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 June 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 June 30, 2000 103,049,234
<PAGE>
JEFFERSON-PILOT CORPORATION
INDEX
- Page No. -
[S]
Part I. Financial Information
Consolidated Unaudited Condensed Balance Sheets
- June 30, 2000 and December 31, 1999 3
Consolidated Unaudited Condensed Statements of Income
- Three Months and Six Months ended June 30, 2000 and 1999 4
Consolidated Unaudited Condensed Statements of Cash Flows
- Six Months ended June 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 27
Signatures 28
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<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
(In Millions)
<CAPTION>
June 30 December 31
ASSETS 2000 1999
-------- -----------
<S> <C> <C>
Debt securities available for sale, at fair value
(amortized cost $12,869 and $12,235) $12,455 $11,831
Debt securities held to maturity, at amortized cost
(fair value $2,926 and $3,259) 3,016 3,351
Equity securities available for sale, at fair value
(cost $78 and $98) 568 737
Mortgage loans on real estate 2,606 2,543
Other investments 1,082 1,074
Cash and cash equivalents 52 62
------- -------
Total cash and investments 19,779 19,598
Accrued investment income 269 266
Due from reinsurers 1,527 1,576
Deferred policy acquisition costs and value
of business acquired 2,081 2,040
Cost in excess of net assets acquired 306 303
Assets held in separate accounts 2,400 2,272
Other assets 437 391
------ ------
Total assets $26,799 $26,446
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $19,661 $19,443
Debt:
Commercial paper 480 361
Exchangeable Securities and other debt 133 290
Securities sold under repurchase agreements 519 523
Liabilities related to separate accounts 2,400 2,272
Tax liabilities 114 123
Accounts payable, accruals and other liabilities 373 381
------ ------
23,680 23,393
------ ------
Guaranteed preferred beneficial interest in
subordinated debentures ("Capital Securities") 300 300
------ ------
Stockholders' Equity:
Common stock 129 129
Retained earnings 2,530 2,358
Accumulated other comprehensive income -
net unrealized gains on securities 160 266
------ ------
2,819 2,753
------ ------
Total liabilities and stockholders' equity $26,799 $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 Six Months Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Premiums and other considerations $ 336 $ 229 $ 675 $ 470
Net investment income 358 315 711 631
Realized investment gains 31 27 79 71
Communications sales 50 46 102 97
Other 28 22 56 40
----- ----- ----- -----
Total revenue 803 639 1,623 1,309
----- ----- ----- -----
Benefits and Expenses:
Insurance and annuity benefits 401 303 808 609
Insurance commissions, net of deferrals 30 26 62 51
General and administrative expenses,
net of deferrals 63 46 129 100
Amortization of deferred acquistion costs
and value of business acquired 72 50 133 98
Communications operations 29 27 62 60
----- ----- ----- -----
Total benefits and expenses 595 452 1,194 918
----- ----- ----- -----
Income before income taxes 208 187 429 391
Provision for income taxes 72 63 148 134
----- ----- ----- -----
Net income 136 124 281 257
Dividends on Capital Securities 6 6 12 12
----- ----- ----- -----
Net income available to common
stockholders $ 130 $ 118 $ 269 $ 245
===== ===== ===== =====
Comprehensive income $ 24 $ 28 $ 175 $ 42
===== ===== ===== =====
Average number of shares outstanding 103.2 105.8 103.2 105.9
===== ===== ===== =====
Net Income Per Share of Common Stock:
Net income available to common
stockholders before realized investment
gains, net of income taxes $ 1.07 $ 0.94 $ 2.11 $ 1.87
Realized investment gains, net of income
taxes 0.19 0.17 0.50 0.44
----- ----- ----- -----
Net income available to common
stockholders $ 1.26 $ 1.11 $ 2.61 $ 2.31
===== ===== ===== =====
Net income available to common
stockholders - assuming dilution $ 1.25 $ 1.10 $ 2.59 $ 2.29
===== ===== ===== =====
Dividends declared per common share $0.370 $0.330 $0.740 $0.660
===== ===== ===== =====
</TABLE>
See Notes to Consolidated Unaudited Condensed Financial Statements
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<PAGE>
<TABLE>
JEFFERSON-PILOT CORPORATION
CONSOLIDATED UNAUDITED CONDENSED
STATEMENTS OF CASH FLOWS
(In Millions)
<CAPTION>
Six Months Ended
June 30
2000 1999
------ ------
<S> <C> <C>
Net cash provided by operations $ 199 $ 285
---- ----
Cash Flows from Investing Activities:
Investments purchased, net (272) (401)
Other investing activities ( 5) (30)
---- ----
Net cash used in investing activities (277) (431)
---- ----
Cash Flows from Financing Activities:
Policyholder contract deposits, net 1,211 874
Policyholder contract withdrawals, net (1,006) (654)
Net short-term borrowings (31) 40
Repurchase of common shares, net (22) (31)
Cash dividends paid (85) (79)
Other financing activities 1 1
---- ----
Net cash provided by financing activities 68 151
---- ----
Increase (decrease) in cash and cash equivalents (10) 5
Cash and cash equivalents at beginning of period 62 21
---- ----
Cash and cash equivalents at end of period $ 52 $ 26
==== ====
Supplemental Cash Flow Information:
Income taxes paid $ 97 $ 64
==== ====
Interest paid $ 30 $ 22
==== ====
</TABLE>
See Notes to Consolidated Unaudited Condensed Financial Statements
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<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 six
month period ended June 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 Indivdual
Products, AIP and Benefit Partners reporting segments.
