8-K 1 lnc.txt LINCOLN NATIONAL CORPORATION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: December 31, 2002 LINCOLN NATIONAL CORPORATION (Exact name of registrant as specified in its charter) Indiana 1-6028 35-1140070 (State of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.) 1500 Market Street, Suite 3900, Centre Square West Tower, Philadelphia, PA 19102 (Address of principal executive offices) Registrant's telephone number 219-448-1400
Item 9 The following financial information is included in this 8-K filing under item 9: 1. Statistical Report for the quarter ended December 31, 2002. 2. Detail of gross realized gains and losses on investments for 2002, gross unrealized gains and losses on securities available-for-sale as of December 31, 2002 and fair value of fixed maturity securities available-for-sale by quality rating in accordance with NAIC regulations.
PAGE 1 Financial Highlights Unaudited [Amounts in Millions, except Per Share] For the Quarter Ended December 31 2002 2001 Amount Amount Change % Change ------- ------- ------- ------- Income from Operations Lincoln Retirement* 36.5 74.8 (38.3) (51.2%) Life Insurance 63.8 73.2 (9.5) (13.0%) Investment Management 10.3 5.1 5.2 102.5% Lincoln UK 15.9 19.5 (3.6) (18.5%) Corporate & Other** (14.3) 26.5 (40.8) ------- ------- ------- ------- Total Income from Operations 112.2 199.1 (86.9) (43.7%) Realized gains (losses) on investments (33.3) (20.0) (13.3) Gains (losses) on derivatives 0.2 (4.6) 4.9 Reserve increase on business sold through reinsurance (8.2) -- (8.2) Gain on sale of subsidiaries (9.4) 15.0 (24.4) Restructuring charges 1.7 (20.2) 21.9 Income before Accounting Changes 63.2 169.2 (106.0) Cumulative effect of accounting changes*** -- (0.0) 0.0 ------- ------- ------- ------- Net Income 63.2 169.2 (106.0) (62.6%) ======= ======= ======= ======= Earnings per share (diluted) Income from Operations $0.63 $1.03 ($0.41) (39.7%) Realized gain (losses) on investments ($0.18) ($0.11) ($0.07) Gains (losses) on derivatives $0.00 ($0.02) $0.02 Reserve increase on business sold through reinsurance ($0.05) $0.00 ($0.05) Gain on sale of subsidiaries ($0.05) $0.08 ($0.13) Restructuring charges $0.01 ($0.10) $0.11 ------- ------- ------- ------- Income before Accounting Changes $0.35 $0.88 ($0.53) Cumulative effect of accounting changes*** $0.00 $0.00 $0.00 ------- ------- ------- ------- Net Income $0.35 $0.88 ($0.52) (59.3%) ======= ======= ======= ======= Inc. from Oper.- before Goodwill Amort. Lincoln Retirement* 36.5 75.1 (38.6) (51.4%) Life Insurance 63.8 79.1 (15.4) (19.4%) Investment Management 10.3 9.1 1.2 12.8% Lincoln UK 15.9 19.7 (3.7) (19.0%) Corporate & Other** (14.3) 26.8 (41.1) ------- ------- ------- ------- Total 112.2 209.8 (97.6) (46.5%) ======= ======= ======= ======= Earnings per share (diluted) Inc. from Oper.- before Goodwill Amort. $0.63 $1.09 ($0.46) (42.2%) ------- ------- ------- ------- Net Income-- before Goodwill Amort. Lincoln Retirement* 6.0 54.5 (48.4) (88.9%) Life Insurance 60.2 57.8 2.4 4.2% Investment Management 9.3 8.1 1.3 16.0% Lincoln UK 18.5 22.7 (4.2) (18.4%) Corporate & Other** (31.0) 37.0 (67.9) ------- ------- ------- ------- Total 63.2 180.0 (116.8) (64.9%) ======= ======= ======= ======= Earnings per share (diluted) Net Income-- before Goodwill Amort. $0.35 $0.93 ($0.58) (62.4%) ------- ------- ------- ------- Operating Revenue Lincoln Retirement* 497.6 498.7 (1.1) (0.2%) Life Insurance 485.0 495.2 (10.2) (2.1%) Investment Management 100.5 107.6 (7.0) (6.5%) Lincoln UK 50.6 49.1 1.5 3.0% Corporate & Other** 112.9 339.0 (226.1) (66.7%) ------- ------- ------- ------- Total Operating Revenue 1,246.7 1,489.6 (242.9) (16.3%) ======= ======= ======= ======= Total Revenue Lincoln Retirement* 451.4 467.5 (16.1) (3.4%) Life Insurance 479.6 464.7 15.0 3.2% Investment Management 99.1 106.5 (7.4) (7.0%) Lincoln UK 51.8 53.4 (1.6) (3.0%) Corporate & Other** 106.7 371.7 (265.0) (71.3%) ------- ------- ------- ------- Total Revenue 1,188.6 1,463.8 (275.2) (18.8%) ======= ======= ======= ======= Operational Data by Segment: (Billions except where noted) ----------------------------------------------------------------------------------------------------------- Lincoln Retirement* Gross Deposits 1.368 2.011 (0.643) (32.0%) Net Cash Flows 0.074 0.631 (0.557) 88.3% Account Values (Gross) 47.525 52.642 (5.118) (9.7%) Account Values (Net of Reinsurance) 45.522 51.129 (5.606) (11.0%) Life Insurance Segment First Year Premium- Retail (in millions) 223.164 187.184 35.980 19.2% First Year Premium- COLI (in millions) 26.774 14.155 12.620 89.2% First Year Premium- Total (in millions) 249.938 201.338 48.600 24.1% In-force 253.896 234.394 19.502 8.3% Account Values 12.086 11.377 0.709 6.2% Investment Management Segment Retail Deposits 1.673 0.798 0.875 109.6% Retail Net Cash Flows 0.502 (0.091) 0.593 649.4% Institutional In-flows 1.323 0.696 0.628 90.3% Institutional Net Cash Flows 0.572 (0.103) 0.674 (656.9%) Total Net Cash Flows 1.074 (0.194) 1.267 (653.4%) Assets Under Management- Retail and Inst'l 46.495 48.411 (1.916) (4.0%) Assets Under Management-- Insurance Assets 41.104 38.119 2.985 7.8% Assets Under Management-- Total Segment 87.599 86.530 1.068 1.2% Consolidated Consolidated Domestic Retail Deposits 3.396 3.137 0.259 8.3% Consolidated Domestic Retail Account Balances 75.057 81.044 (5.987) (7.4%) Total Retail Net Cash Flows 1.060 0.869 0.191 (22.0%) Total Net Cash Flows 1.632 0.767 0.865 112.8% Total Assets Under Management 119.127 126.241 (7.114) (5.6%) For the Year Ended December 31 2002 2001 Amount Amount Change % Change ------- ------- ------- ------- Income from Operations Lincoln Retirement* 187.5 320.3 (132.8) (41.5%) Life Insurance 271.9 279.0 (7.2) (2.6%) Investment Management 28.9 14.6 14.3 97.7% Lincoln UK 37.0 60.2 (23.3) (38.7%) Corporate & Other** (50.8) 14.8 (65.6) ------- ------- ------- ------- Total Income from Operations 474.4 689.0 (214.6) (31.1%) Realized gains (losses) on investments (177.2) (68.7) (108.5) Gains (losses) on derivatives 0.8 (4.9) 5.6 Reserve increase on business sold through reinsurance (199.1) -- (199.1) Gain on sale of subsidiaries (9.4) 15.0 (24.4) Restructuring charges 2.0 (24.7) 26.7 Income before Accounting Changes 91.6 605.8 (514.3) Cumulative effect of accounting changes*** -- (15.6) 15.6 ------- ------- ------- ------- Net Income 91.6 590.2 (498.6) (84.5%) ======= ======= ======= ======= Earnings per share (diluted) Income from Operations $2.56 $3.56 ($1.01) (28.3%) Realized gain (losses) on investments ($0.95) ($0.35) ($0.60) Gains (losses) on derivatives $0.00 ($0.03) $0.03 Reserve increase on business sold through reinsurance ($1.07) $0.00 ($1.07) Gain on sale of subsidiaries ($0.05) $0.08 ($0.13) Restructuring charges $0.01 ($0.13) $0.14 ------- ------- ------- Income before Accounting Changes $0.49 $3.13 ($2.64) Cumulative effect of accounting changes*** $0.00 ($0.08) $0.08 ------- ------- ------- ------- Net Income $0.49 $3.05 ($2.56) (83.8%) ======= ======= ======= ======= Inc. from Oper.- before Goodwill Amort. Lincoln Retirement* 187.5 321.5 (134.0) (41.7%) Life Insurance 271.9 302.7 (30.9) (10.2%) Investment Management 28.9 30.9 (1.9) (6.3%) Lincoln UK 37.0 60.9 (23.9) (39.2%) Corporate & Other** (50.8) 16.4 (67.2) ------- ------- ------- ------- Total 474.4 732.4 (258.0) (35.2%) ======= ======= ======= ======= Earnings per share (diluted) Inc. from Oper.- before Goodwill Amort. $2.56 $3.79 ($1.23) (32.5%) ------- ------- ------- ------- Net Income-- before Goodwill Amort. Lincoln Retirement* 57.8 270.5 (212.6) (78.6%) Life Insurance 209.0 256.7 (47.8) (18.6%) Investment Management 25.6 28.0 (2.3) (8.4%) Lincoln UK 40.0 69.6 (29.6) (42.5%) Corporate & Other** (240.9) 8.8 (249.8) ------- ------- ------- ------- Total 91.6 633.6 (542.0) (85.5%) ======= ======= ======= ======= Earnings per share (diluted) Net Income-- before Goodwill Amort. $0.49 $3.28 ($2.79) (85.1%) ------- ------- ------- ------- Operating Revenue Lincoln Retirement* 1,985.5 2,033.1 (47.5) (2.3%) Life Insurance 1,881.7 1,897.5 (15.8) (0.8%) Investment Management 404.7 437.4 (32.7) (7.5%) Lincoln UK 275.4 278.2 (2.9) (1.0%) Corporate & Other** 368.8 1,833.4 (1,464.6) (79.9%) ------- ------- ------- ------- Total Operating Revenue 4,916.1 6,479.6 (1,563.5) (24.1%) ======= ======= ======= ======= Total Revenue Lincoln Retirement* 1,787.7 1,968.3 (180.6) (9.2%) Life Insurance 1,785.0 1,840.6 (55.6) (3.0%) Investment Management 399.3 433.7 (34.5) (7.9%) Lincoln UK 277.2 290.7 (13.4) (4.6%) Corporate & Other** 386.3 1,844.7 (1,458.5) (79.1%) ------- ------- ------- ------- Total Revenue 4,635.5 6,378.0 (1,742.5) (27.3%) ======= ======= ======= ======= Operational Data by Segment: (Billions except where noted) ----------------------------------------------------------------------------------------------------------- Lincoln Retirement* Gross Deposits 6.415 6.409 0.006 0.1% Net Cash Flows 0.453 0.105 0.348 (331.4%) Account Values (Gross) 47.525 52.642 (5.118) (9.7%) Account Values (Net of Reinsurance) 45.522 51.129 (5.606) (11.0%) Life Insurance Segment First Year Premium- Retail (in millions) 692.328 578.387 113.941 19.7% First Year Premium- COLI (in millions) 88.109 47.255 40.854 86.5% First Year Premium- Total (in millions) 780.437 625.642 154.795 24.7% In-force 253.896 234.394 19.502 8.3% Account Values 12.086 11.377 0.709 6.2% Investment Management Segment Retail Deposits 5.695 3.693 2.002 54.2% Retail Net Cash Flows 0.806 (0.375) 1.181 314.7% Institutional In-flows 5.194 3.826 1.368 35.8% Institutional Net Cash Flows 2.106 (0.231) 2.337 (1012.6%) Total Net Cash Flows 2.912 (0.606) 3.518 580.4% Assets Under Management- Retail and Inst'l 46.495 48.411 (1.916) (4.0%) Assets Under Management-- Insurance Assets 41.104 38.119 2.985 7.8% Assets Under Management-- Total Segment 87.599 86.530 1.068 1.2% Consolidated Consolidated Domestic Retail Deposits 12.783 11.009 1.775 16.1% Consolidated Domestic Retail Account Balances 75.057 81.044 (5.987) (7.4%) Total Retail Net Cash Flows 2.587 0.742 1.845 (248.6%) Total Net Cash Flows 4.693 0.514 4.179 (812.7%) Total Assets Under Management 119.127 126.241 (7.114) (5.6%) * Effective March 7, 2002, the Annuities segment became known as Lincoln Retirement. ** Upon the closing of Swiss Re's acquisition of LNC's reinsurance business on December 7, 2001, all historical financial data for the former Reinsurance segment was moved into "Other Operations." In addition, ongoing amortization of the deferred gain on indemnity reinsurance is shown in "Other Operations." *** The cumulative effect of accounting changes relates to the adjustments recorded upon adoption of FAS #133 in the 1st qtr. 2001 and EITF 99-20 in the 2nd qtr. 2001.
