FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2000 Commission file number 1-5955
Jefferson-Pilot Corporation
(Exact name of registrant as specified in its charter)
North Carolina 56-0896180
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 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 and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
------ ------
Number of shares of common stock outstanding at September 30, 2000
103,077,371
<PAGE>
JEFFERSON-PILOT CORPORATION
INDEX
- Page No. -
Part I. Financial Information
Consolidated Unaudited Condensed Balance Sheets
- September 30, 2000 and December 31, 1999 3
Consolidated Unaudited Condensed Statements of Income
- Three Months and Nine Months ended September 30, 2000
and 1999 4
Consolidated Unaudited Condensed Statements of Cash Flows
- Nine Months ended September 30, 2000 and 1999 5
Notes to Consolidated Unaudited Condensed Financial
Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II. Other Information 29
Signatures 30
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<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
(In Millions)
<CAPTION>
September 30 December 31
ASSETS 2000 1999
------------ -----------
<S> <C> <C>
Debt securities available for sale, at fair value
(amortized cost $13,022 and $12,235) $12,746 $11,831
Debt securities held to maturity, at amortized cost
(fair value $2,976 and $3,259) 3,045 3,351
Equity securities available for sale, at fair value
(cost $82 and $98) 639 737
Mortgage loans on real estate 2,625 2,543
Other investments 1,078 1,074
Cash and cash equivalents 61 62
------ ------
Total cash and investments 20,194 19,598
Accrued investment income 268 266
Due from reinsurers 1,532 1,576
Deferred policy acquisition costs and value
of business acquired 2,050 2,040
Cost in excess of net assets acquired 304 303
Assets held in separate accounts 2,450 2,272
Other assets 474 391
------ ------
Total assets $27,272 $26,446
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $19,848 $19,443
Debt:
Commercial paper 428 361
Exchangeable Securities and other debt 147 290
Securities sold under repurchase agreements 469 523
Liabilities related to separate accounts 2,450 2,272
Tax liabilities 190 123
Accounts payable, accruals and other liabilities 435 381
------ ------
23,967 23,393
------ ------
Guaranteed preferred beneficial interest in
subordinated debentures ("Capital Securities") 300 300
------ ------
Stockholders' Equity:
Common stock 134 129
Retained earnings 2,619 2,358
Accumulated other comprehensive income -
net unrealized gains on securities 252 266
------ ------
3,005 2,753
------ ------
Total liabilities and stockholders' equity $27,272 $26,446
====== ======
</TABLE>
See Notes to Consolidated Unaudited Condensed Financial Statements
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<PAGE>
<TABLE>
JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
(In Millions Except Per Share Information)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Premiums and other considerations $ 337 $ 223 $1,011 $ 693
Net investment income 356 317 1,068 948
Realized investment gains 26 27 105 98
Communications sales 48 50 150 147
Other 40 19 96 59
----- ----- ----- -----
Total revenue 807 636 2,430 1,945
----- ----- ----- -----
Benefits and Expenses:
Insurance and annuity benefits 407 310 1,214 919
Insurance commissions, net of deferrals 39 24 79 72
General and administrative expenses,
net of deferrals 60 44 189 144
Amortization of deferred acquistion costs
and value of business acquired 71 46 228 147
Communications operations 27 28 89 88
----- ----- ----- -----
Total benefits and expenses 604 452 1,799 1,370
----- ----- ----- -----
Income before income taxes 203 184 631 575
Provision for income taxes 68 62 215 196
----- ----- ----- -----
Net income 135 122 416 379
Dividends on Capital Securities 6 6 18 18
----- ----- ----- -----
Net income available to common
stockholders $ 129 $ 116 $ 398 $ 361
===== ===== ===== =====
Comprehensive income $ 227 $ (10) $ 402 $ 32
===== ===== ===== =====
Average number of shares outstanding 103.0 105.3 103.1 105.7
===== ===== ===== =====
Net Income Per Share of Common Stock:
Net income available to common stockholders
before realized investment gains, net
of income taxes $ 1.09 $ 0.94 $ 3.20 $ 2.81
Realized investment gains, net of income
taxes 0.16 0.16 0.66 0.61
----- ----- ----- -----
Net income available to common
stockholders $ 1.25 $ 1.10 $ 3.86 $ 3.42
===== ===== ===== =====
Net income available to common
stockholders - assuming dilution $ 1.24 $ 1.09 $ 3.83 $ 3.38
===== ===== ===== =====
Dividends declared per common share $0.370 $0.330 $1.110 $0.990
===== ===== ===== =====
</TABLE>
See Notes to Consolidated Unaudited Condensed Financial Statements
-4-
<PAGE>
<TABLE>
JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED
STATEMENTS OF CASH FLOWS
(In Millions)
<CAPTION>
Nine Months Ended Nine Months Ended
September 30
2000 1999
------ ------
<S> <C> <C>
Net cash provided by operations $ 302 $ 377
----- -----
Cash Flows from Investing Activities:
Investments purchased, net (464) (585)
Other investing activities (28) (42)
----- -----
Net cash used in investing activities (492) (627)
----- -----
Cash Flows from Financing Activities:
Policyholder contract deposits, net 2,056 1,433
Policyholder contract withdrawals, net (1,579) (1,025)
Net short-term borrowings (134) 60
Repurchase of common shares, net (21) (82)
Cash dividends paid (135) (120)
Other financing activities 2 3
----- -----
Net cash provided by financing activities 189 269
----- -----
Increase (decrease) in cash and cash equivalents (1) 19
Cash and cash equivalents at beginning of period 62 21
----- -----
Cash and cash equivalents at end of period $ 61 $ 40
===== =====
Supplemental Cash Flow Information:
Income taxes paid $ 141 $ 156
===== =====
Interest paid $ 50 $ 33
===== =====
</TABLE>
See Notes to Consolidated Unaudited Condensed Financial Statements
-5-
<PAGE>
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 generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany accounts and transactions
have been eliminated in consolidation. Operating results for the nine
months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. Segment Reporting
The Company has five reportable segments which 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 Corporate and Other
segment includes activities of the parent company and passive
investment affiliates, surplus of the life insurance subsidiaries not
otherwise allocated to other reportable segments including earnings
thereon, and all of the Company's realized gains and losses. Surplus
is allocated to the Individual Products, AIP and Benefit Partners
reportable segments based on risk-based capital formulae which give
consideration to asset/liability and general business risks, as well as
the Company's strategies for managing those risks. Various
distribution channels and/or product classes related to the Company's
life and health insurance, annuity and investment products have been
aggregated in the Individual Products, AIP, and Benefit Partners
reporting segments.