The following table summarizes certain financial information regarding
the Company's reportable segments:
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
------- ------
<S> <C> <C>
Assets
Individual Products $14,883 $14,493
AIP 7,525 7,443
Benefit Partners 715 606
Communications 210 217
Corporate & Other 3,466 3,687
------ ------
Total assets $26,799 $26,446
====== ======
</TABLE>
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<PAGE>
2. Segment Reporting (continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Revenues
Individual Products $ 415 $ 364 $ 839 $ 732
AIP 154 130 302 254
Benefit Partners 132 47 260 97
Communications 49 44 101 95
Corporate & Other 22 27 42 60
------ ------ ------ ------
772 612 1,544 1,238
Realized investment gains, before tax 31 27 79 71
------ ------ ------ ------
Total revenues $ 803 $ 639 $ 1,623 $ 1,309
====== ====== ====== ======
Reportable segment results and
reconciliation to net income available
to common stockholders
Individual Products $ 69 $ 61 $ 138 $ 121
AIP 19 18 40 35
Benefit Partners 9 7 17 12
Communications 9 8 18 16
Corporate & Other 4 5 5 14
------ ------ ------ ------
Total reportable segment results 110 99 218 198
Realized investment gains, net of tax 20 19 51 47
------ ------ ------ ------
Net income available to common
stockholders $ 130 $ 118 $ 269 $ 245
====== ====== ====== ======
</TABLE>
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<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 Six Months Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 136 $ 124 $ 281 $ 257
Dividends on Capital
Securities 6 6 12 12
----- ----- ----- -----
Numerator for earnings per
share and earnings per share
- assuming dilution - Net
income available to common
stockholders $ 130 $ 118 $ 269 $ 245
===== ===== ===== =====
Denominator:
Denominator for earnings per
share - weighted-average
shares outstanding 103,150,233 105,786,357 103,152,513 105,855,239
Effect of dilutive
securities:
Employee stock options 920,682 1,055,933 854,201 1,117,425
----------- ----------- ----------- -----------
Denominator for earnings per
share - assuming dilution -
adjusted weighted-average
shares outstanding and
assuming conversions 104,070,915 106,842,290 104,006,714 106,972,664
=========== =========== =========== ===========
Earnings per share $ 1.26 $ 1.11 $ 2.61 $ 2.31
===== ===== ===== =====
Earnings per share -
assuming dilution $ 1.25 $ 1.10 $ 2.59 $ 2.29
===== ===== ===== =====
</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
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<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 the 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 Janaury 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 hedgeing 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 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 June 30, 2000, changes in financial condition for the
six months then ended, and results of operations for the three month and
six month periods ended June 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 products are currently
marketed to individuals and businesses in the United States. At June
30, 2000, the Company's principal life insurance subsidiaries were
Jefferson-Pilot Life Insurance Company (JP Life), Alexander Hamilton
Life Insurance Company of America (AH Life), Jefferson Pilot Financial
Insurance Company and its subsidiary, Jefferson Pilot LifeAmerica
Insurance Company (collectively JP Financial), and Guarantee Life
Insurance Company (Guarantee). Effective August 1, AH Life and
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 half of 2000, JP's revenues were derived 54% from
Individual Products, 19% from AIP, 17% from Benefit Partners, 7% 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 are currently being
integrated with other JP operations and reportable segment results of
Guarantee are included in the first half of 2000. During the first
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<PAGE>
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
is 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 Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Consolidated Summary of Income
Total reportable segment results (1) $110.2 $98.9 $217.8 $197.6 6
Realized investment gains (net of
applicable income taxes) 20.0 18.9 51.3 47.4
------ ------ ------ ------
Net income available to common
stockholders $130.2 $117.8 $269.1 $245.0
====== ====== ====== ======
Consolidated Earnings Per Share
Total reportable segment results (1) $ 1.07 $ 0.94 $ 2.11 $ 1.87
Realized investment gains (net of