PAGE 2 Financial Highlights Unaudited [Amounts in Millions, except Per Share] For the Quarter Ended December 31 2002 2001 Amount Amount Change % Change --------- --------- --------- --------- Consolidated Operational Data: (Millions) Balance Sheet Assets - End of Period 93135.3 98001.3 (4866.0) (5.0%) Shareholders' Equity Beg of Period (Securities at Market) 5389.0 5368.6 20.4 End of Period (Securities at Market) 5355.0 5263.5 91.5 End of Period (Securities at Cost) 4514.6 5046.3 (531.6) Average Equity (Securities at Cost) 4584.9 5131.4 (546.6) Return on Equity Inc from Operations/Average Equity 9.8% 15.5% (5.7%) Net Income/Average Equity 5.5% 13.2% (7.7%) Return on Capital Inc from Operations/Average Capital 7.7% 12.9% (5.2%) Common Stock Outstanding Average for the Period - Diluted 178.9 192.8 (14.0) (7.3%) End of Period - Assuming Conv of Pref. 177.6 187.3 (9.7) (5.2%) End of Period - Diluted 179.0 191.1 (12.1) (6.3%) Book Value (Including accumulated other comprehensive income) 30.15 28.10 2.05 7.2% Book Value (Excluding accumulated other comprehensive income) 25.97 27.13 (1.17) (4.3%) Cash Returned to Shareholders Share Repurchase - dollar amount 0.0 134.3 (134.3) Dividends Declared to Shareholders 58.9 59.9 (1.0) --------- --------- --------- --------- Total Cash Returned to Shareholders 58.9 194.2 (135.3) ========= ========= ========= ========= Share Repurchase - number of shares 0.000 2.894 (2.900) Dividend Declared on Common Stock - per share $0.335 $0.320 $0.015 4.7% For the Quarter Ended December 31 Comprehensive Income 2002 2001 (millions) Amount Amount --------- --------- Net Income 63.2 169.2 Foreign Currency Translation 15.4 (14.9) Net Unrealized Gains (Losses) on Securities (5.6) (52.2) Gains (Losses) on Derivatives 1.0 1.2 Cumulative Effect of Accounting Change 0.0 (0.0) Minimum Pension Liability Adjustment (62.6) (36.0) --------- --------- Comprehensive Income 11.5 67.3 ========= ========= For the Year Ended December 31 2002 2001 Amount Amount Change % Change --------- --------- --------- --------- Consolidated Operational Data: (Millions) Balance Sheet Assets - End of Period 93135.3 98001.3 (4866.0) (5.0%) Shareholders' Equity Beg of Period (Securities at Market) 5263.5 4954.1 309.4 End of Period (Securities at Market) 5355.0 5263.5 91.5 End of Period (Securities at Cost) 4514.6 5046.3 (531.6) Average Equity (Securities at Cost) 4910.1 5022.6 (112.5) Return on Equity Inc from Operations/Average Equity 9.7% 13.7% (4.1%) Net Income/Average Equity 1.9% 11.8% (9.9%) Return on Capital Inc from Operations/Average Capital 8.0% 11.5% (3.5%) Common Stock Outstanding Average for the Period - Diluted 185.6 193.3 (7.7) (4.0%) End of Period - Assuming Conv of Pref. 177.6 187.3 (9.7) (5.2%) End of Period - Diluted 179.0 191.1 (12.1) (6.3%) Book Value (Including accumulated other comprehensive income) 30.15 28.10 2.05 7.2% Book Value (Excluding accumulated other comprehensive income) 25.97 27.13 (1.17) (4.3%) Cash Returned to Shareholders Share Repurchase - dollar amount 474.5 503.7 (29.2) Dividends Declared to Shareholders 234.3 231.8 2.5 --------- --------- --------- --------- Total Cash Returned to Shareholders 708.8 735.5 (26.7) ========= ========= ========= ========= Share Repurchase - number of shares 12.088 11.278 0.810 Dividend Declared on Common Stock - per share $1.295 $1.235 $0.060 4.9% For the Year Ended December 31 Comprehensive Income 2002 2001 (millions) Amount Amount --------- --------- Net Income 91.6 590.2 Foreign Currency Translation 58.8 (30.0) Net Unrealized Gains (Losses) on Securities 616.3 183.6 Gains (Losses) on Derivatives 24.4 3.9 Cumulative Effect of Accounting Change (17.6) 17.6 Minimum Pension Liability Adjustment (61.9) (36.0) --------- --------- Comprehensive Income 711.7 729.4 ========= =========
PAGE 3 Financial Highlights Unaudited [Amounts in Millions] For the Quarter Ended December 31 2002 2001 Amount Amount Change % Change ------- ------- ------- ------- Consolidated Condensed Statements of Income Revenue: Insurance Premiums and Fees 451.4 679.5 (228.1) (33.6%) Investment Advisory Fees 44.7 50.9 (6.2) (12.2%) Net Investment Income 662.2 646.6 15.6 2.4% Realized Gains (Losses) on Investments (50.7) (29.7) (21.0) Gains (Losses) on Derivatives 0.6 (8.9) 9.5 Gains (Losses) on sale of subsidiaries (8.3) 12.8 (21.1) Other 88.7 112.6 (23.9) (21.2%) ------- ------- ------- ------- Total Revenue 1,188.6 1,463.8 (275.2) (18.8%) Benefits and Expenses: Benefits 653.0 744.9 (92.0) (12.3%) Underwriting, Acquisition, Insurance and Other Expenses 474.8 529.2 (54.4) (10.3%) ------- ------- ------- ------- Total Benefits and Expenses 1,127.8 1,274.1 (146.3) (11.5%) ------- ------- ------- ------- Net Income before Federal Taxes 60.8 189.7 (128.9) Federal Income Taxes (2.4) 20.5 (22.8) ------- ------- ------- Income before Accounting Changes 63.2 169.2 (106.0) Cumulative Effect of Accounting Changes -- (0.0) 0.0 ------- ------- ------- Net Income 63.2 169.2 (106.0) (62.7%) ======= ======= ======= ======= Income before Tax and Cumulative Effect of Accounting Changes By Segment Lincoln Retirement (11.8) 53.3 (65.2) Life Insurance 87.2 79.9 7.3 Investment Management 12.6 5.5 7.1 Lincoln UK 15.8 5.7 10.1 Corporate and Other (42.9) 45.3 (88.2) ------- ------- ------- Income before Tax and Cumulative Effect of Accounting Changes 60.8 189.7 (128.9) ------- ------- ------- Pre-Tax Realized Gains (Losses) by Segment* Lincoln Retirement (46.2) (31.2) (15.1) Life Insurance (5.4) (30.6) 25.2 Investment Management (1.5) (1.1) (0.4) Lincoln UK 1.2 4.3 (3.1) Corporate and Other 1.5 19.8 (18.3) ------- ------- ------- Pre-Tax Realized Gains (Losses) on Investments and Derivatives (50.3) (38.6) (11.7) After-Tax Realized Gains (Losses) by Segment* Lincoln Retirement (30.4) (20.6) (9.8) Life Insurance (3.5) (19.9) 16.3 Investment Management (0.9) (0.7) (0.3) Lincoln UK 0.8 3.0 (2.2) Corporate and Other 1.0 13.5 (12.5) ------- ------- ------- After-Tax Realized Gains (Losses) on Investments and Derivatives (33.1) (24.7) (8.4) For the Year Ended December 31 2002 2001 Amount Amount Change % Change ------- ------- ------- ------- Consolidated Condensed Statements of Income Revenue: Insurance Premiums and Fees 1,750.4 3,248.0 (1,497.7) (46.1%) Investment Advisory Fees 183.3 197.2 (13.8) (7.0%) Net Investment Income 2,608.3 2,679.6 (71.3) (2.7%) Realized Gains (Losses) on Investments (272.7) (105.2) (167.5) Gains (Losses) on Derivatives 3.8 (9.3) 13.1 Gains (Losses) on sale of subsidiaries (8.3) 12.8 (21.1) Other 370.6 354.8 15.8 4.4% ------- ------- ------- ------- Total Revenue 4,635.5 6,378.0 (1,742.5) (27.3%) Benefits and Expenses: Benefits 2,554.1 3,409.7 (855.6) (25.1%) Underwriting, Acquisition, Insurance and Other Expenses 2,079.7 2,204.2 (124.5) (5.6%) ------- ------- ------- ------- Total Benefits and Expenses 4,633.8 5,613.9 (980.1) (17.5%) ------- ------- ------- ------- Net Income before Federal Taxes 1.6 764.1 (762.5) Federal Income Taxes (90.0) 158.4 (248.3) ------- ------- ------- Income before Accounting Changes 91.6 605.7 (514.1) Cumulative Effect of Accounting Changes -- (15.6) 15.6 ------- ------- ------- Net Income 91.6 590.2 (498.6) (84.5%) ======= ======= ======= ======= Income before Tax and Cumulative Effect of Accounting Changes By Segment Lincoln Retirement 0.8 312.8 (312.1) Life Insurance 298.7 369.8 (71.1) Investment Management 31.4 19.1 12.3 Lincoln UK 36.9 61.6 (24.8) Corporate and Other (366.1) 0.8 (366.8) ------- ------- ------- Income before Tax and Cumulative Effect of Accounting Changes 1.6 764.1 (762.5) ------- ------- ------- Pre-Tax Realized Gains (Losses) by Segment* Lincoln Retirement (197.8) (64.8) (133.0) Life Insurance (96.7) (56.9) (39.8) Investment Management (5.4) (3.7) (1.7) Lincoln UK 1.9 12.4 (10.6) Corporate and Other 26.6 (1.5) 28.1 ------- ------- ------- Pre-Tax Realized Gains (Losses) on Investments and Derivatives (271.5) (114.5) (157.1) After-Tax Realized Gains (Losses) by Segment* Lincoln Retirement (128.6) (42.5) (86.1) Life Insurance (62.9) (36.9) (25.9) Investment Management (3.5) (2.4) (1.1) Lincoln UK 1.3 8.7 (7.4) Corporate and Other 17.3 (0.4) 17.7 ------- ------- ------- After-Tax Realized Gains (Losses) on Investments and Derivatives (176.4) (73.5) (102.9) * Includes both realized gains (losses) on investments and gains (losses) on derivatives.
PAGE 4 Financial Highlights Unaudited [Amounts in Millions, except Retail Account Balances and Assets Managed] As of --------------------------------------------------------------- December December 2002 2001 Amount Amount Change % Change --------- --------- --------- --------- Consolidated Condensed Balance Sheets Assets: Investments: Securities Available for Sale: Fixed Maturities 32,767.5 28,345.7 4,421.8 15.6% Equities 337.2 470.5 (133.2) (28.3%) Mortgage Loans on Real Estate 4,205.5 4,535.5 (330.1) (7.3%) Real Estate 279.7 267.9 11.8 4.4% Policy Loans 1,945.6 1,939.7 5.9 0.3% Other Long-Term Investments 466.2 553.8 (87.6) (15.8%) --------- --------- --------- --------- Total Investments 40,001.7 36,113.1 3,888.6 10.8% Other Assets: Assets Held in Separate Accounts 36,178.3 44,833.4 (8,655.1) (19.3%) Other Assets 16,955.2 17,054.8 (99.6) (0.6%) --------- --------- --------- --------- Total Assets 93,135.3 98,001.3 (4,866.0) (5.0%) ========= ========= ========= ========= Liabilities and Shareholders' Equity Liabilities: Insurance and Investment Contract Liabilities 44,768.9 40,857.2 3,911.7 9.6% Liabilities Related to Separate Accounts 36,178.3 44,833.4 (8,655.1) (19.3%) Other Liabilities 6,815.4 7,047.2 (231.8) (3.2%) --------- --------- --------- --------- Total Liabilities 87,780.3 92,737.8 (4,957.5) (5.4%) Shareholders' Equity: Net Unrealized Gains(Losses) on Securities and Derivatives 840.3 217.2 623.1 286.9% Other Shareholders' Equity 4,514.6 5,046.3 (531.6) (10.5%) --------- --------- --------- --------- Total Shareholders' Equity 5,355.0 5,263.5 91.5 1.7% --------- --------- --------- --------- Total Liabilities and Shareholders' Equity 93,135.3 98,001.3 (4,866.0) (5.0%) ========= ========= ========= ========= ----------------------------------------------------------------------------------------------------------- As of --------------------------------------------------------------- December December 2002 2001 Amount Amount Change % Change --------- --------- --------- --------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 2,885.3 3,070.5 (185.2) (6.0%) Deferral 627.3 714.1 (86.8) (12.2%) Amortization (346.7) (367.7) 21.0 (5.7%) --------- --------- --------- --------- Operating 280.5 346.4 (65.8) (19.0%) Adjustment related to realized (gains) losses on securities available-for-sale 115.0 112.9 2.2 1.9% Adjustment related to unrealized (gains) losses on securities available-for-sale (338.5) (187.2) (151.3) 80.8% Foreign currency translation adjustment 56.9 (16.0) 73.0 (454.8%) Disposition of business - (425.9) 425.9 (100.0%) Other (28.3) (15.3) (13.0) 85.1% --------- --------- --------- --------- Balance at end-of-year 2,971.0 2,885.3 85.7 3.0% ========= ========= ========= ========= Roll Forward of Present Value of In-Force Balance at beginning-of-year 1,362.5 1,483.3 (120.9) (8.1%) Amortization (136.4) (113.1) (23.3) 20.6% Foreign currency translation adjustment 24.1 (7.0) 31.1 (441.8%) Other (0.0) (0.7) 0.7 (97.9%) --------- --------- --------- --------- Balance at end-of-year 1,250.1 1,362.5 (112.4) (8.2%) ========= ========= ========= =========