The following table summarizes certain financial information regarding
the Company's reportable segments:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------- -------
<S> <C> <C>
Assets
Individual Products $15,002 $14,493
AIP 7,639 7,443
Benefit Partners 740 606
Communications 203 217
Corporate & other 3,688 3,687
------ ------
Total assets $27,272 $26,446
====== ======
</TABLE>
-6-
<PAGE>
2. Segment Reporting (continued)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Individual Products $ 417 $ 371 $ 1,255 $ 1,103
AIP 166 125 469 379
Benefit Partners 135 36 395 133
Communications 47 49 148 144
Corporate & Other 16 28 58 88
------ ------ ------ ------
781 609 2,325 1,847
Realized investment gains, before tax 26 27 105 98
------ ------ ------ ------
Total revenues $ 807 $ 636 $ 2,430 $ 1,945
====== ====== ====== ======
Reportable segments results and
reconciliation to net income
available to common stockholders
Individual Products $ 77 $ 56 $ 214 $ 177
AIP 18 17 58 52
Benefit Partners 7 6 25 18
Communications 10 9 28 25
Corporate & Other 0 11 5 25
------ ------ ------ ------
Total reportable segment results 112 99 330 297
Realized investment gains, net of tax 17 17 68 64
------ ------ ------ ------
Net income available to common
stockholders $ 129 $ 116 $ 398 $ 361
====== ====== ====== ======
</TABLE>
-7-
<PAGE>
3. Income Per Share of Common Stock
The following table sets forth the computation of earnings per share
and earnings per share assuming dilution:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 135 $ 122 $ 416 $ 379
Dividends on Capital
Securities 6 6 18 18
------ ------ ------ ------
Numerator for earnings per
share and earnings per share
- assuming dilution - Net
income available to common
stockholders $ 129 $ 116 $ 398 $ 361
====== ====== ====== ======
Denominator:
Denominator for earnings per
share - weighted-average
shares outstanding 103,015,225 105,337,615 103,106,416 105,680,801
Effect of dilutive
securities:
Employee stock options 952,074 1,054,597 886,826 1,096,483
----------- ----------- ----------- -----------
Denominator for earnings per
share - assuming dilution -
adjusted weighted-average
shares outstanding and
assuming conversions 103,967,299 106,392,212 103,993,242 106,777,284
=========== =========== =========== ===========
Earnings per share $ 1.25 $ 1.10 $ 3.86 $ 3.42
===== ===== ===== =====
Earnings per share -
assuming dilution $ 1.24 $ 1.09 $ 3.83 $ 3.38
===== ===== ===== =====
</TABLE>
4. Contingent Liabilities
JP Life is a defendant in a proposed class action suit. The suit alleges
deceptive practices, fraudulent and negligent misrepresentation and breach of
contract in the sale of certain life insurance policies using policy
illustrations which plaintiffs claim were misleading. Unspecified
-8-
<PAGE>
compensatory and punitive damages, costs and equitable
relief are sought. While management is unable to make a meaningful
estimate of the amount or range of loss that could result from an
unfavorable outcome, management believes that it has made appropriate
disclosures to policyholders as a matter of practice, and intends to
vigorously defend its position.
In the normal course of business, the Company and its subsidiaries are
parties to various lawsuits. Because of the considerable uncertainties
that exist, the Company cannot predict the outcome of pending or future
litigation. However, management believes that the resolution of
pending legal proceedings will not have a material adverse effect on
the Company's financial position or liquidity, although it could have a
material adverse effect on the results of operations for a specified
period.
5. Accounting Pronouncements
Effective January 1, 2001, the Company will adopt SFAS 133, "Accounting
for Derivative Instruments and for Hedging Activities". SFAS 133
requires all derivatives to be recorded on the balance sheet and
establishes accounting rules for hedging activities. The effect of the
hedge accounting rules is to offset changes in value or cash flows of
both the hedge and the hedged item in earnings in the same period.
Changes in the fair value of derivatives that do not qualify for hedge
accounting are reported in earnings in the period of the change. Based
on the limited nature of the Company's use of derivatives and hedging
activities, adoption of the pronouncement is not expected to have a
material impact on the Company's financial position or results of
operations.
-9-
<PAGE>
JEFFERSON-PILOT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management's Discussion and Analysis of financial
condition as of September 30, 2000, changes in financial condition for
the nine months then ended, and results of operations for the three
month and nine month periods ended September 30, 2000 as compared to the
same periods of 1999. This discussion supplements Management's
Discussion and Analysis in Form 10-K for the year ended December 31,
1999, and it should be read in conjunction with the interim financial
statements and notes contained herein. All dollar amounts are in
millions except per share amounts.
Company Profile
The Company (JP) has five reportable segments: Individual Products,
Annuity and Investment Products (AIP), Benefit Partners (formerly called
Group Products), Communications, and Corporate and Other. Within the
Individual Products segment, JP offers a wide array of individual life
insurance products. AIP offers both fixed and variable annuities, as
well as other investment products. Benefit Partners offers group non-
medical products such as term life, disability and dental insurance to
the employer marketplace. Various insurance and investment products are
currently marketed to individuals and businesses in the United States.
At September 30, 2000, the Company's principal life insurance
subsidiaries were Jefferson-Pilot Life Insurance Company (JP Life), and
Jefferson Pilot Financial Insurance Company and its subsidiary Jefferson
Pilot LifeAmerica Insurance Company (collectively JP Financial).
Effective August 1, Alexander Hamilton Life Insurance Company of America
and Guarantee Life Insurance Company (Guarantee) were merged into JP
Financial in order to improve efficiencies and reduce administrative
expenses and other costs.
Communications operations are conducted by Jefferson-Pilot
Communications Company (JPCC) and consist of radio and television
broadcasting operations located in strategically selected markets in the
Southeastern and Western United States, and sports program production.
Corporate and Other contains the activities of the parent company and
passive investment affiliates, surplus of the life insurance
subsidiaries not allocated to other reportable segments including
earnings thereon, financing expenses on Corporate debt and debt
securities including Capital Securities, and federal and state income
taxes not otherwise allocated to business segments.
For the first nine months of 2000, JP's revenues were derived 54% from
Individual Products, 20% from AIP, 17% from Benefit Partners, 6% from
Communications, and 3% from Corporate and Other, excluding realized
gains.
Acquisition Summary
JP's acquisition strategy is designed to enhance core business growth
and deploy excess capital. The acquisitions' focus is to increase
distribution, add products, add technology and provide economies of
scale. On December 30, 1999 the Company acquired Guarantee using the
purchase method of accounting. Its operations have been integrated with
other JP operations. Segment results for Individual Operations, AIP
and Benefit Partners for 2000 include the former Guarantee block of
-10-
<PAGE>
insurance operations (collectively Guarantee Block). During the first
quarter of 2000, Jefferson Pilot Securities Corporation, a broker/dealer
subsidiary included in the AIP segment, completed the acquisition of
Polaris Financial Services and Polaris Advisory Services, a high quality
financial planning broker/dealer that added 350 registered
representatives to Jefferson Pilot Securities' distribution.