applicable income taxes 0.19 0.17 0.50 0.44
------ ------ ------ ------
Net income available to common
stockholders $ 1.26 $ 1.11 $ 2.61 $ 2.31
====== ====== ====== ======
Net income available to common
stockholders - assuming dilution $ 1.25 $ 1.10 $ 2.59 $ 2.29
====== ====== ====== ======
</TABLE>
(1) Total reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
Net income available to common stockholders increased 10.5% and 9.8%
from the second quarter and first six months of 1999. Total reportable
segment results increased 11.4% and 10.2% over the second quarter and
first six 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
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<PAGE>
segments. 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 5.8% and 8.2% over the second quarter and first six months of
1999. Total reportable segment results per share increased 13.8% and
12.8% over the second quarter and first six months of 1999, reflecting
the increase in core business earnings and the impact of share
repurchases in 1999 and 2000. Earnings per share increased 13.5% and
13.0% from the second quarter and first six months of 1999, and earnings
per share assuming dilution increased 13.6% and 13.1% from the second
quarter and first six months of 1999 for the same reasons.
Results by Business Segment
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.
Results by Reportable Segment
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Individual Products $ 69.0 $ 61.1 $137.3 $120.5
Annuity and Investment Products 19.4 17.3 40.3 34.6
Benefit Partners 8.9 6.7 17.2 12.4
Communications 9.2 7.9 18.0 15.9
Corporate and Other 3.7 5.9 5.0 14.2
------ ------ ------ ------
Total reportable segment results (1) 110.2 98.9 217.8 197.6
Net realized investment gains 20.0 18.9 51.3 47.4
------ ------ ------ ------
Net income available to common
stockholders $130.2 $117.8 $269.1 $245.0
====== ====== ====== ======
</TABLE>
(1) Total reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
Segment Assets
<TABLE>
<CAPTION>
June 30
2000 1999
-------- --------
<S> <C> <C>
Individual Products $14,883 $12,836
Annuity and Investment Products 7,525 6,547
Benefit Partners 715 387
Communications 210 209
Corporate & Other 3,466 4,476
-------- --------
Total assets $26,799 $24,455
======== ========
</TABLE>
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<PAGE>
A more detailed discussion of reportable segment results follows.
Individual Products
The Individual Products segment offers a wide array of life and health
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 and health 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 balances. Reportable segment results for both traditional and UL-
type products also include earnings on required capital.
Segment results were:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Life premiums and other
considerations $ 53.7 $ 47.9 $112.0 $ 98.7
U.L. and investment product
charges 150.4 132.5 304.6 268.2
Investment income, net of expenses 209.4 182.5 417.7 362.3
Other income 2.1 1.5 4.3 2.6
------ ------ ------ ------
Total revenues 415.6 364.4 838.6 731.8
------ ------ ------ ------
Policy benefits 226.5 196.1 461.7 394.2
Expenses 83.1 75.0 166.5 153.6
------ ------ ------ ------
Total benefits and expenses 309.6 271.1 628.2 547.8
------ ------ ------ ------
Reportable segment results before
income taxes 106.0 93.3 210.4 184.0
Provision for income taxes 37.0 32.2 73.1 63.5
------ ------ ------ ------
Reportable segment results (1) $ 69.0 $ 61.1 $137.3 $120.5
====== ====== ====== ======
</TABLE>
(1) Reportable segment results include all elements of net income
available to common stockholders except realized investment gains.
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<PAGE>
The following table summarizes key information for Individual Products:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Annualized Individual life
insurance sales $ 37.8 $ 49.1 $ 79.9 $ 89.6
Individual traditional
insurance premium income 52.9 47.0 110.6 97.2
Average UL policyholder fund
balances 8,687.4 7,599.5 8,644.0 7,641.4
Average VUL separate account
assets 1,400.9 954.1 1,372.5 909.6
Average face amount of
insurance in force :
Total 157,608.6 138,150.9 157,855.9 138,402.7
UL-type policies 112,001.8 100,857.1 111,784.3 100,564.1
Average assets - Individual
products 14,891.3 12,694.7 14,793.8 12,521.1
</TABLE>
Individual Products reportable segment results increased $7.9 or 12.9%
and $16.8 or 13.9% over the second quarter and first half of 1999, due
to growth of the business in force and the acquisition of Guarantee.