PAGE 5 Eleven-Year Summary Unaudited [Millions of Dollars except Per Share Data] For the Year Ended December 31 2002 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- ------- Revenue Lincoln Retirement 1787.7 1968.3 2133.7 2115.8 2068.1 2023.0 Life Insurance 1785.0 1840.6 1819.0 1760.4 1378.5 544.8 Investment Management 399.3 433.7 490.3 495.5 491.9 459.1 Lincoln UK 277.2 290.7 433.8 446.6 439.7 427.3 Corporate & Other 386.3 1844.7 1970.4 1985.4 1708.9 1444.3 ------- ------- ------- ------- ------- ------- Total Revenue 4635.5 6378.0 6847.1 6803.7 6087.1 4898.5 ======= ======= ======= ======= ======= ======= Income from Operations* Lincoln Retirement 187.5 320.3 362.0 299.4 262.4 223.0 Life Insurance 271.9 279.0 259.9 212.0 149.2 39.9 Investment Management 28.9 14.6 44.1 61.0 43.9 18.1 Lincoln UK 37.0 60.2 61.0 (13.9) 70.9 (108.3) Corporate & Other (50.8) 14.8 (8.0) (83.1) 4.0 (223.3) ------- ------- ------- ------- ------- ------- Total Income from Cont Oper 474.4 689.0 719.1 475.5 530.4 (50.6) Discontinued Operations 110.1 ------- ------- ------- ------- ------- ------- Income from Operations 474.4 689.0 719.1 475.5 530.4 59.4 ======= ======= ======= ======= ======= ======= Net Income Lincoln Retirement 57.8 269.2 358.6 291.5 273.8 263.3 Life Insurance 209.0 233.1 249.3 211.5 127.5 39.1 Investment Management 25.6 11.8 37.0 51.6 44.4 25.1 Lincoln UK 40.0 68.9 (13.2) (18.2) 71.7 (106.8) Corporate & Other (240.9) 7.2 (10.2) (76.1) (7.6) (198.4) ------- ------- ------- ------- ------- ------- Total Net Inc from Cont Oper 91.6 590.2 621.4 460.4 509.8 22.2 Discontinued Operations 911.8 ------- ------- ------- ------- ------- ------- Total Net Income 91.6 590.2 621.4 460.4 509.8 934.0 ------- ------- ------- ------- ------- ------- OTHER DATA Assets 93135.3 98001.3 99844.1 103095.7 93836.3 77174.7 Shareholders' Equity: Securities and Derivatives at Market 5355.0 5263.5 4954.1 4263.9 5387.9 4982.9 Securities and Derivatives at Cost 4514.6 5046.3 4942.0 4729.6 4835.6 4546.9 Average Equity (Sec & Deriv at Cost) 4910.1 5022.6 4831.9 4818.7 4685.6 4214.1 Common Shares Outstanding: (millions) End of Period - Diluted 179.0 191.1 195.2 197.0 203.4 204.7 Average for the Period - Diluted 185.6 193.3 194.9 200.4 203.3 208.0 Per Share Data (Diluted) Income (Loss) from Continuing Operations $2.56 $3.56 $3.69 $2.37 $2.61 ($0.24) Income from Operations * $2.56 $3.56 $3.69 $2.37 $2.61 $0.29 Net Income from Continuing Operations $0.49 $3.05 $3.19 $2.30 $2.51 $0.11 Net Income $0.49 $3.05 $3.19 $2.30 $2.51 $4.49 Shareholders' Equity: Shareholders' Equity (Includes accum OCI) $30.15 $28.10 $25.92 $21.76 $26.59 $24.63 Shareholders' Equity (Excludes accum OCI) $25.97 $27.13 $25.85 $24.14 $23.86 $22.48 Dividends Declared (Common Stock) $1.30 $1.24 $1.18 $1.12 $1.06 $1.00 Return on Equity (see page 30) Net Income/Average Equity 1.9% 11.8% 12.9% 9.6% 10.9% 22.2% Inc from Operations/Average Equity 9.7% 13.7% 14.9% 9.9% 11.3% 1.4% Market Value of Common Stock High for the Year $53.650 $52.750 $56.375 $57.500 $49.438 $39.063 Low for the Year $25.150 $38.000 $22.625 $36.000 $33.500 $24.500 Close for the Year $31.580 $48.570 $47.313 $40.000 $40.907 $39.063 Ten-year compound For the Year Ended December 31 1996 1995 1994 1993 1992 annual growth ------- ------- ------- ------- ------- ------------- Revenue Lincoln Retirement 1805.0 1877.1 1506.2 1603.8 1336.2 3.0% Life Insurance 549.2 514.9 466.2 477.5 444.4 14.9% Investment Management 410.5 290.5 Lincoln UK 393.2 351.5 216.0 174.9 180.6 4.4% Corporate & Other 1575.6 1552.5 1744.1 2680.9 2780.9 ------- ------- ------- ------- ------- ------- Total Revenue 4733.6 4586.5 3932.5 4937.1 4742.1 - 0.2% ======= ======= ======= ======= ======= ======= Income from Operations* Lincoln Retirement 174.6 175.2 142.4 127.1 89.4 7.7% Life Insurance 41.2 35.4 34.2 37.8 46.8 19.2% Investment Management 18.6 20.6 Lincoln UK 66.0 45.9 17.2 11.9 9.2 14.9% Corporate & Other (1.7) (136.2) 24.8 20.8 6.5 ------- ------- ------- ------- ------- ------- Total Income from Cont Oper 298.8 140.8 218.6 197.6 151.9 12.1% Discontinued Operations 135.3 165.6 171.1 145.9 88.7 ------- ------- ------- ------- ------- ------- Income from Operations 434.1 306.5 389.7 343.5 240.6 7.0% ======= ======= ======= ======= ======= ======= Net Income Lincoln Retirement 204.3 248.8 142.4 127.1 89.4 - 4.3% Life Insurance 51.8 40.6 34.2 37.8 46.8 16.1% Investment Management 25.0 27.4 Lincoln UK 66.0 45.7 18.5 12.6 9.2 Corporate & Other 9.3 (61.0) (29.6) (101.1) 125.1 ------- ------- ------- ------- ------- ------- Total Net Inc from Cont Oper 356.4 301.4 165.5 76.4 270.5 - 10.3% Discontinued Operations 157.2 180.8 184.4 242.5 88.7 ------- ------- ------- ------- ------- ------- Total Net Income 513.6 482.2 349.9 318.9 359.2 - 12.8% ------- ------- ------- ------- ------- ------- OTHER DATA Assets 71713.4 63257.7 48864.8 47825.1 39042.2 9.1% Shareholders' Equity: Securities and Derivatives at Market 4470.0 4378.1 3042.1 4072.3 2826.8 6.6% Securities and Derivatives at Cost 4057.1 3679.9 3353.1 3157.6 2664.1 5.4% Average Equity (Sec & Deriv at Cost) 3866.0 3568.4 3288.6 3009.0 2575.0 6.7% Common Shares Outstanding: (millions) End of Period - Diluted 209.5 210.3 208.3 208.3 187.7 Average for the Period - Diluted 210.7 209.5 208.7 206.1 186.8 Per Share Data (Diluted) Income (Loss) from Continuing Operations $1.42 $0.67 $1.05 $0.96 $0.81 12.1% Income from Operations * $2.06 $1.46 $1.87 $1.67 $1.29 7.1% Net Income from Continuing Operations $1.69 $1.44 $0.79 $0.37 $1.45 - 10.2% Net Income $2.44 $2.30 $1.68 $1.55 $1.92 - 12.7% Shareholders' Equity: Shareholders' Equity (Includes accum OCI) $21.50 $20.95 $14.67 $19.69 $15.13 7.1% Shareholders' Equity (Excludes accum OCI) $19.51 $17.61 $16.17 $15.27 $14.26 6.2% Dividends Declared (Common Stock) $0.94 $0.88 $0.830 $0.775 $0.738 5.8% Return on Equity (see page 30) Net Income/Average Equity 13.3% 14.7% 10.6% 10.6% 13.9% Inc from Operations/Average Equity 11.2% 9.4% 11.8% 11.4% 9.3% Market Value of Common Stock High for the Year $28.500 $26.875 $22.188 $24.125 $19.032 Low for the Year $20.375 $17.313 $17.313 $17.344 $12.625 Close for the Year $26.250 $26.875 $17.500 $21.750 $18.500 5.5% * "Income from Operations" is defined as "Net income less realized gain (loss) on investments, derivative instruments and associated items, gain (loss) on sale of subsidiaries, restructuring charges, and cumulative effect of accounting changes, all net of taxes." Income from operations also excludes the recognition of losses and related changes to the deferred gain amortization under indemnity reinsurance resulting from future developments in the business reinsured.
PAGE 6 Quarterly Summary Unaudited [Millions of Dollars except Per Share Data] Mar Jun Sep Dec Mar Jun For the Quarter Ended 2000 2000 2000 2000 2001 2001 ------ ------ ------ ------ ------ ----- Revenue Lincoln Retirement 548.7 530.5 532.1 522.3 510.4 512.1 Life Insurance 441.7 444.2 453.2 479.9 459.6 455.7 Investment Management 125.8 120.7 123.8 120.0 112.3 110.3 Lincoln UK 116.8 103.5 110.7 102.8 88.8 63.4 Corporate & Other 440.2 489.0 494.1 547.0 531.6 452.0 ------- ------- ------- ------- ------- ------- Total Revenue 1673.2 1688.0 1714.0 1772.0 1702.7 1593.5 ======= ======= ======= ======= ======= ======= Income from Operations* Lincoln Retirement 88.5 84.1 102.9 86.4 82.3 90.8 Life Insurance 60.4 62.4 66.5 70.6 68.6 67.1 Investment Management 12.4 13.1 9.9 8.7 2.4 3.7 Lincoln UK 15.7 19.3 10.6 15.5 14.4 16.2 Corporate & Other (6.5) (5.9) 0.9 3.5 10.9 (9.7) ------- ------- ------- ------- ------- ------- Income from Operations 170.6 173.0 190.7 184.7 178.6 168.1 ======= ======= ======= ======= ======= ======= Net Income Lincoln Retirement 91.2 84.4 93.8 89.2 76.6 79.9 Life Insurance 58.1 58.4 67.4 65.4 62.9 53.5 Investment Management 12.3 8.4 9.7 6.6 2.0 2.9 Lincoln UK 15.5 19.1 (29.9) (17.9) 14.8 17.6 Corporate & Other (6.8) (6.8) (2.3) 5.7 4.0 (12.2) ------- ------- ------- ------- ------- ------- Total Net Income 170.2 163.6 138.6 148.9 160.2 141.7 OTHER DATA Assets 106340.0 103847.6 103243.1 99844.1 94122.4 96431.2 Shareholders' Equity Beg of Period (Sec & Deriv at Market) 4263.9 4340.4 4223.7 4538.6 4954.1 5096.4 End of Period (Sec & Deriv at Market) 4340.4 4223.7 4538.6 4954.1 5096.4 5055.9 End of Period (Sec & Deriv at Cost) 4751.6 4780.3 4876.3 4942.0 4882.7 4952.8 Average Equity (Sec & Deriv at Cost) 4791.5 4753.0 4867.2 4915.7 4953.7 4920.2 Common Shares Outstanding Average for the Period - Diluted 195.8 194.0 195.6 195.6 193.7 192.0 End of Period - Diluted 195.1 193.7 196.2 195.2 191.3 192.9 Per Share Data (Diluted) Income from Operations * $0.87 $0.89 $0.98 $0.94 $0.92 $0.88 Net Income $0.87 $0.84 $0.71 $0.76 $0.83 $0.74 Shareholders' Equity Shareholders' Equity (Includes accum OCI) 22.45 22.10 23.67 25.92 27.09 26.87 Shareholders' Equity (Excludes accum OCI) 24.58 25.01 25.43 25.85 25.96 26.32 Dividends Declared (Com Stk) 0.290 0.290 0.290 0.305 0.305 0.305 Return on Equity (see page 30) Net Income/Average Equity 14.2% 13.8% 11.4% 12.1% 12.9% 11.5% Inc from Operations/Average Equity 14.2% 14.6% 15.7% 15.0% 14.4% 13.7% Market Value of Common Stock Highest Price $41.375 $40.063 $56.375 $50.938 $48.250 $52.300 Lowest Price $22.625 $29.000 $35.625 $40.875 $38.000 $41.280 Closing Price $33.500 $36.125 $48.125 $47.313 $42.470 $51.750 Sep Dec Mar Jun Sep Dec For the Quarter Ended 2001 2001 2002 2002 2002 2002 ------ ------ ------ ------ ------ ----- Revenue Lincoln Retirement 478.2 467.5 453.0 442.6 440.7 451.4 Life Insurance 460.6 464.7 423.9 439.8 441.6 479.6 Investment Management 104.7 106.5 103.5 102.4 94.3 99.1 Lincoln UK 85.0 53.4 53.2 80.5 91.8 51.8 Corporate & Other 489.5 371.7 92.3 92.2 95.1 106.7 ------- ------- ------- ------- ------- ------- Total Revenue 1618.0 1463.8 1126.0 1157.5 1163.4 1188.6 ======= ======= ======= ======= ======= ======= Income from Operations* Lincoln Retirement 72.4 74.8 80.4 47.8 22.8 36.5 Life Insurance 70.1 73.2 71.1 73.5 63.4 63.8 Investment Management 3.5 5.1 8.0 6.6 4.0 10.3 Lincoln UK 10.1 19.5 14.4 6.7 (0.0) 15.9 Corporate & Other (12.9) 26.5 (12.0) (7.3) (17.2) (14.3) ------- ------- ------- ------- ------- ------- Income from Operations 143.2 199.1 162.0 127.2 73.0 112.2 ======= ======= ======= ======= ======= ======= Net Income Lincoln Retirement 58.6 54.2 47.6 10.2 (6.0) 6.0 Life Insurance 64.7 51.9 44.2 57.4 47.1 60.2 Investment Management 2.9 4.0 7.0 6.2 3.1 9.3 Lincoln UK 14.0 22.5 10.8 9.8 0.8 18.5 Corporate & Other (21.2) 36.7 (15.2) (24.2) (170.6) (31.0) ------- ------- ------- ------- ------- ------- Total Net Income 119.1 169.2 94.5 59.4 (125.5) 63.2 ======= ======= ======= ======= ======= ======= OTHER DATA Assets 90206.0 98001.3 97846.4 95069.2 90436.2 93135.3 Shareholders' Equity Beg of Period (Sec & Deriv at Market) 5055.9 5368.6 5263.5 5131.1 5307.9 5389.0 End of Period (Sec & Deriv at Market) 5368.6 5263.5 5131.1 5307.9 5389.0 5355.0 End of Period (Sec & Deriv at Cost) 5100.4 5046.3 5076.6 4959.5 4544.2 4514.6 Average Equity (Sec & Deriv at Cost) 5085.0 5131.4 5083.3 5080.7 4891.6 4584.9 Common Shares Outstanding Average for the Period - Diluted 194.8 192.8 191.7 189.7 183.9 178.9 End of Period - Diluted 193.3 191.1 191.7 186.9 178.8 179.0 Per Share Data (Diluted) Income from Operations * $0.74 $1.03 $0.84 $0.67 $0.40 $0.63 Net Income $0.61 $0.88 $0.49 $0.31 ($0.68) $0.35 Shareholders' Equity Shareholders' Equity (Includes accum OCI) 28.29 28.10 27.30 28.77 30.37 30.15 Shareholders' Equity (Excludes accum OCI) 26.87 27.13 27.20 27.09 25.81 25.97 Dividends Declared (Com Stk) 0.305 0.320 0.320 0.320 0.320 0.335 Return on Equity (see page 30) Net Income/Average Equity 9.4% 13.2% 7.4% 4.7% (10.3%) 5.5% Inc from Operations/Average Equity 11.3% 15.5% 12.7% 10.0% 6.0% 9.8% Market Value of Common Stock Highest Price $52.750 $49.450 $53.650 $52.540 $42.080 $35.950 Lowest Price $41.000 $40.000 $47.200 $40.750 $29.120 $25.150 Closing Price $46.630 $48.570 $50.730 $42.000 $30.550 $31.580 * "Income from Operations" is defined as "Net income less realized gain (loss) on investments, derivative instruments and associated items, gain (loss) on sale of subsidiaries, restructuring charges, and cumulative effect of accounting changes, all net of taxes." Income from operations also excludes the recognition of losses and related changes to the deferred gain amortization under indemnity reinsurance resulting from future developments in the business reinsured.