Results of Operations
In the following discussion, "reportable segment results" and "total
reportable segment results" include all elements of net income available
to common stockholders except realized gains on sales of investments
(realized investment gains). Realized investment gains, as defined, are
net of related income taxes and amortization of deferred acquisition costs
and value of business acquired. Realized investment gains are included in
the "Corporate and Other" segment. Reportable segment results is the basis
used by management of the Company in assessing the performance of its
business segments. Management believes that reportable segment results
are relevant and useful information. Gains from sales of investments
arise in majority from its Available for Sale equity and bond portfolios
and may be realized in the sole discretion of management. Reportable
segment results as described above may not be comparable to similarly
titled measures reported by other companies.
The following tables illustrate JP's results before and after the
inclusion of realized investment gains:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Consolidated Summary of Income
Total reportable segment results (1) $112.2 $99.4 $330.0 $296.9
Realized investment gains (net of
applicable income taxes) 17.0 16.6 68.3 64.1
------ ------ ------ ------
Net income available to common
stockholders $129.2 $116.0 $398.3 $361.0
====== ====== ====== ======
Consolidated Earnings Per Share
Basic:
Total reportable segment results (1) $1.09 $0.94 $3.20 $2.81
Realized investment gains (net of
applicable income taxes) 0.16 0.16 0.66 0.61
------ ------ ------ ------
Net income available to common
stockholders $1.25 $1.10 $3.86 $3.42
====== ====== ====== ======
Fully-diluted:
Total reportable segment results (1) $1.08 $0.93 $3.17 $2.78
Realized investment gains (net of
applicable income taxes) 0.16 0.16 0.66 0.60
------ ------ ------ ------
Net income available to common
stockholders $1.24 $1.09 $3.83 $3.38
====== ====== ====== ======
</TABLE>
(1) Total reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
-11-
<PAGE>
Net income available to common stockholders increased 11.4 % and 10.3%
from the third quarter and first nine months of 1999. Total reportable
segment results increased 12.9% and 11.1% over the third quarter and
first nine months of 1999 due to increased profitability in the
Individual Products, AIP, Benefit Partners and Communications segments.
The increase in 2000 also reflected the deployment of corporate capital
into the more profitable Individual Products, AIP and Benefit Partners
segments primarily through the acquisition of the Guarantee Block. The
Corporate and Other segment declined due to financing costs associated
with the Guarantee acquisition, share repurchases and the redeployment
of capital in operating segments. Net realized gains increased 2.4% and
6.6% over the third quarter and first nine months of 1999. Total
reportable segment results per share increased 16.0% and 13.9% over the
third quarter and first nine months of 1999, reflecting the increase in
core business earnings and the impact of share repurchases in 1999 and
2000. Earnings per share increased 13.6% and 12.9% from the third
quarter and first nine months of 1999, and earnings per share assuming
dilution increased 13.8% and 13.3% from the third quarter and first nine
months of 1999 for the same reasons. Primarily due to share
repurchases, the average number of diluted shares outstanding decreased
2.3% and 2.6% to 104.0 million shares from the third quarter and nine
months of 1999.
Results by Business Segment
Management assesses profitability by business segment and measures other
operating statistics as detailed in the separate segment discussions
that follow. Sales are one of the statistics by which performance is
tracked. Because of the nature of our sales, which are primarily long-
duration contracts, sales in a given quarter do not have a near term
material impact on operating results and therefore, are not considered
to be material information. However, trends relating to new product
sales over a longer period of time may be an indicator of future growth
and profitability.
Reportable segments are determined in a manner consistent with the way
management organizes for purposes of making operating decisions and
assessing performance. Invested assets backing insurance liabilities
are assigned to segments in relation to policyholder funds and reserves.
Net deferred acquisition costs incurred, value of business acquired,
reinsurance receivables and communications assets are assigned to the
respective segments where those assets originate. Invested assets are
also assigned to back capital allocated to each segment in relation to
JP's philosophy for managing business risks, reflecting appropriate
conservatism. The remainder of invested and other assets are assigned
to the Corporate and Other segment.
-12-
<PAGE>
Results by Reportable Segment
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Individual Products $ 76.6 $ 56.7 $213.9 $177.2
Annuity and Investment Products 18.3 17.0 58.6 51.5
Benefit Partners 7.5 5.7 24.7 18.1
Communications 9.7 9.6 27.7 25.5
Corporate and Other 0.1 10.4 5.1 24.6
------ ------ ------ ------
Total reportable segment results (1) 112.2 99.4 330.0 296.9
Net realized investment gains 17.0 16.6 68.3 64.1
------ ------ ------ ------
Net income available to common
stockholders $129.2 $116.0 $398.3 $361.0
====== ====== ====== ======
</TABLE>
(1) Total reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
Segment Assets
<TABLE>
<CAPTION>
September 30
2000 1999
-------- --------
<S> <C> <C>
Individual Products $15,002 $13,011
Annuity and Investment Products 7,639 6,662
Benefit Partners 740 372
Communications 203 210
Corporate & other 3,688 3,904
-------- --------
Total assets $27,272 $24,159
======== ========
</TABLE>
A more detailed discussion of reportable segment results follows.
Individual Products
The Individual Products segment offers a wide array of life insurance
products to individuals through a career agency force, independent
agents recruited through independent marketing organizations and a
regional office network, home service agents, and financial
institutions.
Individual Products include universal life (UL) and variable universal
life (VUL), together referred to as UL-type products, as well as
traditional life products. The operating cycle for life insurance
products is long term in nature; therefore, actuarial assumptions are
important to financial reporting for these policies. Traditional
products require the policyholder to pay scheduled premiums over the
life of the coverage. Traditional premium receipts are recognized as
revenues and profits are expected to emerge in relation thereto.
Interest-sensitive product (or UL-type product) premiums may vary over
the life of the policy at the discretion of the policyholder and are not
recognized as revenues. Revenues and reportable segment results on these
products arise from mortality, expense and surrender charges to
policyholder fund balances (policy charges). Additionally, JP earns
interest spreads and investment advisory fees on policyholder fund
-13-
<PAGE>
balances. Reportable segment results for both traditional and UL-type
products also include earnings on required capital.
Segment results were:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C> <C> <C>
Life premiums and other
considerations $ 48.1 $ 48.5 $ 160.1 $ 147.1
U.L. and investment product
charges 154.8 135.6 459.5 403.8
Investment income, net of expenses 211.7 185.6 629.4 547.9
Other income 2.3 1.4 6.6 4.1
------ ------ ------- -------
Total revenues 416.9 371.1 1,255.6 1,102.9
------ ------ ------- -------
Policy benefits 225.3 208.3 687.0 602.4
Expenses 74.6 76.3 241.1 230.0
------ ------ ------- -------
Total benefits and expenses 299.9 284.6 928.1 832.4
------ ------ ------- -------
Reportable segment results before
income taxes 117.0 86.5 327.5 270.5
Provision for income taxes 40.4 29.8 113.6 93.3
------ ------ ------- -------
Reportable segment results (1) $ 76.6 $ 56.7 $ 213.9 $ 177.2
======= ====== ======= =======
</TABLE>
(1) Reportable segment results include all elements of net income
available to common stockholders except realized investment gains.