Annualized individual life insurance sales declined 23.0% and 10.8% from
the second quarter and the first half of 1999. Excluding BOLI business,
annualized sales decreased 21.0% from the second quarter 1999 and 7.0%
from the first six months of 1999. This is due in part to a $7.7
decrease in the Target Marketing distribution channel which experienced
an unusually strong second quarter 1999 performance. Further, because
of new "XXX" reserving requirements that make products that involve
secondary guarantees less profitable, the Company has withdrawn such
products but some competitors have not so their products may appear more
attractive.
Revenues include traditional insurance premiums, policy charges and
investment income. Individual revenues increased 14.1% and 14.6% from
the second quarter 1999 and first six 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 17.9% and 17.1% over the first quarter and first six months of
1999, was a result of net policyholder receipts and the acquisition of
Guarantee.
Individual traditional premiums increased 12.6% and 13.8% from the
second quarter and first half of 1999 due primarily to the acquisition
of Guarantee. Policy charges, which include mortality, expense and
surrender charges, increased 13.5% and 13.6% from the second quarter and
first half of 1999. These increases are primarily from the Guarantee
acquisition.
Net investment income increased $26.9 or 14.7% and $55.4 or 15.3% over
the second quarter and first half of 1999, following the growth in
segment assets. The portfolio yield on traditional assets increased 3
basis points to 7.74% and 3 basis points to 7.76% from the second
quarter 1999 and six months of 1999. The average investment spread on
UL-type products increased 7 basis points to 1.96% and 5 basis points to
1.95% from the second quarter and six 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 15.5% and 17.1% from the second quarter and
six months of 1999 due to growth of business in force and the Guarantee
acquisition. Traditional policy benefits were 109.9% versus 101.8% of
premiums in the second quarter and 104.7% versus 106.6% for the first
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<PAGE>
six months 2000 and 1999. Policy benefits on UL-type products
(annualized) decreased to 6.67% versus 6.93% of average policyholder
funds and separate accounts due to mortality returning to a more normal
level after experiencing adverse mortality in the second quarter 1999.
Policy benefits on UL-type products (annualized) increased 6.90% versus
6.79% for the first six months of 2000 and 1999. The six month increase
is the result of higher mortality offset by lower interest credited as a
percentage of total fund balances and separate accounts. 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) increased 10.8% and 8.4% from the second quarter and
first six months of 1999 due to the acquisition of Guarantee. Expenses
on individual traditional products were 29.4% of premiums versus 32.3%
and 31.7% versus 31.4% in the second quarter and first half of 2000 and
1999. For UL-type products, annualized expenses as a percentage of
policyholder funds and separate accounts were 2.62% versus 2.75% and
2.56% versus 2.83% for the second quarter and first half of 2000 and
1999. The improvement reflects overall expense management as well as
growth in policyholder funds and separate accounts.
Average Individual Products assets grew 17.3% and 18.2% over the second
quarter and first half of 1999, due to the Guarantee acquisition, net
receipts on UL-type products, new sales, and growth in existing
policyholder funds. The annualized return on average Individual
Products assets was 1.85% versus 1.93% and 1.86% versus 1.92% for the
second quarter and first six months of 2000 and 1999 reflecting the
blending of the Guarantee business.
Annuity and Investment Products
Annuity and Investment Products offers its products through financial
institutions, independent agents, career agents, investment
professionals and broker/dealers. Reportable segments results were:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Policy charges, premiums and other
considerations $ 7.7 $ 5.3 $ 13.9 $ 9.4
Net investment income 119.0 103.4 235.8 206.8
Concession and other income 27.1 20.6 52.7 37.3
------ ------ ------ ------
Total revenues 153.8 129.3 302.4 253.5
------ ------ ------ ------
Policy benefits 83.6 76.8 165.4 149.1
Expenses 40.3 25.8 74.8 51.0
------ ------ ------ ------
Total benefits and expenses 123.9 102.6 240.2 200.1
------ ------ ------ ------
Reportable segment results before
income taxes 29.9 26.7 62.2 53.4
Provision for income taxes 10.5 9.4 21.9 18.8
------ ------ ------ ------
Reportable segment results (1) $ 19.4 $ 17.3 $ 40.3 $ 34.6
====== ====== ====== ======
</TABLE>
(1) Reportable segment results includes all elements of net income
available to common stockholders except realized investment gains.