PAGE 7 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Millions of Dollars] Investment For the Quarter Ended December 30 Lincoln Retirement Life Insurance Management Lincoln UK ---------------------- --------------------- ------------------ ------------------ Dec Dec Dec Dec Dec Dec Dec Dec 2002 2001 2002 2001 2002 2001 2002 2001 -------- -------- -------- -------- -------- -------- -------- -------- Operating Revenue Life and annuity premiums 8.7 12.7 56.4 64.3 13.5 11.4 Surrender charges 7.4 7.2 15.5 19.9 (0.0) Mortality assessments 127.3 125.5 8.9 7.1 Expense assessments 105.7 126.2 56.3 52.8 (0.0) 22.8 24.1 Health premiums 0.0 0.1 0.6 0.5 Investment advisory fees (0.0) 65.8 71.4 Other revenue and fees 2.7 10.0 6.2 6.0 22.1 23.4 (11.9) (9.2) Net investment income 373.1 342.6 223.3 226.6 12.7 12.8 16.6 15.2 Earnings in Unconsolidated Affiliates -------- -------- -------- -------- -------- -------- -------- -------- Operating Revenue 497.6 498.7 485.0 495.2 100.5 107.6 50.6 49.1 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 78.4 55.3 114.6 112.9 21.2 16.7 Div accum & div to policyholders 22.8 25.4 Interest credited to policy bal. 231.7 227.5 150.7 146.9 0.0 Health policy benefits 0.0 0.0 1.8 4.1 -------- -------- -------- -------- -------- -------- -------- -------- Total insurance benefits 310.1 282.8 288.0 285.2 0.0 23.1 20.8 Underwriting, acquisition, insurance and other expenses*: Commissions 72.8 96.7 38.6 45.1 0.0 1.3 1.9 Other volume related expenses 18.1 13.1 58.3 56.9 (0.0) Operating and administrative expenses 68.3 66.4 43.6 38.3 81.2 88.4 20.0 24.1 Taxes, licenses and fees (0.5) 4.5 11.5 12.5 3.3 5.7 Par policyholder interests Foreign exchange -------- -------- -------- -------- -------- -------- -------- -------- Subtotal 158.8 180.7 152.1 152.8 84.4 94.1 21.3 25.9 Deferral of acquisition costs (55.3) (71.9) (101.4) (106.3) (0.6) (0.9) DAC amortization 29.6 20.8 36.3 30.2 (11.5) (3.9) -------- -------- -------- -------- -------- -------- -------- -------- DAC deferral net of amortization (25.7) (51.0) (65.1) (76.1) (12.1) (4.8) PVIF amortization 20.0 1.4 17.4 14.7 5.5 5.6 Other intangibles amortization 2.0 2.3 -------- -------- -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 153.2 131.1 104.4 91.4 86.4 96.4 14.7 26.8 Goodwill amortization 0.3 5.9 4.1 0.2 Interest 0.0 0.0 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses 463.3 414.2 392.5 382.5 86.4 100.4 37.8 47.8 -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations Before Tax 34.4 84.5 92.5 112.7 14.1 7.1 12.8 1.4 Federal income taxes (2.1) 9.7 28.8 39.5 3.8 2.1 (3.1) (18.1) -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations 36.5 74.8 63.8 73.2 10.3 5.1 15.9 19.5 -------- -------- -------- -------- -------- -------- -------- -------- Restructuring charges (1.5) 0.0 (0.4) 1.7 Realized gains (losses) on investments (30.4) (20.7) (3.6) (21.3) (0.9) (0.7) 0.8 3.0 Gains (losses) on derivatives (0.0) 0.1 0.1 1.5 Reserve increase on business sold through reinsurance Gain on sale of subsidiaries -------- -------- -------- -------- -------- -------- -------- -------- Income before Accounting Changes 6.0 54.2 60.2 51.9 9.3 4.0 18.5 22.5 Cumulative effect of accounting changes 0.0 (0.0) -------- -------- -------- -------- -------- -------- -------- -------- Net Income 6.0 54.2 60.2 51.9 9.3 4.0 18.5 22.5 ======== ======== ======== ======== ======== ======== ======== ======== Inc. from Oper.-before Goodwill Amort. 36.5 75.1 63.8 79.1 10.3 9.1 15.9 19.7 -------- -------- -------- -------- -------- -------- -------- -------- Net Income-before Goodwill 6.0 54.5 60.2 57.8 9.3 8.1 18.5 22.7 Amort. -------- -------- -------- -------- -------- -------- -------- -------- * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 8 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Millions of Dollars] Corporate and Consolidating Other Operations Adjustments Consolidated ----------------- ------------------ ------------------ For the Quarter Dec Dec Dec Dec Dec Dec Ended December 31 2002 2001 2002 2001 2002 2001 ------- ------- ------- ------- ------- ------- Operating Revenue Life and annuity premiums 2.2 182.3 80.7 270.7 Surrender charges 0.1 0.6 0.5 23.5 27.7 Mortality assessments (0.9) 0.0 135.3 132.6 Expense assessments 0.9 (0.0) 7.0 9.3 192.8 212.4 Health premiums 18.4 35.5 19.1 36.1 Investment advisory fees (21.1) (20.5) 44.7 50.9 Other revenue and fees 110.4 115.3 (40.9) (37.3) 88.4 108.2 Net investment income 37.7 51.1 (1.3) (1.7) 662.2 646.6 Earnings in Unconsolidated Affiliates 4.3 4.3 ------- ------- ------- ------- ------- ------- Operating Revenue 168.7 388.6 (55.8) (49.6) 1246.7 1489.6 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits (0.2) 117.9 214.0 302.8 Div accum & div to policyholders (0.0) 1.2 22.8 26.6 Interest credited to policy bal. 21.4 7.0 7.2 9.2 411.1 390.6 Health policy benefits 3.3 20.9 5.1 25.0 ------- ------- ------- ------- ------- ------- Total insurance benefits 24.5 146.9 7.2 9.2 653.0 744.9 Underwriting, acquisition, insurance and other expenses*: Commissions 42.2 69.0 7.1 5.1 162.0 217.9 Other volume related expenses 20.7 (21.1) (24.5) (19.7) 72.6 29.1 Operating and administrative expenses 71.4 122.0 (42.1) (41.8) 242.5 297.3 Taxes, licenses and fees 9.1 7.8 23.5 30.4 Par policyholder interests Foreign exchange (0.6) 1.1 (0.6) 1.1 ------- ------- ------- ------- ------- ------- Subtotal 142.7 178.8 (59.4) (56.4) 499.9 575.9 Deferral of acquisition costs (6.6) (10.5) (8.7) (167.8) (194.5) DAC amortization 0.1 1.5 8.2 8.0 62.7 56.8 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization 0.1 (5.1) (2.2) (0.7) (105.0) (137.7) PVIF amortization 43.0 21.8 Other intangibles amortization 0.2 2.0 2.5 Total underwriting, acquisition, insurance and other expenses 142.8 173.9 (61.7) (57.1) 439.9 462.5 Goodwill amortization 0.3 (0.0) 10.7 Interest 24.8 26.7 (1.3) (1.7) 23.5 25.0 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 192.1 347.9 (55.8) (49.6) 1116.3 1243.1 ------- ------- ------- ------- ------- ------- Income from Operations Before Tax (23.5) 40.7 (0.0) 0.0 130.3 246.5 Federal income taxes (9.2) 14.2 18.2 47.4 ------- ------- ------- ------- ------- ------- Income from Operations (14.3) 26.5 (0.0) 0.0 112.2 199.1 ------- ------- ------- ------- ------- ------- Restructuring charges 0.0 (18.3) 1.7 (20.2) Realized gains (losses) on investments 0.8 19.5 0.3 (33.3) (20.0) Gains (losses) on derivatives 0.2 (6.3) 0.2 (4.6) Reserve increase on business sold through reinsurance (8.2) (8.2) Gain on sale of subsidiaries (11.5) 15.0 2.1 (9.4) 15.0 ------- ------- ------- ------- ------- ------- Income before Accounting Changes (33.0) 36.4 2.1 0.3 63.2 169.2 Cumulative effect of accounting changes (0.0) (0.0) ------- ------- ------- ------- ------- ------- Net Income (33.0) 36.4 2.1 0.3 63.2 169.2 ======== ======== ======== ======== ======== ======== Inc. from Oper.-before Goodwill Amort. (14.3) 26.8 (0.0) 112.2 209.8 ------- ------- ------- ------- ------- ------- Net Income-before Goodwill Amort. (33.0) 36.7 2.1 0.3 63.2 180.0 ------- ------- ------- ------- ------- ------- * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 9 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Millions of Dollars] Investment For the Year Ended December 31 Lincoln Retirement Life Insurance Management Lincoln UK ---------------------- --------------------- ------------------ ------------------ Dec Dec Dec Dec Dec Dec Dec Dec 2002 2001 2002 2001 2002 2001 2002 2001 -------- -------- -------- -------- -------- -------- -------- -------- Operating Revenue Life and annuity premiums 47.4 77.5 203.6 212.3 48.0 43.6 Surrender charges 31.2 31.2 54.1 66.1 Mortality assessments 501.5 499.4 32.4 33.9 Expense assessments 469.8 537.7 199.5 191.4 105.3 134.8 Health premiums 0.2 0.1 2.6 2.5 Investment advisory fees 267.2 284.6 Other revenue and fees 3.3 16.7 23.7 17.9 87.0 99.2 24.9 (1.4) Net investment income 1433.9 1370.0 899.1 910.2 50.5 53.6 62.1 64.8 Earnings in Unconsolidated Affiliates -------- -------- -------- -------- -------- -------- -------- -------- Operating Revenue 1985.5 2033.1 1881.7 1897.5 404.7 437.4 275.4 278.2 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 314.1 263.9 427.4 418.6 70.8 70.8 Div accum & div to policyholders 76.0 78.5 Interest credited to policy bal. 903.8 863.8 598.6 569.9 Health policy benefits 0.0 0.0 13.4 12.5 -------- -------- -------- -------- -------- -------- -------- -------- Total insurance benefits 1217.9 1127.7 1102.0 1067.0 84.2 83.4 Underwriting, acquisition, insurance and other expenses*: Commissions 320.8 336.3 139.8 142.1 6.1 10.8 Other volume related expenses 64.6 49.7 190.4 176.4 Operating and administrative expenses 225.0 225.5 157.8 161.0 342.3 364.8 74.5 80.0 Taxes, licenses and fees 11.5 13.7 53.2 49.2 17.7 22.2 Par policyholder interests Foreign exchange -------- -------- -------- -------- -------- -------- -------- -------- Subtotal 621.8 625.3 541.2 528.7 360.0 387.0 80.6 90.8 Deferral of acquisition costs (243.9) (240.9) (336.6) (324.8) (3.4) (4.2) DAC amortization 157.6 125.5 105.8 95.0 50.0 35.8 -------- -------- -------- -------- -------- -------- -------- -------- DAC deferral net of amortization (86.2) (115.4) (230.7) (229.8) 46.5 31.7 PVIF amortization 31.8 14.7 73.9 75.9 30.8 22.5 Other intangibles amortization 8.2 10.8 -------- -------- -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 567.4 524.5 384.4 374.7 368.3 397.8 157.9 145.0 Goodwill amortization 1.2 23.7 16.2 0.6 Interest 0.0 0.0 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses 1785.3 1653.5 1486.3 1465.4 368.3 414.1 242.1 229.0 -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations Before Tax 200.2 379.6 395.4 432.1 36.4 23.4 33.3 49.2 Federal income taxes 12.7 59.3 123.5 153.0 7.5 8.7 (3.7) (11.1) -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations 187.5 320.3 271.9 279.0 28.9 14.6 37.0 60.2 -------- -------- -------- -------- -------- -------- -------- -------- Restructuring charges (1.0) (1.3) (3.5) 0.3 (0.4) 1.7 Realized gains (losses) on investments (127.8) (42.3) (63.8) (38.5) (3.5) (2.4) 1.3 8.7 Gains (losses) on derivatives (0.8) (0.2) 1.0 1.6 Reserve increase on business sold through reinsurance Gain on sale of subsidiaries -------- -------- -------- -------- -------- -------- -------- -------- Income before Accounting Changes 57.8 276.5 209.0 238.6 25.6 11.9 40.0 68.9 Cumulative effect of accounting changes (7.3) (5.5) (0.1) -------- -------- -------- -------- -------- -------- -------- -------- Net Income 57.8 269.2 209.0 233.1 25.6 11.8 40.0 68.9 ======== ======== ======== ======== ======== ======== ======== ======== Inc. from Oper.-before Goodwill Amort. 187.5 321.5 271.9 302.7 28.9 30.9 37.0 60.9 -------- -------- -------- -------- -------- -------- -------- -------- Net Income-before Goodwill Amort. 