The following table summarizes key information for Individual Products:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Annualized life insurance
premium sales:
Recurring premium sales $ 31.7 $ 28.0 $ 92.5 $ 87.1
Single premium sales 8.9 10.2 27.9 40.7
------ ------ ------ ------
$ 40.6 $ 38.2 $120.4 $127.8
====== ====== ====== ======
Individual traditional insurance
premium income 47.5 48.0 158.2 145.2
Average UL policyholder fund
balances 8,826.8 7,830.6 8,770.7 7,713.6 6
Average VUL separate account
assets 1,406.1 1,011.7 1,383.7 943.7
------- ------- ------- -------
10,232.9 8,842.3 10,154.4 8,657.3
======== ======= ======== =======
Average face amount of insurance
in force:
Total 156,928.0 139,797.0 157,551.0 139,418.0
UL-type policies 112,460.0 101,467.0 112,025.0 100,856.0
Average assets - Individual
products 14,942.6 12,923.9 14,843.4 12,655.4
</TABLE>
Individual Products reportable segment results increased $19.9 or 35.1%
and $36.7 or 20.7% over the third quarter and first nine months of 1999,
due to growth of the business in force and the acquisition of the
Guarantee Block.
-14-
<PAGE>
Annualized life insurance premium sales increased 6.3% and declined 5.8%
from the third quarter and the first nine months of 1999. Annualized
recurring premium sales increased 13.2% and 6.2% from the quarter and
nine months of 1999 due primarily to an increase in VUL sales resulting
from new product introductions and a heightened marketing emphasis.
Annualized single premium sales relating to benefit funding products,
such as Bank Owned Life Insurance (BOLI), declined 12.7% and 31.4% from
the quarter and nine months of 1999. Due to the nature of these single
premium products, volatility between periods can be expected.
Revenues include traditional insurance premiums, policy charges and
investment income. Individual revenues increased 12.3% and 13.8% from
the third quarter 1999 and first nine months of 1999, as a result of the
increase in the growth in average policyholder fund balances. The
growth in average UL fund balances and VUL separate accounts, which
increased 15.7% and 17.3% over the third quarter and first nine months
of 1999, was a result of net policyholder receipts and the acquisition
of the Guarantee Block.
Individual traditional premiums declined 1.0% from the third quarter of
1999 due to the timing of reinsurance payments as well as the
introduction of new equity-based life insurance products. However,
individual traditional premiums increased 9.0% from the first nine
months of 1999 due primarily to the acquisition of the Guarantee Block,
although this trend is not expected to continue once Guarantee is in the
prior period base for comparison. Policy charges, which include
mortality, expense and surrender charges, increased 14.2% and 13.8% from
the third quarter and first nine months of 1999. These increases are
primarily from the Guarantee Block acquisition.
Net investment income increased $26.1 or 14.1% and $81.5 or 14.9% over
the third quarter and first nine months of 1999, following the growth in
segment assets. The portfolio yield on traditional assets increased 1
basis point to 7.73% from the third quarter 1999 and remained flat at
7.73% for the nine months. The average investment spread on UL-type
products increased 8 basis points to 2.01% and 6 basis points to 1.97%
from the third quarter and nine months of 1999. In addition to being
impacted by portfolio yields and crediting rates, interest spreads may
vary over time due to competitive strategies and changes in product
design.
Policy benefits increased 8.2% and 14.0% from the third quarter and nine
months of 1999 due to growth of business in force and the Guarantee
Block acquisition. Traditional policy benefits were 99.5% versus 105.7%
of premiums in the third quarter and 103.2% versus 106.3% for the first
nine months 2000 and 1999 due to favorable mortality and the blending of
the Guarantee Block. Policy benefits on UL-type products (annualized)
decreased slightly to 7.0% versus 7.1% of average policyholder funds and
separate accounts for the third quarter of 2000 and 1999. Policy
benefits on UL-type products (annualized) were 6.9% for the first nine
months of 2000 and 1999. Policy benefits include interest credited to
policyholder accounts on UL-type products, whereas premium receipts on
these products are credited directly to policyholder accounts and not
recorded as revenues.
Total expenses (including the net deferral and amortization of policy
acquisition costs) declined 2.2% from the third quarter of 1999. The
decrease in total expenses for the quarter can be attributed to several
items including a recalculation of annual pension costs, a change in
intra-company rent allocation, and a financial reporting system
conversion adjustment relating to the Guarantee acquisition. These
items reflect a cumulative adjustment recorded during the quarter to
record correct year-to-date provisions. However, total expenses
-15-
<PAGE>
increased 4.8% from the first nine months of 1999 due to the acquisition
of the Guarantee Block. Expenses on individual traditional products
were 21.2% of premiums versus 27.8% and 28.5% versus 30.2% in the third
quarter and first nine months of 2000 and 1999. For UL-type products,
annualized expenses as a percentage of policyholder funds and separate
accounts were 2.5% versus 2.8% for both the third quarter and first nine
months of 2000 and 1999. These improvements reflect overall lower
expenses as well as growth in policyholder funds and separate accounts.
Average Individual Products assets grew 15.6% and 17.3% over the third
quarter and first nine months of 1999, due to the Guarantee Block
acquisition, net receipts on UL-type products, new sales and growth in
existing policyholder funds. The annualized return on average
Individual Products assets was 2.05% versus 1.75% for the third quarter
reflecting favorable mortality experience and lower total expenses. The
annualized return on average Individual Products assets for the first
nine months of 2000 and 1999 was 1.92% versus 1.87%, benefiting from the
favorable third quarter results.