-15-
<PAGE>
Reportable segment results increased $2.1 or 12.1% and $5.7 or 16.5%
over the second quarter and first six months of 1999. The following
table summarizes key information for AIP:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed annuity premium receipts $ 300.8 $ 131.6 $ 539.7 $ 223.6
Variable annuity premium receipts 31.3 33.8 66.2 61.6
-------- -------- -------- --------
332.1 165.4 605.9 285.2
Average policyholder fund balances $6,233.0 $5,561.1 $6,230.2 $5,571.1
Average separate account
policyholder fund balances 721.9 576.6 708.4 558.7
-------- -------- -------- --------
$6,954.9 $6,137.7 $6,938.6 $6,129.8
Investment product sales $ 850.4 $ 702.8 $1,751.7 $1,251.0
Average assets $7,505.5 $6,522.1 $7,484.9 $6,512.9
</TABLE>
Revenues increased 18.9% and 19.3% over the second quarter and first six
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 13.3% and 13.2%
over the second quarter and first six months of 1999. The increase in
policyholder fund balances and average assets results from new receipts
and interest credited less benefits and withdrawals paid, as well as the
Guarantee acquisition. Fixed annuity receipts increased 128.6% and
141.4% over the second quarter and first six 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 100.8% and 112.4% over the second quarter and first six
months of 1999. Fixed annuity surrenders as a percentage of beginning
fund balances increased to 24.5% versus 15.8% and 22.5% versus 14.5%
from the second quarter and six 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, and
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. Due
to the aging of annuity policies in force, especially among acquired
blocks, a higher portion of policyholder funds are outside of the
surrender charge period in 2000 than in 1999. Concessions and other
income increased 31.6% and 41.3% over the second quarter and first six
months of 1999, due to higher sales of the Company's variable products
and other investment products such as mutual funds.
Total AIP benefits and expenses increased 20.8% and 20.0% over the
second quarter and first six months of 1999 due to the acquisition of
Guarantee 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 5.5% and 5.3% versus 5.4% for the second
-16-
<PAGE>
quarter and first six months of 2000 and 1999. Effective spreads, which
represent income statement yields less interest credited to
policyholders, adjusted for the net deferral of bonus interest and
assuming the same level of assets, were 2.18% versus 2.15% and 2.17%
versus 2.14% in the second quarter and six months of 2000 and 1999. The
increase resulted from continued effective management of spreads,
blending of the Guarantee business and higher yield on new investments.
Total AIP expenses increased 56.2% and 46.7% over the second quarter and
first six months of 1999. Annualized insurance expenses as a percentage
of average policyholder fund balances including separate accounts were
2.3% versus 1.9% and 2.2% versus 1.7% for the second quarter and first
six months of 2000 and 1999. The growth in expenses was primarily due
to commissions related to broker/dealer operations, similar to the
increases in concessions and other income.
AIP posted annualized returns on average assets of 1.03% versus 1.06%
and 1.08% versus 1.06% for the second quarter and first six months of
2000 and 1999. Year-to-date annualized results reflect a one-time
reserve decrease of approximately $1.5.
The combined earnings of the broker/dealer and related entities which
are included in the segment results were $1.3 versus $1.3 and $3.0
versus $2.4 for the second quarter and first six 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 Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Premiums and other considerations $ 119.3 $ 39.4 $ 235.2 $ 81.6
Investment income, net of expenses 12.7 7.6 25.1 15.7
-------- -------- -------- --------
Total revenues 132.0 47.0 260.3 97.3
-------- -------- -------- --------
Policy benefits 87.4 28.2 171.8 59.0
Expenses 30.9 8.6 62.2 19.4
-------- -------- -------- --------
Total benefits and expenses 118.3 36.8 234.0 78.4
-------- -------- -------- --------
Reportable segment results before
income taxes 13.7 10.2 26.3 18.9
Provision for income taxes 4.8 3.5 9.1 6.5
-------- -------- -------- --------
Reportable segment results (1) $ 8.9 $ 6.7 $ 17.2 $ 12.4
======== ======== ======== ========
</TABLE>
(1) Reportable segment results includes all elements of net income available
to common stockholders except realized investment gains.
-17-
<PAGE>
Benefit Partners reportable segment results increased $2.2 or 32.8% and
$4.8 or 38.7% over the second quarter and first six months of 1999,
primarily as a result of the Guarantee acquisition.