57.8 270.5 209.0 256.7 25.6 28.0 40.0 69.6 -------- -------- -------- -------- -------- -------- -------- -------- * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 10 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Millions of Dollars] Corporate and Consolidating Other Operations Adjustments Consolidated ----------------- ------------------ ------------------ For the Year Dec Dec Dec Dec Dec Dec Ended December 31 2002 2001 2002 2001 2002 2001 ------- ------- ------- ------- ------- ------- Operating Revenue Life and annuity premiums (3.3) 1030.1 295.6 1363.4 Surrender charges 1.9 2.4 2.2 87.8 101.5 Mortality assessments (3.6) 0.1 530.3 533.3 Expense assessments 3.6 (0.0) 38.1 45.3 816.3 909.2 Health premiums 17.5 337.9 20.3 340.6 Investment advisory fees (83.8) (87.5) 183.3 197.2 Other revenue and fees 392.4 366.2 (156.5) (149.6) 374.7 349.1 Net investment income 168.6 292.2 (6.0) (11.1) 2608.3 2679.6 Earnings in Unconsolidated Affiliates (0.6) 5.7 (0.6) 5.7 ------- ------- ------- ------- ------- ------- Operating Revenue 574.6 2034.0 (205.7) (200.5) 4916.1 6479.6 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits (1.1) 764.6 811.3 1517.9 Div accum & div to policyholders 5.2 76.0 83.7 Interest credited to policy bal. 83.5 33.6 31.3 38.7 1617.1 1506.0 Health policy benefits 36.3 289.6 49.7 302.1 ------- ------- ------- ------- ------- ------- Total insurance benefits 118.8 1092.9 31.3 38.7 2554.1 3409.7 Underwriting, acquisition, insurance and other expenses*: Commissions 86.1 349.1 26.5 22.1 579.4 860.3 Other volume related expenses 79.6 26.4 (77.8) (67.7) 256.8 184.8 Operating and administrative expenses 238.9 397.3 (170.6) (177.9) 867.8 1050.9 Taxes, licenses and fees 29.1 43.2 111.5 128.3 Par policyholder interests Foreign exchange 0.3 (1.4) 0.3 (1.4) ------- ------- ------- ------- ------- ------- Subtotal 434.0 814.7 (221.9) (223.5) 1815.8 2223.0 Deferral of acquisition costs (1.4) (108.5) (42.0) (35.6) (627.3) (714.1) DAC amortization 0.4 80.5 32.8 30.9 346.7 367.7 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (1.0) (28.0) (9.2) (4.7) (280.6) (346.3) PVIF amortization 136.5 113.1 Other intangibles amortization 1.3 8.2 12.1 ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 433.0 788.0 (231.0) (228.2) 1679.9 2001.8 Goodwill amortization 1.7 (0.0) 43.4 Interest 102.6 132.1 (6.0) (11.1) 96.6 121.0 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 654.3 2014.6 (205.7) (200.6) 4330.6 5576.0 ------- ------- ------- ------- ------- ------- Income from Operations Before Tax (79.8) 19.4 0.0 0.0 585.4 903.6 Federal income taxes (29.0) 4.7 111.0 214.7 ------- ------- ------- ------- ------- ------- Income from Operations (50.8) 14.8 0.0 0.0 474.4 689.0 ------- ------- ------- ------- ------- ------- Restructuring charges 1.1 (19.5) 2.0 (24.7) Realized gains (losses) on investments 16.7 4.8 1.0 (177.2) (68.7) Gains (losses) on derivatives 0.6 (6.3) 0.8 (4.9) Reserve increase on business sold through reinsurance (199.1) (199.1) Gain on sale of subsidiaries (11.5) 15.0 2.1 (9.4) 15.0 ------- ------- ------- ------- ------- ------- Income before Accounting Changes (243.0) 8.8 2.1 1.1 91.6 605.8 Cumulative effect of accounting changes (2.7) (15.6) ------- ------- ------- ------- ------- ------- Net Income (243.0) 6.1 2.1 1.1 91.6 590.2 ======= ======= ======= ======= ======= ======= Inc. from Oper.-before Goodwill Amort. (50.8) 16.4 0.0 474.4 732.4 ------- ------- ------- ------- ------- ------- Net Income-before Goodwill Amort. (243.0) 7.8 2.1 1.0 91.6 633.6 ------- ------- ------- ------- ------- ------- * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 11 Statement of Consolidated Income Unaudited [Millions of Dollars] For the Year Ended December 31 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Operating Revenue Life and annuity premiums 985.6 1183.0 1403.3 1363.4 295.6 Surrender charges 91.5 110.2 114.7 101.5 87.8 Mortality assessments 380.1 496.4 496.5 533.3 530.3 Expense assessments 803.0 930.9 1050.2 909.2 816.3 Health premiums 635.1 698.5 409.8 340.6 20.3 Investment advisory fees 227.1 223.8 213.1 197.2 183.3 Other revenue and fees 261.0 344.5 441.1 349.1 374.7 Net investment income 2681.4 2807.5 2747.1 2679.6 2608.3 Earnings in Unconsolidated Affiliates 3.3 5.8 (0.4) 5.7 (0.6) ------- ------- ------- ------- ------- Operating Revenue 6068.0 6800.7 6875.4 6479.6 4916.1 ------- ------- ------- ------- ------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 1237.7 1546.6 1546.4 1517.9 811.3 Div accum & div to policyholders 78.0 88.4 87.6 83.7 76.0 Interest credited to policy bal. 1446.2 1510.4 1474.2 1506.0 1617.1 Health policy benefits 566.9 659.7 449.0 302.1 49.7 ------- ------- ------- ------- ------- Total insurance benefits 3328.9 3805.0 3557.2 3409.7 2554.1 Underwriting, acquisition, insurance and other expenses*: Commissions 740.1 961.0 919.1 860.3 579.4 Other volume related expenses 150.7 197.1 253.8 184.8 256.8 Operating and administrative expenses 995.7 1165.3 1157.0 1050.9 867.8 Taxes, licenses and fees 75.9 84.0 113.0 128.3 111.5 Par policyholder interests (4.3) 3.3 1.1 Foreign exchange (1.5) 1.9 (2.9) (1.4) 0.3 ------- ------- ------- ------- ------- Subtotal 1956.5 2412.6 2441.2 2223.0 1815.8 Deferral of acquisition costs (714.1) (627.3) DAC amortization 367.7 346.7 ------- ------- ------- ------- ------- DAC deferral net of amortization (208.2) (314.6) (427.5) (346.3) (280.6) PVIF amortization 77.1 102.5 132.6 113.1 136.5 Other intangibles amortization 18.8 18.0 17.7 12.1 8.2 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 1844.2 2218.5 2164.1 2001.8 1679.9 Goodwill amortization 44.5 49.2 45.1 43.4 Interest 117.1 133.7 139.5 121.0 96.6 ------- ------- ------- ------- ------- Operating Benefits and Expenses 5334.6 6206.4 5905.9 5576.0 4330.6 ------- ------- ------- ------- ------- Income from Operations Before Tax 733.4 594.4 969.6 903.6 585.4 Federal income taxes 203.0 118.9 250.5 214.7 111.0 ------- ------- ------- ------- ------- Income from Continuing Operations 530.4 475.5 719.1 689.0 474.4 ------- ------- ------- ------- ------- Discontinued Operations Restructuring charges (34.3) (18.9) (80.2) (24.7) 2.0 Realized gains (losses) on investments 13.7 3.8 (17.5) (68.7) (177.2) Gains (losses) on derivatives (4.9) 0.8 Reserve increase on business sold through reinsurance (199.1) Gain on sale of subsidiaries 15.0 (9.4) ------- ------- ------- ------- ------- Income before Accounting Changes 509.8 460.4 621.4 605.8 91.6 Cumulative Effect of Accounting Changes (15.6) ------- ------- ------- ------- ------- Net Income 509.8 460.4 621.4 590.2 91.6 ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------ Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 3,070.5 2,885.3 Deferral 714.1 627.3 Amortization (367.7) (346.7) ------- ------- ------- ------- ------- Operating 346.4 280.5 Adjustment related to realized (gains) losses on securities available-for-sale 112.9 115.0 Adjustment related to unrealized (gains) losses on securities available-for-sale (187.2) (338.5) Foreign currency translation adjustment (16.0) 56.9 Disposition of business (425.9) 0.0 Other (15.3) (28.3) ------- ------- ------- ------- ------- Balance at end-of-year 2,885.3 2,970.9 ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-year 1,483.3 1,362.5 Amortization (113.1) (136.4) Foreign currency translation adjustment (7.0) 24.1 Other (0.7) (0.0) ------- ------- ------- ------- ------- Balance at end-of-year 1,362.5 1,250.1 ======= ======= ======= ======= ======= * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 12 Statement of Consolidated Income Unaudited [Millions of Dollars] Mar Jun Sep Dec Mar Jun For the Quarter Ended 2000 2000 2000 2000 2001 2001 ------ ------ ------ ------ ------ ----- Operating Revenue Life and annuity premiums 331.2 337.1 339.0 396.1 402.1 353.9 Surrender charges 28.7 29.8 25.9 30.3 27.8 22.8 Mortality assessments 118.5 122.5 125.9 129.6 133.7 133.7 Expense assessments 261.1 258.6 273.4 257.1 244.9 227.5 Health premiums 58.4 144.0 117.9 89.4 104.8 95.7 Investment advisory fees 54.0 52.2 53.3 53.6 49.4 49.6 Other revenue and fees 110.1 84.0 104.0 143.0 85.9 54.9 Net investment income 711.1 673.8 690.0 672.1 673.7 673.1 Earnings in Unconsolidated Affiliates 1.0 (3.6) 1.6 0.6 0.9 0.0 ------- ------- ------- ------- ------- ------- Operating Revenue 1674.1 1698.4 1731.0 1772.0 1723.3 1611.1 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 356.1 370.1 390.2 430.0 418.9 373.6 Div accum & div to policyholders 21.7 20.2 18.2 27.4 18.9 20.2 Interest credited to policy bal. 373.9 366.8 362.0 371.5 367.1 369.7 Health policy benefits 114.3 119.9 123.0 91.8 101.8 91.5 ------- ------- ------- ------- ------- ------- Total insurance benefits 866.0 877.0 893.5 920.7 906.7 855.0 Underwriting, acquisition, insurance and other expenses*: Commissions 194.2 251.9 238.5 234.6 216.9 217.6 Other volume related expenses 50.5 54.2 62.9 86.2 43.7 58.9 Operating and administrative expenses 299.6 268.8 270.3 318.4 246.9 242.6 Taxes, licenses and fees 32.8 21.6 26.3 32.4 36.5 30.8 Par policyholder interests (1.5) 1.6 1.4 (0.5) (0.0) 0.0 Foreign exchange (0.2) (1.0) (0.5) (1.1) (2.0) 2.0 ------- ------- ------- ------- ------- ------- Subtotal 575.3 597.1 598.8 670.0 542.1 551.9 Deferral of acquisition costs (161.1) (175.1) DAC amortization 110.0 82.9 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (82.3) (99.7) (109.1) (136.4) (51.0) (92.2) PVIF amortization 31.9 31.0 36.2 33.5 33.3 23.6 Other intangibles amortization 4.7 4.3 4.3 4.3 4.3 2.6 ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 529.6 532.8 530.3 571.4 528.6 486.0 Goodwill amortization 10.2 12.0 12.0 10.9 10.9 10.9 Interest 36.3 35.4 34.4 33.4 34.4 32.0 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 1442.2 1457.2 1470.1 1536.4 1480.6 1383.9 ------- ------- ------- ------- ------- ------- Income from Operations before Tax/Min Int. 232.0 241.1 260.8 235.6 242.7 227.2 Federal income taxes 61.6 67.9 70.1 50.9 64.1 59.1 Inc from Operations before Min ------- ------- ------- ------- ------- ------- Int 170.4 173.2 190.7 184.7 178.6 168.1 ------- ------- ------- ------- ------- ------- Minority Interest (0.2) 0.2 (0.0) 0.0 (0.0) (0.0) ------- ------- ------- ------- ------- ------- Income from Operations 170.6 173.0 190.7 184.7 178.6 168.1 ------- ------- ------- ------- ------- ------- Restructuring charges (2.7) (40.5) (37.0) (0.7) (3.9) Realized gains (losses) on investments (0.4) (6.7) (11.6) 1.2 (13.4) (11.5) Gains (losses) on derivatives (0.1) 0.2 Reserve increase on business sold through reinsurance Gain on sale of subsidiaries ------- ------- ------- ------- ------- ------- Income before Accounting Changes 170.2 163.6 138.6 148.9 164.5 153.0 Cumulative Effect of Accounting Changes (4.3) (11.3) ------- ------- ------- ------- ------- ------- Net Income 170.2 163.6 138.6 148.9 160.2 141.7 ======= ======= ======= ======= ======= ======= ----------------------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 3,070.5 2,963.4 Deferral 161.1 175.1 Amortization (110.0) (82.9) Operating 51.1 92.2 Adjustment related to realized (gains) losses on securities available-for-sale 21.7 17.8 Adjustment related to unrealized (gains) losses on securities available-for-sale (154.1) 55.8 Foreign currency translation adjustment (32.4) (0.2) Disposition of business Other 6.7 0.1 ------- ------- Balance at end-of-year 2,963.4 3,129.1 ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 1,483.3 1,436.0 Amortization (33.3) (23.6) Foreign currency translation adjustment (14.0) (0.1) Other ------- ------- Balance at end-of-year 1,436.0 1,412.3 ======= ======= Sep Dec Mar Jun Sep Dec For the Quarter Ended 2001 2001 2002 2002 2002 2002 ------ ------ ------ ------ ------ ----- Operating Revenue Life and annuity premiums 336.8 270.7 74.7 68.7 71.6 80.7 Surrender charges 23.2 27.7 20.2 21.3 22.8 23.5 Mortality assessments 133.3 132.6 130.4 130.5 134.1 135.3 Expense assessments 224.4 212.4 210.5 214.4 198.6 192.8 Health premiums 103.9 36.1 2.4 8.3 (9.6) 19.1 Investment advisory fees 47.2 50.9 48.0 47.8 42.9 44.7 Other revenue and fees 100.2 108.2 95.0 97.2 94.2 88.4 Net investment income 686.2 646.6 648.1 651.0 647.0 662.2 Earnings in Unconsolidated Affiliates 0.4 4.3 (0.6) ------- ------- ------- ------- ------- ------- Operating Revenue 1655.6 1489.6 1229.3 1238.5 1201.6 1246.7 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 422.6 302.8 176.1 191.5 229.7 214.0 Div accum & div to policyholders 18.0 26.6 17.8 18.2 17.2 22.8 Interest credited to policy bal. 378.7 390.6 406.2 382.5 417.4 411.1 Health policy benefits 83.8 25.0 3.3 33.9 7.3 5.1 ------- ------- ------- ------- ------- ------- Total insurance benefits 903.1 744.9 603.4 626.1 671.6 653.0 Underwriting, acquisition, insurance and other expenses*: Commissions 207.9 217.9 144.2 148.6 124.6 162.0 Other volume related expenses 53.1 29.1 54.7 65.5 63.9 72.6 Operating and administrative expenses 264.0 297.3 208.5 204.1 212.8 