down on a bankrupt manufactured housing
company. It has become clear that our claim in bankruptcy will
not be worth as much as we had initially anticipated. As a
result, these previously written down bonds are again
other-than-temporarily impaired.
    
    $2.9 write down on an asset-backed security secured by
franchise loans, as underlying loans in the structured security
have defaulted. As a result, this security has become
other-than-temporarily impaired. This situation did not affect
other securities we hold.  2003  
    
    $23 write down related to passenger airline equipment
trust certificates due to continued difficulties in this
industry. We are closely monitoring all of our 40




---



##### 



positions in the passenger airline industry for indications that a
loss in value could be other-than-temporary.
    
    $4 write down related to the bonds of a chemical
manufacturer that is fighting a lawsuit related to environmental
waste. This situation did not impact other holdings in our
portfolio. For the first quarter 2004, we incurred losses of $4 on sales of securities.
There were no individually material losses on sales of securities in 2004. 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 31,2004
    
    2003Federal agency issued mortgage backed securities
    
    $
    2,130
    
    
    $
    2,152Corporate private-labeled mortgage backed
securities
    
    
    682
    
    
    
    752Total
    
    $
    2,812
    
    
    $
    2,904
 Our investment strategy with respect to our mortgage backed securities (MBS)
portfolio focuses on actively traded issues with less volatile cash flows. The
majority of the MBS holdings are sequential and planned amortization class
tranches of federal agency issuers. The MBS portfolio has been constructed
with underlying mortgage collateral characteristics and structure in order to
mitigate cash flow volatility over a range of interest rates. We experienced MBS principal payments totaling $285 and $529 in the first
quarter of 2004 and 2003. Our MBS portfolio is primarily a discount portfolio;
therefore, excess principal repayments accelerate the accretion of discount
into income. The excess accretion of discount increased investment income in
the first quarter of 2004 by $3.4 compared to $7.5 in the 2003 period, on a
pre-tax basis. These principal repayments are reinvested at yields that are
lower than our current portfolio yields, producing less investment income going
forward. Our MBS portfolio declined substantially in 2003, and we reinvested
most of the proceeds in investment grade corporate bonds. Mortgage Loans We record mortgage loans on real property net of an allowance for credit
losses. This allowance includes both reserve amounts for specific loans, and a
general reserve that is calculated by review of historical industry loan loss
statistics. We consider future cash flows and the probability of payment when
we calculate our specific loan loss reserve. At March 31, 2004 and December
31, 2003, our allowance for mortgage loan credit losses was $35.7 and $35.5. Derivative Instruments Our investment guidelines permit use of derivative financial instruments such
as futures contracts and interest rate swaps in conjunction with specific
direct investments. Our actual use of 41




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derivatives through March 31, 2004 has been limited to managing well-defined
interest rate and equity market risks. Interest rate swaps utilized in our
asset/liability management strategy with a current notional value of $262 and
$348 were open as of March 31, 2004 and December 31, 2003. The Company also
uses interest rate swaps to hedge prospective bond purchases to back deposits
on certain fixed annuity contracts. This hedging strategy protects the spread
between the annuity crediting rate offered at the time the annuities are sold
and the yield on bonds to be purchased to back those annuity contracts. These
interest rate swap contracts are generally terminated within a month. We also
purchase S&P 500 Index® options in conjunction with our sales of equity indexed
annuities. The reinsurance agreement on previously issued equity indexed
annuities remains in force. Market Risk Exposures We believe that the amounts shown in 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. As of March 31, 2004, 10 year U.S. Treasury rates had dropped
41 basis points to 3.84% since December 31, 2003. As of May 4, 2004 they were
4.50%. 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 increase in short-term interest rates would initially be unfavorable to our earnings,
due to the near-term impact on our cost of borrowing, we expect that
a modest increase in new money investment rates would be
favorable to our earnings over a longer timeframe. 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. Certain information in our SEC filings and in any other written or oral
statements made by us or on our behalf, involves forward looking statements.
We have used appropriate care in developing this information, but any forward
looking statements may turn out to be wrong. They can be affected by
inaccurate assumptions or by known or unknown risks and uncertainties that
could significantly affect our actual results or financial condition. These
risks and uncertainties include among others, general economic conditions
(including the uncertainty as to duration and rate of the current economic
recovery), the impact on the economy from any further terrorist activities or
any US military engagements, and interest rate levels, changes and
fluctuations, all of which can impact our 42




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sales, investment portfolios, and earnings; any failure to complete
successfully the integration of our recently completed group acquisition;
competitive factors, including pricing pressures, technological developments,
new product offerings and the emergence of new competitors; changes in federal
and state taxes, changes in the regulation of the financial services industry;
or changes in other laws and regulations and their impact; and the various
risks discussed earlier. We undertake no obligation to publicly correct or update any forward looking
statements, whether as a result of new information, future developments or
otherwise. You are advised, however, to consult any further disclosures we
make on related subjects in our press releases and filings with the SEC. In
particular, you should read the discussion in the section entitled External
Trends and Forward Looking Information, and other sections it may reference,
in our most recent 10-K report as it may be updated in our subsequent 10-Q and
8-K reports. This discussion covers certain risks, uncertainties and possibly
inaccurate assumptions that could cause our actual results to differ materially
from expected and historical results. Other factors besides those listed there
could also adversely affect our performance. 43