The following table summarizes key information for Benefit Partners:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Life, Disability, and Dental:
Annualized sales $ 25.3 $ 3.9 $ 63.7 $ 9.7
Loss ratio 70.5% 93.4% 71.9% 89.2%
Total expenses, % of premiums
equivalents 25.8% 14.9% 26.0% 16.0%
Average assets $710.3 $390.7 $683.2 $403.0
Premium income and equivalents $119.7 $ 57.7 $238.6 $121.1
</TABLE>
Benefit Partners revenues increased $85 or 180.9% and $163.0 or 167.5%
over the second quarter and first six months of 1999 due to the
acquisition of Guarantee, including premium growth of $81.0 or 210.1%
and $155.4 or 195.6% over the second quarter and the first six months of
1999. Including equivalent premiums on self-insured health policies,
premiums increased 107.5% and 97.0% over the second quarter and first
six months of 1999. Annualized sales for the core life, disability, and
dental lines of business grew $21.4 or 548.7% and $54 or 556.7% over the
second quarter and first six months of 1999 with new sales growth as
well as 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 will occur on subsequent policy anniversary
dates. Sales of these policies are not expected to have a material
impact on results for the year.
Policy benefits increased 209.9% and 191.2% over the second quarter and
first six months of 1999, with the addition of the Guarantee business.
The life, disability and dental incurred loss ratio was 70.5% and 93.4%
in the second quarter and 71.9% and 89.2% in the first six months of
2000 and 1999. 1999's results were comprised solely of the JP Life
business which has a significantly larger average policy size than that
of Guarantee and is a more mature block of business. Both of these
factors contributed to the higher 1999 loss ratio.
Total expenses (including the net deferral and amortization of policy
acquisition costs) increased 259.3% and 220.6% over the second quarter
and first six months of 1999, primarily due to the Guarantee
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 25.8% and 14.9% for the quarter and
26.0% and 16.0% for the six months of 2000 and 1999 due to the change in
average policy size with the addition of Guarantee contracts.
-18-
<PAGE>
Communications
JPCC operates television and radio broadcast properties and produces
syndicated sports programming. Reportable segment results were:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Communications revenues $ 49.8 $ 45.8 $103.2 $ 97.5
Operating costs and expenses 28.6 27.3 61.9 60.0
------ ------ ------ ------
Broadcast cash flow 21.2 18.5 41.3 37.5
Depreciation and amortization 2.9 3.0 5.7 5.9
Corporate general and
administrative expenses 1.4 1.2 2.7 2.4
Net interest expense 1.2 1.2 2.4 2.5
------ ------ ------ ------
Reportable segment results before
income taxes 15.7 13.1 30.5 26.7
Provision for income taxes 6.5 5.2 12.5 10.8
------ ------ ------ ------
Reportable segment results (1) $ 9.2 $ 7.9 $ 18.0 $ 15.9
====== ====== ====== ======
</TABLE>
(1) Reportable segment results includes all elements of net income available
to common stockholders except realized investment gains.
Reportable segment results increased 16.5% and 13.2% compared to the
second quarter and first six months of 1999. The Company's broadcasting
properties continued to benefit from the generally favorable advertising
environment and the strong local economies in which they operate.
Combined revenues for Radio and Television grew 9.6% and 11.0% over the
second quarter and first six months of 1999. This increase is primarily
attributable to political and national sales, and reflects strong market
positions in the cities in which the communications segment operates.
Radio experienced strong revenue growth in the second quarter and the
first six months of 2000 and 1999, resulting from increased demand for
local advertising. Television revenues also increased over the second
quarter and the first six months of 1999 due to an increased demand for
advertising as well as political advertising in two markets. Revenue
from Sports operations decreased 37.5% and 21.8% from the second quarter
and six months of 1999. Second quarter results 1999 included Sports
revenues from play-off games that were not repeated in 2000 while six
month comparisons are impacted by the disposal of certain entertainment
production operations early last year.
Broadcast cash flow grew by 14.6% and 10.1% over the second quarter and
first six months of 1999, as a result of the strong growth of the
broadcast revenues, particularly Radio. The strong broadcast results
for the 6 months were partially offset by the decline in Sports earnings
mentioned above.
Total expenses excluding interest increased 4.4% and 2.9% from the
second quarter and first six months of 1999. Expenses as a percent of
Communication revenues were 66.1% versus 68.8% and 68.1% versus 70.1%
for the second quarter and first six months of 2000 and 1999. The
decline is attributable to a change in the mix of business away from
lower margin sports products toward higher margin broadcast business,
and expense control.