242.5 Taxes, licenses and fees 30.6 30.4 38.3 24.6 25.1 23.5 Par policyholder interests Foreign exchange (2.5) 1.1 0.0 0.6 0.4 (0.6) ------- ------- ------- ------- ------- ------- Subtotal 553.1 575.9 445.7 443.4 426.8 499.9 Deferral of acquisition costs (183.4) (194.5) (147.9) (156.1) (155.5) (167.8) DAC amortization 118.0 56.8 70.4 100.7 113.0 62.7 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (65.4) (137.7) (77.5) (55.5) (42.5) (105.0) PVIF amortization 34.4 21.8 21.3 31.9 40.2 43.0 Other intangibles amortization 2.6 2.5 2.2 2.0 2.0 2.0 ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 524.7 462.5 391.7 421.8 426.5 439.9 Goodwill amortization 10.9 10.7 Interest 29.6 25.0 24.8 24.6 23.7 23.5 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 1468.4 1243.1 1019.9 1072.6 1121.8 1116.3 ------- ------- ------- ------- ------- ------- Income from Operations before Tax/Min Int. 187.3 246.5 209.4 166.0 79.7 130.3 Federal income taxes 44.1 47.4 47.4 38.7 6.7 18.2 Inc from Operations before Min ------- ------- ------- ------- ------- ------- Int 143.2 199.1 162.0 127.2 73.0 112.2 ------- ------- ------- ------- ------- ------- Minority Interest (0.0) (0.0) ------- ------- ------- ------- ------- ------- Income from Operations 143.2 199.1 162.0 127.2 73.0 112.2 ------- ------- ------- ------- ------- ------- Restructuring charges 0.0 (20.2) (1.0) 1.3 1.7 Realized gains (losses) on investments (23.8) (20.0) (67.6) (52.7) (23.6) (33.3) Gains (losses) on derivatives (0.4) (4.6) 0.1 0.3 0.1 0.2 Reserve increase on business sold through reinsurance (14.4) (176.4) (8.2) Gain on sale of subsidiaries (9.4) ------- ------- ------- ------- ------- ------- Income before Accounting Changes 119.1 169.2 94.5 59.4 (125.5) 63.2 Cumulative Effect of Accounting Changes (0.0) ------- ------- ------- ------- ------- ------- Net Income 119.1 169.2 94.5 59.4 (125.5) 63.2 ======= ======= ======= ======= ======= ======= ----------------------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 3,129.1 3,087.2 2,885.3 3,114.9 3,056.6 2,868.7 Deferral 183.4 194.5 147.9 156.1 155.5 167.8 Amortization (118.0) (56.8) (70.4) (100.7) (113.0) (62.7) Operating 65.4 137.8 77.5 55.4 42.5 105.1 Adjustment related to realized (gains) losses on securities available-for-sale 23.9 49.5 41.9 32.5 22.9 17.8 Adjustment related to unrealized (gains) losses on securities available-for-sale (157.0) 68.1 114.9 (152.1) (267.1) (34.2) Foreign currency translation adjustment 23.8 (7.2) (12.2) 41.7 13.8 13.7 Disposition of business (425.9) Other 2.1 (24.2) 7.5 (35.7) (0.0) Inc from Operations before Min ------- ------- ------- ------- ------- ------- Balance at end-of-year 3,087.2 2,885.3 3,114.9 3,056.6 2,868.7 2,970.9 ======= ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 1,412.3 1,387.4 1,362.5 1,336.1 1,321.4 1,286.9 Amortization (34.4) (21.8) (21.3) (31.9) (40.2) (42.9) Foreign currency translation adjustment 10.3 (3.2) (5.1) 17.4 5.7 6.1 Other (0.7) (0.1) 0.1 Inc from Operations before Min ------- ------- ------- ------- ------- ------- Balance at end-of-year 1,387.4 1,362.5 1,336.1 1,321.4 1,286.9 1,250.1 ======= ======= ======= ======= ======= ======= * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 13 Reconciliation of Business Segments to Consolidated Balance Sheets Unaudited [Millions of Dollars] Investment Lincoln Retirement Life Insurance Management Lincoln UK --------------------- --------------------- ----------------- ----------------- ASSETS Dec Dec Dec Dec Dec Dec Dec Dec 2002 2001 2002 2001 2002 2001 2002 2001 ------- ------- ------- ------- ------- ------- ------- ------- Investments Corporate bonds 12928.9 10956.5 7879.1 7088.2 494.5 424.2 621.0 512.3 U.S. government bonds 41.1 13.2 87.0 78.2 0.1 0.2 Foreign government bonds 259.2 145.8 136.5 114.6 1.5 1.9 307.5 326.2 Asset/Mortgage backed securities 3243.5 1945.8 937.0 779.1 47.2 42.5 State and municipal bonds 67.8 24.3 30.4 17.4 Preferred stocks-redeemable 55.6 62.7 12.5 13.0 8.9 8.8 Common stocks 0.1 1.5 7.6 128.9 211.3 Preferred stocks-equity 33.6 38.5 5.6 2.7 2.6 Mortgage loans 2210.3 2378.1 1572.6 1701.6 81.2 92.4 0.3 0.3 Real estate 0.2 0.2 Policy loans 469.5 491.4 1468.2 1439.7 7.9 8.6 Other long-term investments 29.3 11.7 23.7 20.9 ------- ------- ------- ------- ------- ------- ------- ------- Total Investments 19338.9 16068.0 12148.5 11265.9 636.1 572.6 1066.0 1058.8 ------- ------- ------- ------- ------- ------- ------- ------- Allocated investments 3757.4 3481.0 1250.7 1154.7 100.0 102.4 Notes receivable from LNC 358.8 333.3 207.7 27.6 51.7 82.9 Invest in unconsol affiliates Cash and invested cash (76.7) (24.7) (22.7) (36.4) 52.9 55.4 206.7 181.2 Property and equipment 1.5 7.7 8.5 44.7 36.5 19.0 39.3 Premium and fees receivable 0.7 0.0 32.0 8.2 37.0 38.5 Accrued investment income 256.7 245.0 171.7 187.6 9.0 8.9 22.2 20.9 Assets held in separate accounts 26934.1 34324.6 1310.4 1491.0 5077.9 5607.2 Federal income tax recoverable Amount recoverable from reinsurers 1169.7 1211.6 920.5 859.5 Deferred acquisition costs 855.8 912.8 1424.5 1265.6 597.6 587.3 Other intangible assets 41.8 50.1 Present value of in-force 122.7 154.5 890.1 964.0 237.4 244.0 Goodwill 64.1 43.9 855.1 855.1 300.7 300.7 13.3 12.1 Other 114.1 138.1 395.6 358.4 187.4 212.5 87.0 37.9 ------- ------- ------- ------- ------- ------- ------- ------- Total Assets 52897.8 56888.2 19591.6 18409.7 1461.4 1460.5 7327.1 7788.8 ======= ======= ======= ======= ======= ======= ======= ======= -------------------------------------------------------------------------------------------------------------------------------- Corporate and Consolidating Other Operations Adjustments Consolidated --------------------- -------------------- ----------------- ASSETS Dec Dec Dec Dec Dec Dec 2002 2001 2002 2001 2002 2001 ------- ------- ------- ------- ------- ------- Investments Corporate bonds 4011.1 4123.9 25934.7 23105.1 U.S. government bonds 385.4 318.9 513.6 410.5 Foreign government bonds 405.6 586.2 1110.2 1174.7 Asset/Mortgage backed securities 787.8 757.3 5015.5 3524.7 State and municipal bonds 16.2 3.0 114.4 44.7 Preferred stocks-redeemable 2.1 1.4 79.0 85.9 Common stocks 97.4 100.5 228.0 319.3 Preferred stocks-equity 72.9 104.5 109.2 151.2 Mortgage loans 341.0 363.0 4205.5 4535.5 Real estate 279.5 267.7 279.7 267.9 Policy loans 1945.6 1939.7 Other long-term investments 413.2 521.3 (0.0) (0.0) 466.2 553.8 ------- ------- ------- ------- ------- ------- Total Investments 6812.3 7147.8 (0.0) (0.0) 40001.7 36113.1 ------- ------- ------- ------- ------- ------- Allocated investments (468.2) 50.0 (4639.9) (4788.2) (0.0) Notes receivable from LNC (617.6) (443.7) (0.5) (0.1) 0.0 Invest in unconsol affiliates 8.1 8.1 Cash and invested cash 1530.4 3130.5 (210.5) 1690.5 3095.5 Property and equipment 169.3 173.2 242.1 257.5 Premium and fees receivable 143.2 365.6 (12.2) 212.9 400.1 Accrued investment income 77.0 101.0 536.7 563.5 Assets held in separate accounts 2856.0 3410.5 36178.3 44833.4 Federal income tax recoverable 266.5 15.1 266.5 15.1 Amount recoverable from reinsurers 5450.1 4150.6 (260.3) (191.4) 7280.0 6030.4 Deferred acquisition costs 2.2 33.9 90.8 85.6 2970.9 2885.3 Other intangible assets 41.8 50.1 Present value of in-force 1250.1 1362.5 Goodwill (0.0) (0.0) 1233.2 1211.8 Other 853.2 865.5 (407.0) (437.4) 1230.3 1174.9 ------- ------- ------- ------- ------- ------- Total Assets 13951.9 15582.5 (2094.6) (2128.6) 93135.3 98001.3 ======= ======= ======= ======= ======= =======
PAGE 14 Reconciliation of Business Segments to Consolidated Balance Sheets Unaudited [Millions of Dollars] Investment Lincoln Retirement Life Insurance Management Lincoln UK ------------------ ------------------ ------------------- ------------------ LIABILITIES and SHAREHOLDERS' EQUITY Dec Dec Dec Dec Dec Dec Dec Dec 2002 2001 2002 2001 2002 2001 2002 2001 ------- ------- ------- ------- ------- ------- ------- ------- Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 2696.8 2622.7 13780.9 12955.8 1336.2 1338.1 Health reserves 0.3 0.3 48.5 46.0 Unpaid claims - life and health 48.3 31.3 108.3 92.9 44.7 42.4 Unearned premiums 0.0 0.0 Premium deposit funds 19921.6 17838.9 18.3 13.9 30.8 29.2 Participating policyholders' funds 119.7 100.2 Other policyholders' funds 603.5 555.2 Liab related to separate accounts 26934.1 34324.6 1310.4 1491.0 5077.9 5607.2 ------- ------- ------- ------- ------- ------- ------- ------- Total Insurance and Inv Contract Liabilities 49600.7 54817.5 15941.4 15209.5 6538.1 7063.0 Federal income taxes 225.1 (5.7) 101.0 (13.5) 50.7 43.3 (6.7) (12.2) Short-term debt 10.0 Long-term debt Minority Interest in pref. securities of sub. Notes payable to LNC 0.2 9.3 Other liabilities 95.9 168.4 443.9 436.3 839.8 866.2 201.3 192.0 Deferred gain on indemnity reinsurance ------- ------- ------- ------- ------- ------- ------- ------- Total Liabilities 49921.9 54980.3 16486.3 15642.2 890.5 918.8 6732.7 7242.8 ------- ------- ------- ------- ------- ------- ------- ------- Net unrealized gains (losses) on securities 331.5 79.9 215.0 13.6 6.4 1.5 25.8 15.3 Gains (losses) on derivatives* 10.6 0.3 16.7 4.5 Other shareholders' equity 2633.8 1824.9 2874.3 2738.5 567.1 540.3 601.7 566.7 S/Hs' equity-minimum pension liability adjustment (0.7) (2.6) (33.0) (36.0) Cumulative effect of accounting change 2.8 10.9 ------- ------- ------- ------- ------- ------- ------- ------- Shareholders' Equity 2975.9 1907.9 3105.2 2767.5 570.9 541.7 594.5 546.0 ------- ------- ------- ------- ------- ------- ------- ------- Total Liabilities and S/Hs' Equity 52897.8 56888.2 19591.6 18409.7 1461.4 1460.5 7327.1 7788.8 ======= ======= ======= ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------ Corporate and Consolidating Other Operations Adjustments Consolidated ------------------ ------------------ ------------------ LIABILITIES and SHAREHOLDERS' EQUITY Dec Dec Dec Dec Dec Dec 2002 2001 2002 2001 2002 2001 ------- ------- ------- ------- ------- ------- Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 2209.4 1122.8 (94.7) (122.4) 19928.5 17917.0 Health reserves 2640.2 2491.5 2689.0 2537.9 Unpaid claims - life and health 577.1 920.9 778.4 1087.5 Unearned premiums 141.2 66.9 141.2 66.9 Premium deposit funds 40.1 105.5 508.1 597.5 20518.8 18585.0 Participating policyholders' funds 119.7 100.2 Other policyholders' funds 7.4 7.4 610.9 562.7 Liab related to separate accounts 2856.0 3410.5 36178.3 44833.4 ------- ------- ------- ------- ------- ------- Total Insurance and Inv Contract Liabilities 5615.4 4715.0 3269.4 3885.6 80964.9 85690.6 Federal income taxes (638.9) (26.7) 267.3 14.8 Short-term debt 153.0 550.7 (210.5) 153.0 350.2 Long-term debt 1119.2 861.8 1119.2 861.8 Minority Interest in pref. securities of sub. 392.7 474.7 392.7 474.7 Notes payable to LNC 308.7 335.0 (308.9) (344.3) (0.0) Other liabilities 3278.1 3239.4 (681.5) (686.3) 4173.3 4216.1 Deferred gain on indemnity reinsurance 977.1 1144.5 977.1 1144.5 ------- ------- ------- ------- ------- ------- Total Liabilities 11205.4 11294.3 2546.2 2659.3 87780.3 92737.8 ------- ------- ------- ------- ------- ------- Net unrealized gains (losses) on securities 228.2 77.2 5.2 8.2 812.0 195.7 Gains (losses) on derivatives* 1.0 (0.8) 28.3 3.9 Other shareholders' equity 2578.9 4207.9 (4645.9) (4796.0) 4612.5 5082.2 S/Hs' equity-minimum pension liability adjustment (61.6) (97.8) (36.0) Cumulative effect of accounting change 3.9 17.6 ------- ------- ------- ------- ------- ------- Shareholders' Equity 2746.5 4288.2 (4640.7) (4787.9) 5355.0 5263.5 ------- ------- ------- ------- ------- ------- Total Liabilities and S/Hs' Equity 13951.9 15582.5 (2094.6) (2128.6) 93135.3 98001.3 ======= ======= ======= ======= ======= ======= * Cumulative effect of accounting change recorded upon the adoption of FAS 133 in the 1st quarter of 2001 is a component of gains (losses) on derivatives in the 1st quarter of 2002.