Annuity and Investment Products
Annuity and Investment Products offers its products through financial
institutions, independent agents, career agents, investment
professionals and broker/dealers. Reportable segment results were:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Policy charges, premiums and other
considerations $ 7.6 $ 4.2 $ 21.5 $ 13.6
Net investment income 121.4 104.0 358.0 310.9
Concession and other income 37.4 17.5 89.2 54.8
------ ------ ------ ------
Total revenues 166.4 125.7 468.7 379.3
Policy benefits 86.0 79.1 251.4 228.3
Expenses 51.9 20.4 126.7 71.4
------ ------ ------ ------
Total benefits and expenses 137.9 99.5 378.1 299.7
------ ------ ------ ------
Reportable segment results before
income taxes 28.5 26.2 90.7 79.6
Provision for income taxes 10.2 9.2 32.1 28.1
------ ------ ------ ------
Reportable segment results (1) $ 18.3 $ 17.0 $ 58.6 $ 51.5
====== ====== ====== ======
</TABLE>
(1) Reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
-16-
<PAGE>
Reportable segment results increased $1.3 or 7.7% and $7.1 or 13.8% over
the third quarter and first nine months of 1999. The following table
summarizes key information for AIP:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Fixed annuity premium receipts $ 422.3 $ 280.1 $ 962.0 $ 503.7
Variable annuity premium receipts 21.4 25.2 87.6 86.8
-------- ------- ------- ------
443.7 305.3 1,049.6 590.5
Average policyholder fund
balances $6,328.9 $5,614.0 $6,318.8 $5,631.4
Average separate account
policyholder fund balances 698.9 596.6 706.4 551.6
-------- -------- -------- --------
$7,027.8 $6,210.6 $7,025.2 $6,183.0
Investment product sales $1,071.5 $ 488.8 $2,823.3 $1,739.8
Average assets $7,582.6 $6,604.8 $7,517.4 $6,541.0
</TABLE>
Revenues increased 32.4% and 23.6% over the third quarter and nine
months of 1999. Annuity revenues are derived from investment income on
segment assets, policy charges and concession income earned on
investment product sales by Jefferson Pilot Securities Corporation
(JPSC), a registered broker/dealer, and related entities. The increases
in revenues are primarily driven by increases in average policyholder
fund balances including separate accounts, which grew 13.2% and 13.6%
over the third quarter and nine months of 1999. The increase in
policyholder fund balances and average assets resulted from new receipts
and interest credited less benefits and withdrawals paid, as well as the
Guarantee Block acquisition. Fixed annuity receipts increased 50.8% and
91.0% over the third quarter and nine months of 1999, due to significant
sales increases, particularly of new products introduced in the 1999
second half. In total, fixed and variable annuity receipts increased by
45.3% and 77.7% over the third quarter and nine months of 1999. Fixed
annuity surrenders as a percentage of beginning fund balances increased
to 24.8% versus 16.8% and 23.3% versus 15.2% from the third quarter and
nine months of 1999. The surrender rate in the AIP segment is influenced
by many factors, including the portion of the business that is no longer
subject to surrender charges, competition from annuity products which
pay interest rate bonuses and from other investment products. JP
maintains asset/liability management practices that reflect the
characteristics of the AIP liabilities. Concessions and other income
increased 113.7% and 62.8% over the third quarter and first nine months
of 1999, due to higher sales of the Company's variable products and the
completion of the Polaris integration in the current quarter.
Total AIP benefits and expenses increased 38.6% and 26.2% over the third
quarter and nine months of 1999 due to the acquisition of the Guarantee
Block and growth in average policyholder fund balances. Annualized
policy benefits, which are mainly comprised of interest credited to
policyholder accounts, as a percentage of average policyholder fund
balances were 5.4% versus 5.6% and 5.3% versus 5.4% for the third
quarter and first nine months of 2000 and 1999. Effective spreads, which
represent investment yields less interest credited to policyholders,
adjusted for the net deferral of bonus interest and assuming the same
level of assets, were 2.15% in the third quarter of 2000 and 1999.
Effective spreads were 2.16% versus 2.14% in the nine months of 2000 and
-17-
<PAGE>
1999. The increase for the nine months resulted from blending of the
Guarantee Block business and higher yields on new investments. Spreads
on new products sold in 2000 averaged somewhat lower than the existing
block of business.
Total AIP expenses increased 154.4% and 77.5% over the third quarter and
nine months of 1999. Annualized insurance expenses as a percentage of
average policyholder fund balances including separate accounts were 3.0%
versus 1.3% and 2.4% versus 1.5% for the third quarter and nine months
of 2000 and 1999. The growth in expenses was due to an increase in
commissions related to broker/dealer operations, similar to the
increases in concessions and other income, and an increase in
amortization of DAC due to increased surrenders.
AIP posted annualized returns on average assets of 1.0% for the third
quarter and nine months of 2000 and 1999.
The combined earnings of the broker/dealer and related entities which
are included in the segment results were $1.3 versus $0.9 and $4.3
versus $3.3 for the third quarter and nine months of 2000 and 1999.
Benefit Partners
The Benefit Partners segment offers group non-medical products such as
term life, disability and dental insurance to the employer marketplace.
These products are marketed 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:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Premiums and other considerations $ 121.6 $ 28.2 $ 356.7 $ 109.8
Investment income, net of expenses 13.0 7.5 38.2 23.2
------- ------- ------- -------
Total revenues 134.6 35.7 394.9 133.0
------- ------- ------- -------
Policy benefits 91.5 20.1 263.3 79.2
Expenses 31.6 6.9 93.8 26.3
------- ------- ------- -------
Total benefits and expenses 123.1 27.0 357.1 105.5
------- ------- ------- -------
Reportable segment results before
income taxes 11.5 8.7 37.8 27.6
Provision for income taxes 4.0 3.0 13.1 9.5
------- ------- ------- -------
Reportable segment results (1) $ 7.5 $ 5.7 $ 24.7 $ 18.1
======= ======= ======= =======
</TABLE>
(1) Reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
Benefit Partners reportable segment results increased $1.8 or 31.6% and
$6.6 or 36.5% over the third quarter and nine months of 1999, primarily
as a result of the Guarantee acquisition.
-18-
<PAGE>
The following table summarizes key information for Benefit Partners:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Life, Disability, and Dental:
Annualized sales $ 28.7 $ 2.0 $ 92.4 $ 11.7
Loss ratio 73.6% 89.3% 72.5% 87.2%
Total expenses, % of premiums
and equivalents 26.0% 20.5% 26.1% 17.0%
Average assets $727.3 $379.4 $697.9 $395.1
Premium income and equivalents $121.4 $ 33.7 $360.0 $155.2
</TABLE>
Benefit Partners revenues increased $98.9 or 277.0% and $261.9 or 196.9%
over the third quarter and nine months of 1999 due to the acquisition of
the Guarantee Block, including premium growth of $93.5 or 336.7% and
$248.8 or 232.1% over the third quarter and the nine months of 1999.
Including equivalent premiums on self-insured health policies, premiums
increased 260.2% and 132.0% over the third quarter and nine months of
1999. Annualized sales for the core life, disability, and dental lines
of business grew $26.7 or 1335.0% and $80.7 or 689.7% over the third
quarter and nine months of 1999 with new sales growth arising from the
purchase of Guarantee.
During the first quarter 2000, the Company entered into an agreement to
sell a block of Excess Loss policies with an annualized premium of $31.
The transfer of policies occurs on subsequent policy anniversary dates.
Sale of these policies is not expected to have a material impact on
results for the year.
Policy benefits increased 355.2% and 232.5% over the third quarter and
nine months of 1999, with the addition of the Guarantee Block business.
The life, disability and dental incurred loss ratio was 73.6% versus
89.3% in the third quarter and 72.5% versus 87.2% in the first nine
months of 2000 and 1999. The results for 1999 were comprised solely of
the JP Life business, which has a significantly larger average policy
size than that of the Guarantee Block and is a maturer block of
business. Both of these factors contributed to the lower 1999 loss
ratio.
