100 North Greene Street
Greensboro, North Carolina 27401
December 19, 2002
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Attention: Jonathan G. Katz, Secretary
Dear Mr. Katz:
Jefferson-Pilot Corporation appreciates the opportunity to comment on this rule proposal. We are particularly concerned about the impact of proposed amended Item 10 of Regulation S-K on JP and other companies in the life insurance industry. We generally support the rest of your proposals in this Release, as part of your efforts, which we heartily endorse, to help restore confidence in our country's financial markets.
In brief, we urge you not to adopt two proposed prohibitions, on providing non-GAAP information (1) per share or (2) excluding items that are reasonably likely to recur.
We operate in the life insurance industry, where companies disclose and analysts estimate and track income before realized investment gains and losses, sometimes called "operating earnings," a non-GAAP measure. We do not believe that changing this longstanding practice is in the best interests of investors.
We believe that Section 401(b) of the Sarbanes-Oxley Act of 2002 was intended to improve transparency and hence investor understanding of financial disclosures. Your December 2001 cautionary advice said that pro forma financial information can serve useful purposes, such as to focus investor's attention on critical components of results and emphasize core earnings. Your MD&A rules emphasize that disclosures should help investors look at results "through the eyes of management".
These two proposed prohibitions will frustrate these purposes, certainly for our industry and likely for many others, and actually impede the flow of valuable information to investors.
Instead, your rules should focus on improving transparency and encouraging disclosures of the measures managements use to operate their businesses while, as you propose, assuring that companies give appropriate reconcilations to GAAP measures and explain why the non-GAAP measures are important to an understanding of their businesses.
We also are aware that GAAP does not permit the disclosure of a per share non-GAAP measure on the face of financial statements or in required summary tables. But this prohibition has never applied to MD&A or an earnings release where management is explaining results, as you now propose.
We have studied the background in the Release, and do not believe that disclosure of this measure by JP and others in our industry violates the underlying principles for your proposal or any of the rationale in the Senate Committee report on the Sarbanes-Oxley Act of 2002. Your December 2001 cautionary advice warned against misleading investors by obscuring GAAP results (we do not - we prominently give both), and urged comparability on these core earnings from period to period and with other companies (we have comparability for our company and our life insurance industry peers).
We and other life insurers operate our businesses based on income before realized investment gains and losses (which JP calls reportable segment results) rather than net income. As we disclose in our MD&A, "We use reportable segment results in assessing the performance of our business segments internally and believe that reportable segment results are relevant and useful information. We may realize investment gains in our sole discretion from our Available for Sale equity and bond portfolios."
We also point out that analysts do not issue estimates for net income in our industry. You can see in the First Call estimates for life insurance companies that analysts project only income before realized investment gains and losses, per share.
We thank you for the opportunity to comment on the proposed rule. We would be pleased to discuss our comments in more detail at your convenience, and to meet with the staff if that would be helpful.
Reggie D. Adamson
Chief Accounting Officer