PAGE 15 Five Year Comparative Balance Sheet Unaudited [Millions of Dollars except Common Share Data] ASSETS 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Investments Corporate bonds 22505.2 21119.5 21249.7 23105.1 25934.7 U.S. government bonds 1134.6 538.3 542.9 410.5 513.6 Foreign government bonds 1321.2 1447.5 1321.1 1174.7 1110.2 Mortgage backed securities 5080.5 4404.0 4160.4 3524.7 5015.5 State and municipal bonds 16.7 14.7 14.6 44.7 114.4 Preferred stocks-redeemable 174.6 164.7 161.2 85.9 79.0 Common stocks 463.1 514.5 436.6 319.3 228.0 Preferred stocks-equity 79.8 89.5 113.1 151.2 109.2 Mortgage loans 4393.1 4735.4 4663.0 4535.5 4205.5 Real estate 488.7 256.2 282.0 267.9 279.7 Policy loans 1840.0 1892.4 1960.9 1939.7 1945.6 Other long-term investments 432.0 401.8 463.3 553.8 466.2 ------- ------- ------- ------- ------- Total Investments 37929.5 35578.4 35368.6 36113.1 40001.7 ------- ------- ------- ------- ------- Invest in unconsol affiliates 18.8 25.8 6.4 8.1 Cash and invested cash 2433.4 1895.9 1927.4 3095.5 1690.5 Property and equipment 174.8 203.8 228.2 257.5 242.1 Premiums and fees receivable 246.2 259.6 296.7 400.1 212.9 Accrued investment income 528.5 533.2 546.4 563.5 536.7 Assets held in separate accounts 43408.9 53654.2 50579.9 44833.4 36178.3 Federal income taxes recoverable 204.1 345.0 207.5 15.1 266.5 Amounts recoverable from reinsurers 3127.1 3954.3 3747.7 6030.4 7280.0 Deferred acquisition costs 1964.4 2800.3 3070.5 2885.3 2970.9 Other intangible assets 95.1 92.3 73.7 50.1 41.8 Present value of in-force 1753.3 1654.2 1483.3 1362.5 1250.1 Goodwill 1484.3 1423.0 1286.0 1211.8 1233.2 Other 468.0 675.7 1021.6 1174.9 1230.3 ------- ------- ------- ------- ------- Total Assets 93836.3 103095.7 99844.1 98001.3 93135.3 ======= ======= ======== ======= ======= LIABILITIES and SHAREHOLDERS' EQUITY Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 16434.2 17071.4 17841.2 17917.0 19928.5 Health reserves 2600.1 2507.8 2523.8 2537.9 2689.0 Unpaid claims-life and health 1043.4 1269.8 1316.6 1087.5 778.4 Unearned premiums 62.3 75.8 46.5 66.9 141.2 Premium deposit funds 20171.9 19624.1 17715.5 18585.0 20518.8 Participating policyholders' funds 142.7 132.0 139.4 100.2 119.7 Other policyholders' funds 438.4 472.6 522.2 562.7 610.9 Liab related to separate accounts 43408.9 53654.2 50579.9 44833.4 36178.3 ------- ------- -------- ------- ------- Total Ins and Inv Contr Liabilities 84301.9 94807.7 90685.1 85690.6 80964.9 Federal income taxes Short-term debt 314.6 460.2 312.9 350.2 153.0 Long-term debt 712.2 712.0 712.2 861.8 1119.2 Minority Interest - pref sec of a sub 745.0 745.0 745.0 474.7 392.7 Other liabilities 2374.6 2107.0 2434.7 4216.1 4173.3 Deferred gain on indemnity reinsurance 1144.5 977.1 ------- ------- -------- ------- ------- Total Liabilities 88448.3 98831.9 94890.0 92737.8 87780.3 S/Hs' equity-unrealized gains (losses)-cont op. 552.4 (465.7) 12.0 199.6 840.3 S/Hs' equity-foreign currency 50.0 30.0 21.9 (8.1) 50.8 S/Hs' equity-minimum pension liability adjustment (36.0) (97.8) S/Hs' equity-other 4785.6 4699.5 4920.1 5090.3 4561.7 Cumulative effect of accounting change 17.6 ------- ------- -------- ------- ------- Total Shareholders' Equity 5387.9 4263.9 4954.1 5263.5 5355.0 ------- ------- -------- ------- ------- Total Liabilities ------- ------- -------- ------- ------- and Shareholders' Equity 93836.3 103095.7 99844.1 98001.3 93135.3 ======= ======= ======== ======= ======= Shareholders' Equity Per Share [Book Value, Securities at Cost] $23.86 $24.14 $25.85 $26.94 $25.42 Common shares outstanding 202.6 196.0 191.2 187.3 177.6
PAGE 16 Quarterly Balance Sheet Unaudited [Millions of Dollars except Common Share Data] Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- ASSETS Investments Corporate bonds 21188.0 20719.1 21064.7 21249.7 21855.2 22116.6 U.S. government bonds 572.4 566.2 575.5 542.9 536.6 510.0 Foreign government bonds 1416.4 1377.4 1277.7 1321.1 1240.8 1236.3 Mortgage backed securities 4393.4 4242.4 4172.5 4160.4 4009.8 3844.6 State and municipal bonds 14.7 14.1 14.3 14.6 14.7 14.1 Preferred stocks - redeemable 159.7 159.2 159.5 161.2 154.1 152.2 Common stocks 496.4 467.8 479.9 436.6 388.6 373.3 Preferred stocks-equity 91.3 92.2 90.3 113.1 170.9 160.8 Mortgage loans 4833.9 4783.8 4767.3 4663.0 4641.2 4652.8 Real estate 283.4 282.1 297.6 282.0 308.1 306.9 Policy loans 1896.3 1914.7 1935.6 1960.9 1947.0 1947.4 Other long-term investments 428.8 438.2 470.5 463.3 477.4 480.9 ------- ------- ------- ------- ------- ------- Total Investments 35774.6 35057.2 35305.4 35368.6 35744.5 35796.0 ------- ------- ------- ------- ------- ------- Invest in unconsol affiliates (0.9) 5.8 6.4 7.3 6.1 Cash and invested cash 1510.1 1619.3 1435.9 1927.4 2015.2 1501.9 Property and equipment 207.7 205.5 213.8 228.2 242.1 251.4 Premiums and fees receivable 190.2 247.8 240.8 296.7 282.8 303.7 Accrued investment income 575.0 544.0 569.2 546.4 581.9 573.2 Assets held in separate accounts 56907.6 54924.2 54410.9 50579.9 44506.2 47140.2 Federal income taxes recoverable 300.4 246.1 267.3 207.5 106.6 177.5 Amount recoverable from reinsurers 3851.0 3775.3 3774.7 3747.7 3706.4 3662.0 Deferred acquisition costs 2870.4 2968.0 3048.0 3070.5 2963.4 3129.1 Other intangible assets 86.7 82.3 78.1 73.7 69.3 66.7 Present value of in-force 1618.8 1564.3 1520.3 1483.3 1436.0 1412.3 Goodwill 1349.6 1335.4 1296.6 1286.0 1274.5 1263.6 Other 1097.8 1279.1 1076.4 1021.6 1186.3 1147.7 ------- ------- ------- ------- ------- ------- Total Assets 106340.0 103847.6 103243.1 99844.1 94122.4 96431.2 ======= ======= ======= ======= ======= ======= LIABILITIES and SHAREHOLDERS' EQUITY Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 17172.1 17247.3 17500.0 17841.2 17733.0 17865.3 Health reserves 2547.4 2494.2 2520.2 2523.8 2534.8 2533.9 Unpaid claims-life and health 1177.3 1204.1 1202.8 1316.6 1255.3 1136.5 Unearned premiums 57.1 52.8 51.8 46.5 45.9 19.0 Premium deposit funds 18899.3 18407.2 18072.1 17715.5 17667.1 17715.9 Participating policyholders' funds 130.7 130.4 135.4 139.4 145.0 135.2 Other policyholders' funds 478.9 490.6 500.7 522.2 532.1 541.4 Liab related to separate accounts 56907.6 54924.2 54410.9 50579.9 44506.2 47140.2 ------- ------- ------- ------- ------- ------- Total Ins and Inv Contr Liabilities 97370.5 94950.8 94394.0 90685.1 84419.3 87087.2 Federal income taxes Short-term debt 474.2 355.7 330.3 312.9 415.3 351.3 Long-term debt 712.0 712.1 712.2 712.2 712.3 712.4 Minority Interest - pref sec of a sub 745.0 745.0 745.0 745.0 745.0 745.0 Notes payable to LNC Other liabilities 2697.9 2860.3 2522.9 2434.7 2734.2 2479.4 Deferred gain on indemnity reinsurance ------- ------- ------- ------- ------- ------- Total Liabilities 101999.6 99623.9 98704.5 94890.0 89026.0 91375.3 ------- ------- ------- ------- ------- ------- S/Hs' equity-unrealized gns (losses)- inv. (411.2) (556.6) (337.7) 12.0 190.4 76.2 S/Hs' equity- gains (losses)-derivatives* 5.7 9.4 S/Hs' equity-foreign currency 22.8 21.9 19.9 21.9 4.2 (15.3) S/Hs' equity-minimum pension liability adj S/Hs' equity-other 4728.8 4758.4 4856.4 4920.1 4878.5 4968.1 Cumulative effect of accounting change 17.6 17.6 ------- ------- ------- ------- ------- ------- Total Shareholders' Equity 4340.4 4223.7 4538.6 4954.1 5096.4 5055.9 ------- ------- ------- ------- ------- ------- Total Liabilities and Shareholders' Equity 106340.0 103847.6 103243.1 99844.1 94122.4 96431.2 ======= ======= ======= ======= ======= ======= Shareholders' Equity Per Share [Book Value, Securities at Cost] $24.58 $25.01 $25.43 $25.85 $25.96 $26.32 Common shares outstanding 193.3 191.1 191.8 191.2 188.1 188.2 Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- ASSETS Investments Corporate bonds 23424.3 23105.1 23470.4 23993.6 25484.6 25934.7 U.S. government bonds 467.7 410.5 429.1 441.6 495.3 513.6 Foreign government bonds 1160.3 1174.7 1180.1 1120.1 1038.6 1110.2 Mortgage backed securities 3765.6 3524.7 3613.9 4031.0 4843.7 5015.5 State and municipal bonds 14.4 44.7 62.6 58.8 97.8 114.4 Preferred stocks - redeemable 99.3 85.9 84.6 79.6 76.8 79.0 Common stocks 311.2 319.3 284.4 267.7 237.2 228.0 Preferred stocks-equity 166.5 151.2 154.2 151.8 160.3 109.2 Mortgage loans 4663.1 4535.5 4448.2 4395.4 4285.2 4205.5 Real estate 288.8 267.9 258.2 258.7 286.4 279.7 Policy loans 1943.4 1939.7 1918.0 1906.1 1899.0 1945.6 Other long-term investments 483.4 553.8 459.6 456.0 457.7 466.2 ------- ------- ------- ------- ------- ------- Total Investments 36788.0 36113.1 36363.1 37160.1 39362.6 40001.7 ------- ------- ------- ------- ------- ------- Invest in unconsol affiliates 6.5 8.1 8.1 7.5 Cash and invested cash 1996.3 3095.5 1699.5 2265.4 1599.9 1690.5 Property and equipment 261.0 257.5 266.4 253.5 252.7 242.1 Premiums and fees receivable 264.5 400.1 376.3 461.4 577.2 212.9 Accrued investment income 615.1 563.5 577.1 556.3 568.2 536.7 Assets held in separate accounts 39479.8 44833.4 44916.7 40579.6 34069.0 36178.3 Federal income taxes recoverable 35.3 15.1 551.3 438.4 292.9 266.5 Amount recoverable from reinsurers 3818.3 6030.4 6096.3 6509.9 7094.5 7280.0 Deferred acquisition costs 3087.2 2885.3 3114.9 3056.6 2868.7 2970.9 Other intangible assets 64.1 50.1 47.9 45.8 43.8 41.8 Present value of in-force 1387.4 1362.5 1336.1 1321.4 1286.9 1250.1 Goodwill 1253.2 1211.8 1211.5 1212.4 1232.7 1233.2 Other 1149.4 1174.9 1280.9 1200.6 1187.1 1230.3 ------- ------- ------- ------- ------- ------- Total Assets 90206.0 98001.3 97846.4 95069.2 90436.2 93135.3 ======= ======= ======= ======= ======= ======= LIABILITIES and SHAREHOLDERS' EQUITY Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 17990.8 17917.0 18014.6 18611.2 19142.5 19928.5 Health reserves 2573.2 2537.9 2492.4 2176.1 2448.3 2689.0 Unpaid claims-life and health 1206.6 1087.5 1153.6 1086.1 1100.9 778.4 Unearned premiums 8.1 66.9 66.5 154.3 185.8 141.2 Premium deposit funds 18509.7 18585.0 18669.6 19157.8 20054.4 20518.8 Participating policyholders' funds 118.3 100.2 98.6 91.9 90.5 119.7 Other policyholders' funds 554.3 562.7 571.9 584.7 595.7 610.9 Liab related to separate accounts 39479.8 44833.4 44916.7 40579.6 34069.0 36178.3 ------- ------- ------- ------- ------- ------- Total Ins and Inv Contr Liabilities 80440.8 85690.6 85983.9 82441.8 77687.1 80964.9 Federal income taxes Short-term debt 539.0 350.2 510.2 211.0 120.0 153.0 Long-term debt 712.4 861.8 861.8 1112.3 1118.1 1119.2 Minority Interest - pref sec of a sub 305.0 474.7 376.2 380.0 390.6 392.7 Notes payable to LNC (0.0) 0.0 (0.0) (0.0) Other liabilities 2840.2 4216.1 3864.6 4501.1 4661.9 4173.3 Deferred gain on indemnity reinsurance 1144.5 1118.6 1115.2 1069.5 977.1 ------- ------- ------- ------- ------- ------- Total Liabilities 84837.4 92737.8 92715.3 89761.4 85047.1 87780.3 ------- ------- ------- ------- ------- ------- S/Hs' equity-unrealized gns (losses)- inv. 247.9 195.7 31.8 325.7 817.5 812.0 S/Hs' equity- gains (losses)-derivatives* 2.7 3.9 22.6 22.7 27.3 28.3 S/Hs' equity-foreign currency 6.9 (8.1) (20.8) 22.0 35.4 50.8 S/Hs' equity-minimum pension liability adj (36.0) (35.2) (37.8) (35.2) (97.8) S/Hs' equity-other 5093.5 5090.3 5132.7 4975.4 4544.1 4561.7 Cumulative effect of accounting change 17.6 17.6 ------- ------- ------- ------- ------- ------- Total Shareholders' Equity 5368.6 5263.5 5131.1 5307.9 5389.0 5355.0 ------- ------- ------- ------- ------- ------- Total Liabilities and Shareholders' Equity 90206.0 98001.3 97846.4 95069.2 90436.2 93135.3 ======= ======= ======= ======= ======= ======= Shareholders' Equity Per Share [Book Value, Securities at Cost] $26.87 $26.94 $27.02 $26.88 $25.61 $25.42 Common shares outstanding 189.8 187.3 187.9 184.5 177.5 177.6 * Cumulative effect of accounting change recorded upon the adoption of FAS 133 in the 1st quarter of 2001 is a component of gains (losses) on derivatives in the 1st quarter of 2002.