Total expenses (including the net deferral and amortization of policy
acquisition costs) increased 358.0% and 256.7% over the third quarter
and first nine months of 1999, primarily due to the Guarantee Block
acquisition, partially offset by a decline in expenses related to a
declining book of medical business. As a percentage of premiums and
equivalents, total expenses were 26.0% and 20.5% for the quarter and
26.1% and 17.0% for the nine months of 2000 and 1999 due to the change
in average policy size with the addition of the Guarantee Block
contracts.
-19-
<PAGE>
Communications
JPCC operates television and radio broadcast properties and produces
syndicated sports programming. Reportable segment results were:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Communications revenues $ 48.5 $ 49.7 $151.6 $147.2
Operating costs and expenses 27.4 28.2 89.2 88.2
------ ------ ------ ------
Broadcast cash flow 21.1 21.5 62.4 59.0
Depreciation and amortization 2.7 2.9 8.3 8.8
Corporate general and
administrative expenses 1.3 1.4 4.2 3.8
Net interest expense 1.2 1.3 3.5 3.8
------ ------ ------ ------
Reportable segment results before
income taxes 15.9 15.9 46.4 42.6
Provision for income taxes 6.2 6.3 18.7 17.1
------ ------ ------ ------
Reportable segment results (1) $9.7 $ 9.6 $27.7 $ 25.5
====== ====== ====== ======
</TABLE>
(1) Reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
Reportable segment results increased 1.0% and 8.6% compared to the third
quarter and nine months of 1999. During the quarter the company
experienced a slowing in the rate of revenue growth from that
experienced in the first half of the year. This is consistent with a
general slowing in the economies of the markets in which we operate,
combined with disappointing revenues in one key market.
Combined revenues for Radio and Television declined 0.2% and grew 7.0%
from the third quarter and nine months of 1999. For the quarter, our
Radio revenues grew at a modest pace which was essentially in line with
the economic activity in our markets. Nine month Radio revenues reflect
the strong growth experienced during the first half of the year and the
slowing during the third quarter. Television revenues for the quarter
declined. Strong performances in our two smaller television markets
were boosted by political advertising and revenues associated with
Olympic programming. However, the gains at these two stations were more
than offset by poor sales performance during the quarter at our largest
Television property, reflecting activity associated with rebuilding the
sales force in that market. For the nine months Television revenues
were up slightly. Revenue from Sports operations decreased 25.6% and
22.6% from the third quarter and nine months of 1999. Third quarter
1999 results included Sports revenues from collegiate games that were
moved to the fourth quarter in 2000 while nine month comparisons are
negatively impacted by the disposal of certain entertainment production
operations early last year.
Total expenses excluding interest declined 3.4% and grew 0.8% from the
third quarter and nine months of 1999. Expenses as a percent of
-20-
<PAGE>
Communication revenues were 64.7% versus 65.4% and 67.0% versus 68.5%
for the third quarter and nine months of 2000 and 1999. The improvement
is attributable to a change in the mix of business away from lower
margin sports products toward higher margin broadcast business, and
expense control.
Broadcast cash flow declined 1.9% and grew 5.8% from the third quarter
and nine months of 1999. For the quarter broadcast cash flow for
combined Radio and Television declined 3% as the slowing growth in radio
earnings was more than offset by the Television results. For the nine
months the combined broadcast cash flow for Radio and Television was up
9% which is partially offset by the decline in Sports earnings mentioned
above.
Corporate and Other
The following table summarizes operating results for this
segment:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Earnings on investments $23.9 $28.7 $85.4 $90.7
Interest expense on debt and
Exchangeable Securities (12.5) (7.3) (40.6) (21.7)
Operating expenses (7.1) (2.2) (19.8) (12.5)
Federal and state income tax
expense 1.9 (2.7) (1.5) (13.5)
------ ------ ------ ------
6.2 16.5 23.5 43.0
Dividends on Capital Securities (6.1) (6.1) (18.4) (18.4)
------ ------ ------ ------
Reportable segment results (1) 0.1 10.4 5.1 24.6
Realized investment gains, net 17.0 16.6 68.3 64.1
------ ------ ------ ------
Reportable segment results,
including realized gains $17.1 $27.0 $73.4 $88.7
====== ====== ====== ======
</TABLE>
(1) Reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
The following table summarizes assets assigned to this segment:
<TABLE>
<CAPTION>
September 30
2000 1999
------- -------
<S> <C> <C>
Parent company, passive investment companies
and Corporate line assets of insurance
subsidiaries $1,663 $2,035
Unrealized gain (loss) on fixed interest
investments (162) (105)
Co-insurance receivables on acquired blocks 1,249 1,284
Employee benefit plan assets 379 332
Goodwill arising from insurance acquisitions 260 187
Other 299 171
------- -------
Total $3,688 $3,904
======= =======
</TABLE>
-21-
<PAGE>
Total assets for the Corporate and Other segment decreased
5.5% from September 30, 1999. This decline occurred
primarily due to funding of the Guarantee Block acquisition,
share repurchases, surrenders of 100% co-insured COLI
policies, and changes in market values of Available for Sale
securities. Unrealized gains and losses on Available for
Sale equity and fixed income securities are assigned to this
segment. Those values declined $57 from the third quarter
1999, as a result of increases in market interest rates and
declines in market values of financial services stocks.
Reportable segment results including realized gains declined
36.7% and 17.2% from the third quarter and first nine months
of 1999. Investment earnings decreased 16.7% from the third
quarter 1999, and decreased 5.8% from the first nine months
of 1999. The decrease in investment earnings for the
quarter was primarily attributable to a change in allocation
methodology for intra-company rents between this and other
segments. The third quarter impact was $2.5 before taxes
reflecting an adjustment on a year-to-date basis. Interest
expense on debt and exchangeable securities increased $5.2
and $18.9 over the third quarter and first nine months of
1999 as the level of commercial paper borrowings was
increased with the acquisition of the Guarantee Block, share
repurchases and the January 2000 redemption of Automatic
Common Exchange Securities (ACES). Operating expenses
increased $4.9 and $7.3 from the third quarter and nine
months of 1999 in relation to corporate activities. Federal
and state income tax expense includes the tax benefit of
preferred dividends on Capital Securities, which are
recorded gross of related tax effects. The $4.6 and $12.0
decrease in Federal and State income taxes from the third
quarter and first nine months of 1999 primarily reflects the
tax effect of lower Corporate and Other segment pre-tax
operating results.
The results of this segment may vary from quarter to quarter
and year to year due to expenses associated with strategic
activities and other corporate initiatives, income recorded
on equity method investments, transfers of assets to and
from business segments as well as refinements in asset
assignments and investment income allocation methodologies
to other reportable segments.