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Item 3. Quantitative and Qualitative Disclosures about Market Risk Information under the heading Market Risk Exposures in Managements
Discussion and Analysis of Financial Condition and Results of Operations is
incorporated herein by reference. Item 4. Controls and Procedures  (a)
    
    We carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of our
disclosure controls and procedures pursuant to Securities Exchange Act of
1934 (Act) Rule 13a-15. Based on that evaluation, our management,
including our CEO and CFO, concluded, as of the end of the period covered
by this report, that our disclosure controls and procedures were
effective. Disclosure controls and procedures include controls and
procedures designed to ensure that management, including our CEO and CFO,
is alerted to material information required to be disclosed in our filings
under the Act so as to allow timely decisions regarding our disclosures.
In designing and evaluating disclosure controls and procedures, we
recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do.(b)
    
    There have been no changes in our internal controls over financial
reporting identified in connection with the evaluation described in the
above paragraph that occurred during the first quarter 2004 that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting. 44




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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 of
    
    Maximum Number ofShares Purchased as
    
    Shares that May YetTotal Number of
    
    Average Price Paid
    
    Part of Publicly
    
    Be Purchased UnderPeriod
    
    Shares Purchased
    
    per Share
    
    Announced Plans
    
    the PlansJanuary 1-31, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    2,451,400February 1-29, 2004
    
    
    608,400
    
    
    $
    53.43
    
    
    
    608,400
    
    
    
    4,391,600March 1-31, 2004
    
    
    1,275,800
    
    
    $
    53.82
    
    
    
    1,275,800
    
    
    
    3,115,800Total for Quarter
    
    
    1,884,200
    
    
    $
    53.70
    
    
    
    1,884,200
 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 May 5, 2003 and most recently to
5.0 million shares on February 9, 2004, and in each case we announced the
Boards action in a contemporaneous press release. Item 4. Submission of Matters to a Vote of Security Holders The following information relates to the registrants May 3, 2004 annual
meeting of shareholders.  (a)
    
    Election of Directors: Class III
    
    Term
    
    Votes For
    
    WithheldDennis R. Glass
    
    Three Years
    
    
    119,741,079
    
    
    
    2,081,563George W. Henderson
    
    Three Years
    
    
    119,279,538
    
    
    
    2,543,104Patrick S. Pittard
    
    Three Years
    
    
    120,145,802
    
    
    
    1,676,840
 Class II
    
    Term
    
    Votes For
    
    WithheldRobert G. Greer
    
    Two Years
    
    
    118,967,249
    
    
    
    2,855,393
 45




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(b)
    
    Ratify Appointment of Ernst & Young LLP as independent auditors: Votes For
    
    Votes Against
    
    Abstain119,460,696
    
    
    941,637
    
    
    
    1,420,309
  (c)
    
    Approve Non-Employee Directors Stock Option Plan: Votes For
    
    Votes Against
    
    Abstain85,980,335
    
    
    9,955,956
    
    
    
    2,307,631
 Item 6. Exhibits and Reports on Form 8-K  (a)
    
    Exhibits. See Exhibit Index on page 48.(b)
    
    Reports on Form 8-K:  1.
    
    On February 2, 2004, Jefferson Pilot filed a report on Form 8-K,
which furnished under items 7 and 9 the press release issued February
2, 2004, reporting financial results for the fourth quarter of 2003.
The press release was filed as an exhibit to the Form 8-K.2.
    
    On April 20, 2004, Jefferson Pilot filed a report on Form 8-K,
which filed under items 5 and 7 the selected press release schedules
issued April 20, 2004, reporting historical quarterly results. The
selected press release schedules were filed as an exhibit to the Form
8-K.3.
    
    On April 27, 2004, Jefferson Pilot filed a report on Form 8-K,
which filed under items 5 and 7 the press release issued April 27,
2004, reporting financial results for the first quarter of 2004. The
press release was filed as an exhibit to the Form 8-K. 46




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. JEFFERSON-PILOT CORPORATION By (Signature) /s/Theresa M. Stone
(Name and Title) Theresa M. Stone, Executive Vice President and Chief
Financial Officer Date May 7, 2004 By (Signature) /s/Reggie D. Adamson
(Name and Title) Reggie D. Adamson, Senior Vice President and
Treasurer 
 Date May 7, 2004 47




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EXHIBIT INDEX Exhibit Number
    
    Description12
    
    Statements re Computation of Ratios.31(i)
    
    Certification of Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31(ii)
    
    Certification of Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32
    
    Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 48