-19-
<PAGE>
Corporate and Other
The following table summarizes operating results for this segment:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earnings on investments $ 31.0 $ 29.4 $ 61.5 $ 62.0
Interest expense on debt and
Exchangeable Securities (14.0) (6.9) (28.1) (14.4)
Operating expenses (5.2) (6.1) (12.7) (10.4)
Federal and state income tax
expense (2.0) (4.3) (3.4) (10.7)
------- ------- ------- -------
9.8 12.1 17.3 26.5
Dividends on Capital Securities (6.1) (6.2) (12.3) (12.3)
------- ------- ------- -------
Reportable segment results (1) 3.7 5.9 5.0 14.2
Realized investment gains, net 20.0 18.9 51.3 47.4
------- ------- ------- -------
Reportable segment results,
including realized gains $ 23.7 $ 24.8 $ 56.3 $ 61.6
======= ======= ======= =======
</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>
June 30
2000 1999
------- -------
<S> <C> <C>
Parent company, passive investment
companies and Corporate line assets
of insurance subsidiaries $1,599 $2,145
Unrealized gain (loss) on fixed interest
investments (246) 33
Co-insurance receivables on acquired blocks 1,251 1,469
Employee benefit plan assets 342 355
Goodwill arising from insurance acquisitions 263 189
Other 257 285
------- -------
Total $3,466 $4,476
======= =======
</TABLE>
Total assets for the Corporate and Other segment decreased 22.6% from
June 30, 1999. This decline occurred primarily due to assignment of
corporate capital to other reportable segments (including the Guarantee
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
$279 from the second 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 4.4% and
8.6% from the second quarter and first six months of 1999. Investment
earnings increased 5.4% from the second quarter 1999, and decreased 0.8%
from the first six months of 1999. Last year's first quarter increase
included increased income on equity method investments. Interest
-20-
<PAGE>
expense on debt and exchangeable securities increased $7.1 and $13.7
over the second quarter and first six months of 1999 as the level of
commercial paper borrowings was increased with the acquisition of
Guarantee, share repurchases, and the January 2000 redemption of
Automatic Common Exchange Securities (ACES). Operating expenses
decreased 14.8% from the second quarter and increased 22.1% over the
first six 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 $2.3 and $7.3 decrease in Federal and State income taxes
from the second quarter and first six 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 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 $353 or 1.3% during the first six 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 $1,210 at
June 30, 2000, an increase of 10.9% over December 31, 1999. The
increase was due to strong sales of UL-type and fixed annuity products
and the effect of changes in unrealized gains on Available for Sale
investments.
Value of business acquired (VOBA) represents the actuarially-determined
present value of future gross profits of each business acquired. VOBA
was $871 at June 30, 2000, down 8.2% from year end due to amortization.
Goodwill (representing the cost of acquired businesses in excess of the
fair value of net assets) was $306 at June 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
10.9% 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.
At June 30, 2000 and December 31, 1999, JP had reinsurance receivables
of $1,042 and $1,057 and policy loans of $188 and $192 which are related
to the businesses of AH Life 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
-21-
<PAGE>
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>
June 30 December 31
2000 1999
------ ------
<S> <C> <C>
Total assets less separate accounts $24,399 $24,174
Total stockholders'equity 2,819 2,753
Ratio of stockholders'equity to assets 11.6% 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, Benefit Partners and AIP 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>
Debt and Exchangeable Securities
Commercial paper outstanding was $480 and $361 with weighted average
interest rates of 6.16% and 5.80% at June 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, share
repurchases and the Guarantee acquisition. The maximum amount
outstanding during the first six 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 six months of 2000 and
during the year ended December 31, 1999. The securities involved had a
fair value and amortized cost of $541 and $546, and $530 and $531, as of
June 30, 2000 and December 31, 1999.
-22-
<PAGE>
At June 30, 2000 and December 31, 1999, the Company had $133 and $290
Exchangeable Securities and other debt outstanding. This includes $132
and $137 at June 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
June 30, 2000 and December 31, 1999.
At June 30, 2000 and December 31, 1999, net advances from subsidiaries
were $232 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 $199 and $285 for the first six months
of 2000 and 1999. The decrease of $86 reflects changes in payables and
receivables related to investment commitments and higher policy
acquisition costs.
Net cash used in investing activities was $277 and $431 for the first
six months of 2000 and 1999, with the decline due the timing of
investment commitments, as well as the higher level of annuity
withdrawals.