Financial Position, Capital Resources and Liquidity
JP's primary resources are investments related to its
Individual Products, AIP and Benefit Partners segments,
properties and other assets utilized in all segments and
investments backing corporate capital. The Investments
section reviews the Company's investment portfolio and key
strategies.
Total assets increased $826 or 3.1% during the nine months
of 2000, reflecting growth in separate account and
policyholder contract deposits.
The Individual Products, AIP and Benefit Partners segments
defer the costs of acquiring new business, including
commissions, first year bonus interest, certain costs of
underwriting and issuing policies, and agency office
expenses (referred to as DAC). Amounts deferred were
$1,226 at September 30, 2000, an increase of 12.4% over
December 31, 1999. The increase was due to strong sales of
VUL and fixed annuity products and the effect of changes in
unrealized gains on Available for Sale investments.
-22-
<PAGE>
Value of business acquired (VOBA) represents the actuarially-
determined present value of future gross profits of each
business acquired. VOBA was $824 at September 30, 2000,
down 13.2% from year-end due to amortization and the change
in unrealized gains on Available for Sale investments.
Goodwill (representing the cost of acquired businesses in
excess of the fair value of net assets) was $304 at
September 30, 2000 and $303 at December 31, 1999, with the
net increase due to the Polaris acquisition, which added $8.
Goodwill as a percentage of shareholders' equity declined to
10.1% from 11.0% at December 31, 1999.
Carrying amounts of goodwill, VOBA and DAC are regularly
reviewed for indications of value impairment, with
consideration given to the financial performance of acquired
properties, future gross profits of insurance in force and
other factors. Reductions, which flow through earnings,
have been made where appropriate, including for the higher
level of annuity withdrawals.
At September 30, 2000 and December 31, 1999, JP had
reinsurance receivables of $1,039 and $1,057 and policy
loans of $185 and $192 which are related to the businesses
of JP Financial that were coinsured with Household
International (HI) affiliates. HI has provided payment,
performance and capital maintenance guarantees with respect
to the balances receivable. JP regularly evaluates the
financial condition of its reinsurers and monitors
concentrations of credit risk related to reinsurance
activities. No significant credit losses have resulted from
reinsurance activities during 2000 and 1999.
Capital Resources
Stockholders' Equity
JP's capital adequacy is illustrated by the following table:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------- -------
<S> <C> <C>
Total assets less separate accounts $24,822 $24,174
Total stockholders'equity 3,005 2,753
Ratio of stockholders'equity to assets 12.1% 11.4%
</TABLE>
JP considers existing capital resources to be more than
adequate to support the current level of its business
activities. The business plan places priority on
redirecting certain capital resources invested in bonds and
stocks into its core businesses, which would be expected to
produce higher returns over time.
The Individual Products, AIP and Benefit Partners segments
are subject to regulatory constraints. The Company's
insurance subsidiaries have statutory surplus and risk based
capital levels well above required levels. These capital
levels together with the rating agencies' assessments of the
Company's business strategies have enabled the life
insurance affiliates to attain the following claims paying
ratings:
<TABLE>
<CAPTION>
JP Life JP Financial
<S> <C> <C>
A.M. Best A++ A++
Standard & Poor's AAA AAA
Fitch AAA AAA
</TABLE>
-23-
<PAGE>
Debt and Exchangeable Securities
Commercial paper outstanding was $428 and $361 with weighted
average interest rates of 6.30% and 5.80% at September 30,
2000 and December 31, 1999. The increase in commercial paper
is due primarily to the replacement of the ACES with
commercial paper as noted below, and share repurchases. The
maximum amount outstanding during the first nine months of
2000 and 1999 was $505 and $326.
JP's insurance subsidiaries have sold U.S. Treasury
obligations and collateralized mortgages under repurchase
agreements involving various counterparties, accounted for
as financing arrangements. Proceeds are used to purchase
securities with longer durations as an asset/liability
management strategy and to provide acquisition financing.
The maximum amount outstanding was $515 during the first
nine months of 2000 and $340 during the year ended December
31, 1999. The securities involved had a fair value and
amortized cost of $481 and $480, and $364 and $347, as of
September 30, 2000 and December 31, 1999.
At September 30, 2000 and December 31, 1999, the Company had
$147 and $290 Exchangeable Securities and other debt
outstanding. This includes $146 and $137 at September 30,
2000 and December 31, 1999 of Mandatorily Exchangeable Debt
Securities (MEDS), and $152 of ACES at December 31, 1999.
The ACES matured on January 21, 2000, and security holders
were repaid in cash using commercial paper proceeds of
$146. These matters are more fully described in Notes 8 and
9 to the financial statements previously filed with Form 10-
K and are incorporated by reference. Additionally, $300 of
guaranteed preferred beneficial interest in subordinated
debentures (Capital Securities) remained outstanding at
September 30, 2000 and December 31, 1999.
At September 30, 2000 and December 31, 1999, net advances
from subsidiaries were $324 and $329. While the Company has
no commitments for additional financing, additional funds
may be borrowed from time to time to finance acquisitions or
share repurchases or for other corporate purposes.
Liquidity
Liquidity requirements are met primarily by positive cash
flows from the operations of subsidiaries. Overall sources
of liquidity are sufficient to satisfy operating
requirements. Primary sources of cash from the insurance
operations are premiums, other insurance considerations,
receipts for policyholder accounts, investment sales and
maturities and investment income. Primary uses of cash
include purchases of investments, payment of insurance
benefits, operating expenses, withdrawals from policyholder
accounts, costs related to acquiring new business, and
income taxes. Primary sources of cash from the
Communications operations are revenues from advertising.
Primary uses of cash include payment of agency commissions,
cost of sales, operating expenses and income taxes.
Cash provided by operations was $302 and $377 for the first
nine months of 2000 and 1999. The decrease of $75 reflects
changes in payables and receivables related to investment
commitments and higher policy acquisition costs.
-24-
<PAGE>
Net cash used in investing activities was $492 and $627 for
the first nine months of 2000 and 1999, with the decline due
to the timing of investment commitments, as well as the
higher level of annuity withdrawals.
Net cash provided by financing activities was $189 and $269
for the first nine months of 2000 and 1999. The decrease of
$80 is primarily due to net short term repayments of $134
versus 1999 short term borrowings of $60. Cash inflows from
policyholder contract deposits net of withdrawals were $477
and $408 for the first nine months of 2000 and 1999. The
2000 increase is a result of higher annuity surrenders and
decreased UL-type contract receipts.
In order to meet the parent company's dividend payments,
debt servicing obligations and other expenses, internal
dividends are received from subsidiaries. Total internal
cash dividends paid to the parent from its subsidiaries
during the nine months were $575 in 2000 and $195 in 1999.
JP Life, JP Financial and JPCC were the primary sources of
the dividends in 2000. The Company's life insurance
subsidiaries are subject to laws in the states of domicile
that limit the amount of dividends that can be paid without
the prior approval of the respective state's Insurance
Commissioner. All remaining dividends from life
subsidiaries for 2000 will require regulatory approval. The
Company has no reason to believe that such approval will be
withheld.
Cash and cash equivalents were $61 and $62 at September 30,
2000 and December 31, 1999. Additionally, fixed income and
equity securities held by the parent company and non-
regulated subsidiaries were $620 at September 30, 2000 and
$446 at December 31, 1999. The increase reflects a special
dividend from JP Life which included all of JP Life's
publicly traded equity securities. These securities, which
include the $146 (at September 30, 2000) of Bank of America
Corporation common stock which supports the Exchangeable
Securities, are considered to be sources of liquidity to
support the Company's strategies.
Total debt and equity securities Available for Sale at
September 30, 2000 were $13,385.
Investments
JP's strategy for managing the insurance investment
portfolio is to dependably meet pricing assumptions while
achieving the highest possible after-tax returns over the
long term. Cash flows are invested primarily in fixed
income securities. The nature and quality of investments
held by insurance subsidiaries must comply with state
regulatory requirements. The Company has a formal
investment policy that governs overall quality and
diversification.
-25-
<PAGE>
JP held the following carrying amounts of investments:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
-------------- --------------
<S> <C> <C> <C> <C>
Publicly-issued bonds $12,284 61% $11,943 61%
Privately-placed bonds 3,495 17 3,220 16
Commercial mortgage loans 2,625 13 2,543 13
Common stock 639 3 730 4
Policy loans 918 5 906 5
Preferred stock 15 - 26 -
Real estate 137 1 133 1
Other 20 - 35 -
Cash and equivalents 61 - 62 -
-------------- --------------
Total $20,194 100% $19,598 100%
============== ==============
</TABLE>
The strategy of identifying market sectors and niches that
provide investment opportunities to meet the portfolios'
growth, quality and yield requirements is expected to
continue to result in increasing percentages of private
placements and commercial mortgage loans.
JP's Investment Policy Statement requires an average quality
fixed income portfolio (excluding mortgage loans) of "A" or
higher. Currently, the average quality is "A1". The Policy
also imposes limits on the amount of lower quality
investments and requires diversification by issuer and asset
type. The Company monitors "higher risk" investments for
compliance with the Policy and for proper valuation.
Securities that experience other than temporary declines in
value are adjusted to net realizable values through a charge
to earnings. Commercial mortgage loans in foreclosure are
carried at the net present value of expected future cash
flows.
Carrying amounts of investments categorized as "higher risk"
assets were:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
--------------- --------------
<S> <C> <C>
Bonds near or in default $ 2 - % $ 5 - %
Bonds below investment grade 700 3.5 764 3.9
Mortgage loans 60 days delinquent
or in foreclosure - - - -
Mortgage loans restructured 10 - 9 0.1
Foreclosed properties - - - -
-------------- ---------------
Sub-total, "higher risk assets" 712 3.5 778 4.0
All other investments 19,482 96.5 18,820 96.0
--------------- ---------------
Total cash and investments $20,194 100.0% $19,598 100.0%
=============== ===============
</TABLE>
The Policy permits use of derivative financial instruments
such as futures contracts and interest rate swaps in
conjunction with specific direct investments. Actual use
of derivative financial instruments has been limited to
managing well-defined interest rate risks. Interest rate
swaps with a notional value of $183 and $186 were open as of
September 30, 2000 and December 31, 1999. There have been
no terminations of derivative financial instruments in 2000
or 1999. Potential termination of these arrangements as of
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September 30, 2000 under then current interest rates would
result in a potential loss of $1.
Mortgage backed securities (including Collateralized
Mortgage Obligations) which are primarily included in debt
securities Available for Sale, were as follows:
<TABLE>
<CAPTION>
September 30 December 31
2000 1999
------------ -----------
<S> <C> <C>
Federal agency issued mortgage backed
securities $2,487 $2,498
Corporate private-labeled mortgage backed
securities 2,175 1,838
------------ -----------
Total $4,662 $4,336
============ ===========
</TABLE>
The Company's investment strategy with respect to mortgage
backed securities focuses on actively-traded, less volatile
issues that produce relatively stable cash flows. The
majority of the mortgage backed security holdings are
sequential and planned amortization class tranches of
federal agency issuers. The mortgage backed security
portfolio has been constructed with underlying mortgage
collateral characteristics and structure in order to lower
cash flow volatility over a range of interest rate levels.
Market Risk Exposures
With respect to the Company's exposure to market risks, see
management's comments in the 1999 Form 10-K. Management
believes that the plus or minus 100 basis points utilized in
the sensitivity analysis in the 1999 Form 10-K continues to
reflect reasonably possible near term changes in interest
rates. Additionally, management believes that the 10%
hypothetical decline in the equity market remains reasonably
possible in the near term.
External Trends and Forward Looking Information
With respect to economic trends, inflation and interest rate
risks, environmental liabilities and the regulatory and
legal environment, see management's comments in the 1999
Form 10-K.
With respect to accounting pronouncements, see Note 5 on
page 9, which is incorporated herein by reference.
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.
Thus they do not reflect later developments.
As a matter of policy, Jefferson Pilot does 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. An example
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<PAGE>
would be our forecast of the anticipated earnings
contribution over time from our Guarantee acquisition.
Certain information in our SEC filings and in any other
written or oral statements made by JP 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. These risks and uncertainties
include, among others, the risks that JP might fail to
successfully complete strategies for cost reductions,
including anticipated expense savings and operating
efficiencies from the integration of Guarantee, and for
growth in sales of products through all distribution
channels. Other uncertainties include general economic
conditions, competitive factors, including pricing
pressures, technological developments, new product offerings
and the emergence of new competitors, interest rate trends
and fluctuations, and changes in federal and state tax,
financial services industry or other laws and regulations.
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 to the SEC, as it may be updated in
our subsequent 10-Q and 8-K reports. That 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.
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<PAGE>
PART II. OTHER INFORMATION
JEFFERSON-PILOT CORPORATION
Item 1. Legal Proceedings
The registrant is involved in various claims and lawsuits
incidental to and in the ordinary course of its business.
In the opinion of management, the ultimate liability will
not have a material effect on the financial condition or
liquidity of the Company, but could have a material adverse
effect on the results of operations for a specified period.
Item 4. Submission of Matters to a Vote of Security Holders
None not previously reported
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports of Form 8-K
There were none filed during the third quarter of 2000.
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<PAGE>
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/Dennis R. Glass
(Name and Title) Dennis R. Glass, Executive Vice
President,
Chief Financial Officer and Treasurer
Date November 13, 2000
By (Signature) /s/Reggie D. Adamson
(Name and Title) Reggie D. Adamson, Senior Vice
President - Finance
(Principal Accounting Officer)
Date November 13, 2000
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