Net cash provided by financing activities was $68 and $151 for the first
six months of 2000 and 1999. The decrease of $83 is primarily due to
net short term repayments of $31 versus 1999 short term borrowings of
$40. Cash inflows from policyholder contract deposits net of withdrawals
were $205 and $220 for the first six months of 2000 and 1999. The 2000
decrease 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 first six months were $379 in 2000 and $131 in
1999. JP Life, JP Financial, JPCC and AH Life were the primary sources
of the total dividends paid in 2000, of which $200 was a one time
special dividend paid to the parent by JP Life. In connection with the
merger of JP Financial, AHL and Guarantee on August 1, 2000, JP
Financial also paid a special dividend of $100, reflecting the excess
statutory surplus generated, from a risk based capital perspective, by
the merger. 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
-23-
<PAGE>
Insurance Commissioner. Approximately 94% of the amount of dividends
planned from life subsidiaries for 2000, including the special dividends
mentioned above, will require regulatory approval. The Company has no
reason to believe that such approval will be withheld.
Cash and cash equivalents were $52 and $62 at June 30, 2000 and December
31, 1999. Additionally, fixed income and equity securities held by the
parent company and non-regulated subsidiaries were $548 at June 30, 2000
and $446 at December 31, 1999. The increase reflects the special
dividend from JP Life, mentioned above, which included all of JP Life's
publicly traded equity securities. These securities, which include the
$132 (at June 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 June 30, 2000
were $13,023.
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.
JP held the following carrying amounts of investments:
<TABLE>
<CAPTION>
June 30 December 31,
2000 1999
------------ ------------
<S> <C> <C> <C> <C>
Publicly-issued bonds $11,977 61% $11,943 61%
Privately-placed bonds 3,482 18 3,220 16
Commercial mortgage loans 2,606 13 2,543 13
Common stock 565 3 730 4
Policy loans 913 4 906 5
Preferred stock 15 - 26 -
Real estate 132 1 133 1
Other 37 - 35 -
Cash and equivalents 52 - 62 -
------------ ------------
Total $19,779 100% $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.
-24-
<PAGE>
Carrying amounts of investments categorized as "higher risk" assets
were:
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
-------------- --------------
<S> <C> <C>
Bonds near or in default $ 4 -% $ 5 -%
Bonds below investment grade 833 4.2 764 3.9
Mortgage loans 60 days delinquent
or in foreclosure - - - -
Mortgage loans ed 9 0.1 9 0.1
Foreclosed properties - - - -
-------------- --------------
Sub-total, "higher risk assets" 846 4.3 778 4.0
All other investments 18,933 95.7 18,820 96.0
-------------- --------------
Total cash and investments $19,779 100.0 $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 $185 and $186 were open as of June
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 June 30, 2000 under then current interest
rates would result in a potential loss of $2.
Collateralized Mortgage Obligations (CMO's), which are included in debt
securities Available for Sale, were as follows:
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
----------- -----------
<S> <C> <C>
Federal agency issued CMO's $2,517 $2,498
Corporate private-labeled CMO's 1,995 1,838
----------- -----------
Total $4,512 $4,336
=========== ===========
</TABLE>
The Company's investment strategy with respect to CMO's focuses on
actively-traded, less volatile issues that produce relatively stable
cash flows. The majority of CMO holdings are sequential and planned
amortization class tranches of federal agency issuers. The CMO 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.
-25-
<PAGE>
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
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information contained
herein or in any other written or oral statements made by or on behalf
of JP are or may be viewed as forward looking. Although the Company has
used appropriate care in developing any such forward looking
information, forward looking information involves risks and
uncertainties that could significantly impact actual results. These
risks and uncertainties include, but are not limited to, the matters
discussed in "Market Risk Exposures", "External Trends and Forward
Looking Information" and other risks detailed from time to time in the
Company's SEC filings; to 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;
and more generally to: 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 laws and regulations,
including, without limitation, changes in the financial services
industry or tax laws and regulations. The Company undertakes no
obligation to publicly update or revise any forward looking statements,
whether as a result of new information, future developments or
otherwise.
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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.
A previously reported proposed class action suit, Mueller et al vs.
Alexander Hamilton Life Insurance Company, has been dismissed upon
voluntary stipulation of the parties.
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 second 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 August 14, 2000
By (Signature) /s/Reggie D. Adamson
(Name and Title) Reggie D. Adamson, Senior Vice President - Finance
(Principal Accounting Officer)
Date August 14, 2000
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