PAGE 17 Lincoln Retirement Income Statements & Operational Data Unaudited [Millions of Dollars] For the Year Ended December 31 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Operating Revenue Premiums 53.9 65.2 64.3 77.5 47.4 Surrender charges 33.5 37.9 41.8 31.2 31.2 Expense assessments 459.9 536.2 628.4 537.7 469.8 Other revenue and fees 1.7 14.5 11.0 16.7 3.3 Net investment income 1501.6 1474.2 1393.5 1370.0 1433.9 ------- ------- ------- ------- ------- Operating Revenue 2050.6 2128.0 2138.9 2033.1 1985.5 ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 271.6 259.1 254.7 263.9 314.1 Interest credited to policy bal. 955.2 925.2 866.1 863.8 903.8 ------- ------- ------- ------- ------- Total insurance benefits 1226.8 1184.3 1120.8 1127.7 1217.9 Underwriting, acquisition, insurance and other expenses*: Commissions 236.7 341.4 326.8 336.3 320.8 Other volume related expenses 33.1 42.8 52.0 49.7 64.6 Operating and administrative expenses 194.0 208.6 200.6 225.5 225.0 Taxes, licenses and fees 13.8 0.3 9.3 13.7 11.5 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Subtotal 477.6 593.2 588.8 625.3 621.8 Deferral of acquisition costs (240.9) (243.9) DAC amortization 125.5 157.6 ------- ------- ------- ------- ------- DAC deferral net of amortization 9.7 (47.7) (37.5) (115.4) (86.2) PVIF amortization 11.4 15.3 24.2 14.7 31.8 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 498.8 560.8 575.5 524.5 567.4 Goodwill amortization 2.2 2.0 (0.6) 1.2 0.0 ------- ------- ------- ------- ------- Operating Benefits and Expenses 1727.8 1747.1 1695.7 1653.5 1785.3 ------- ------- ------- ------- ------- Income from Operations Before Tax 322.8 380.9 443.2 379.6 200.2 Federal income taxes 60.4 81.4 81.2 59.3 12.7 ------- ------- ------- ------- ------- Income from Operations 262.4 299.4 362.0 320.3 187.5 ------- ------- ------- ------- ------- Realized gains (losses) on investments 11.4 (7.9) (3.4) (42.3) (127.8) Gains (losses) on derivatives 0.0 0.0 0.0 (0.2) (0.8) Restructuring charges 0.0 0.0 0.0 (1.3) (1.0) ------- ------- ------- ------- ------- Income before Accounting Changes 273.8 291.5 358.6 276.5 57.8 Cumulative effect of accounting changes 0.0 0.0 0.0 (7.3) 0.0 ------- ------- ------- ------- ------- Net Income 273.8 291.5 358.6 269.2 57.8 ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 264.6 301.5 361.4 321.5 187.5 Net Income -before Goodwill Amort. 276.0 293.6 358.0 270.5 57.8 Effective tax rate 18.7% 21.4% 18.3% 15.6% 6.4% Operating Revenue 2050.6 2128.0 2138.9 2033.1 1985.5 Realized gains (losses) on investments 17.5 (12.1) (5.2) (64.5) (196.6) Gains (losses) on derivatives 0.0 0.0 0.0 (0.3) (1.2) ------- ------- ------- ------- ------- Total Revenue 2068.1 2115.8 2133.7 1968.3 1787.7 ======= ======= ======= ======= ======= Average capital 1592.6 1562.0 1601.8 1828.2 2334.2 Return on average capital 16.5% 19.2% 22.6% 17.5% 8.0% ------------------------------------------------------------------------------------------ Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 812.5 912.8 Deferral 240.9 243.9 Amortization (125.5) (157.6) ------- ------- Operating 115.4 86.2 Adjustment related to realized (gains) losses on securities available-for-sale 68.2 73.0 Adjustment related to unrealized (gains) losses on securities available-for-sale (90.0) (201.4) Other** 6.7 (14.8) ------- ------- Balance at end-of-period 912.8 855.8 ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 169.2 154.5 Amortization (14.7) (31.8) Other ------- ------- Balance at end-of-period 154.5 122.7 ======= ======= * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5). ** Includes the transfer of the Legacy Life block of business to the Life Insurance segment in the first quarter of 2002.
Page 18 Lincoln Retirement Income Statements & Operational Data Unaudited [Millions of Dollars] Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Operating Revenue Premiums 13.3 16.8 18.0 16.2 19.1 32.5 Surrender charges 11.1 11.2 10.4 9.1 9.1 8.5 Expense assessments 155.1 155.7 163.4 154.2 141.6 138.0 Other revenue and fees 2.2 0.6 4.6 3.5 1.7 3.9 Net investment income 362.9 345.8 349.8 335.0 341.3 339.3 ------- ------- ------- ------- ------- ------- Operating Revenue 544.6 530.1 546.2 518.1 512.8 522.1 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 61.6 65.7 68.4 59.0 69.8 72.6 Interest credited to policy balances 228.2 219.4 205.4 213.2 209.4 209.7 ------- ------- ------- ------- ------- ------- Total insurance benefits 289.8 285.1 273.7 272.2 279.2 282.3 Underwriting, acquisition, insurance and other expenses*: Commissions 83.1 75.4 83.8 84.5 72.6 85.8 Other volume related expenses 14.5 14.1 11.3 12.2 11.2 12.8 Operating and administrative expenses 44.4 46.0 55.5 54.8 51.4 52.4 Taxes, licenses and fees 2.8 1.5 4.6 0.5 4.3 2.7 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Subtotal 144.8 136.9 155.2 152.0 139.6 153.7 Deferral of acquisition costs (50.2) (60.2) DAC amortization 40.7 28.3 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (6.2) (1.6) (11.3) (18.4) (9.5) (31.9) PVIF amortization 6.0 4.5 4.1 9.6 4.6 4.1 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 144.5 139.8 147.9 143.2 134.6 126.0 Goodwill amortization (1.5) 0.3 0.3 0.3 0.3 0.3 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 432.8 425.2 421.9 415.7 414.1 408.6 ------- ------- ------- ------- ------- ------- Income from Operations Before Tax 111.8 104.8 124.2 102.3 98.7 113.6 Federal income taxes 23.3 20.7 21.3 15.9 16.3 22.8 ------- ------- ------- ------- ------- ------- Income from Operations 88.5 84.1 102.9 86.4 82.3 90.8 ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments 2.7 0.3 (9.1) 2.8 (1.4) (6.7) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 (0.1) 0.1 Restructuring charges 0.0 0.0 0.0 0.0 (0.7) (0.6) ------- ------- ------- ------- ------- ------- Income before Accounting Changes 91.2 84.4 93.8 89.2 80.2 83.6 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 (3.6) (3.7) ------- ------- ------- ------- ------- ------- Net Income 91.2 84.4 93.8 89.2 76.6 79.9 ======= ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 87.0 84.4 103.2 86.7 82.6 91.1 Net Income -before Goodwill Amort. 89.7 84.7 94.1 89.5 76.9 80.2 Effective tax rate 20.8% 19.7% 17.1% 15.6% 16.6% 20.1% Operating Revenue 544.6 530.1 546.2 518.1 512.8 522.1 Realized gains (losses) on investments 4.2 0.4 (14.1) 4.2 (2.2) (10.3) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 (0.2) 0.2 ------- ------- ------- ------- ------- ------- Total Revenue 548.7 530.5 532.1 522.3 510.4 512.1 ======= ======= ======= ======= ======= ======= Average capital 1,438.4 1,647.7 1,635.2 1,686.0 1,797.9 1,787.1 Return on average capital 24.6% 20.4% 25.2% 20.5% 18.3% 20.3% ----------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 812.5 762.6 Deferral 50.2 60.2 Amortization (40.7) (28.3) ------- ------- Operating 9.5 31.9 Adjustment related to realized (gains) losses on securities available-for-sale 12.8 4.9 Adjustment related to unrealized (gains) losses on securities available-for-sale (78.6) 31.9 Other** 6.5 (0.0) ------- ------- Balance at end-of-quarter 762.6 831.3 ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 169.2 164.6 Amortization (4.6) (4.2) Other ------- ------- Balance at end-of-quarter 164.6 160.4 ======= ======= Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Operating Revenue Premiums 13.2 12.7 12.2 13.1 13.4 8.7 Surrender charges 6.5 7.2 7.9 7.2 8.7 7.4 Expense assessments 132.0 126.2 127.7 127.1 109.3 105.7 Other revenue and fees 1.2 10.0 5.8 (1.3) (4.0) 2.7 Net investment income 346.6 342.6 349.9 352.7 358.1 373.1 ------- ------- ------- ------- ------- ------- Operating Revenue 499.5 498.7 503.5 498.8 485.6 497.6 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 66.3 55.3 55.4 72.5 107.8 78.4 Interest credited to policy balances 217.2 227.5 226.1 221.8 224.2 231.7 ------- ------- ------- ------- ------- ------- Total insurance benefits 283.5 282.8 281.5 294.3 332.0 310.1 Underwriting, acquisition, insurance and other expenses*: Commissions 81.1 96.7 82.4 82.5 83.0 72.8 Other volume related expenses 12.7 13.1 10.0 16.9 19.6 18.1 Operating and administrative expenses 55.3 66.4 53.0 52.2 51.4 68.3 Taxes, licenses and fees 2.2 4.5 4.7 4.2 3.0 (0.5) Par policyholder interests 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Subtotal 151.3 180.7 150.2 155.8 157.0 158.8 Deferral of acquisition costs (58.7) (71.9) (61.7) (60.8) (66.1) (55.3) DAC amortization 35.6 20.8 32.7 48.2 47.2 29.6 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (23.0) (51.0) (29.1) (12.6) (18.9) (25.7) PVIF amortization 4.5 1.4 3.8 3.9 4.1 20.0 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 132.8 131.1 124.9 147.2 142.2 153.2 Goodwill amortization 0.3 0.3 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 416.6 414.2 406.4 441.5 474.2 463.3 ------- ------- ------- ------- ------- ------- Income from Operations Before Tax 82.9 84.5 97.1 57.3 11.4 34.4 Federal income taxes 10.4 9.7 16.7 9.5 (11.4) (2.1) ------- ------- ------- ------- ------- ------- Income from Operations 72.4 74.8 80.4 47.8 22.8 36.5 ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (13.5) (20.7) (32.8) (36.6) (28.0) (30.4) Gains (losses) on derivatives (0.3) 0.1 0.0 0.1 (0.8) (0.0) Restructuring charges 0.0 0.0 0.0 (1.0) 0.0 0.0 ------- ------- ------- ------- ------- ------- Income before Accounting Changes 58.6 54.2 47.6 10.2 (6.0) 6.0 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Net Income 58.6 54.2 47.6 10.2 (6.0) 6.0 ======= ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 72.7 75.1 80.4 47.8 22.8 36.5 Net Income -before Goodwill Amort. 58.9 54.5 47.6 10.2 (6.0) 6.0 Effective tax rate 12.6% 11.5% 17.2% 16.5% (100.0%) (6.1%) Operating Revenue 499.5 498.7 503.5 498.8 485.6 497.6 Realized gains (losses) on investments (20.8) (31.3) (50.5) (56.2) (43.8) (46.1) Gains (losses) on derivatives (0.5) 0.2 0.0 (0.1) (1.1) (0.1) ------- ------- ------- ------- ------- ------- Total Revenue 478.2 467.5 453.0 442.6 440.7 451.4 ======= ======= ======= ======= ======= ======= Average capital 1,902.9 1,824.9 2,041.6 2,391.2 2,405.5 2,498.7 Return on average capital 15.2% 16.4% 15.8% 8.0% 3.8% 5.8% ----------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 831.3 781.2 912.8 1,031.0 967.8 843.9 Deferral 58.7 71.9 61.7 60.8 66.1 55.3 Amortization (35.6) (20.8) (32.7) (48.2) (47.2) (29.6) ------- ------- ------- ------- ------- ------- Operating 23.0 51.0 29.1 12.6 18.9 25.7 Adjustment related to realized (gains) losses on securities available-for-sale 16.4 34.1 25.7 20.9 10.3 16.1 Adjustment related to unrealized (gains) losses on securities available-for-sale (89.7) 46.5 78.2 (96.6) (153.1) (29.9) Other** 0.3 (0.0) (14.8) ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 781.2 912.8 1,031.0 967.8 843.9 855.8 ======= ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 160.4 155.9 154.5 150.7 146.8 142.7 Amortization (4.5) (1.4) (3.8) (3.9) (4.1) (20.0) Other ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 155.9 154.5 150.7 146.8 142.7 122.7 ======= ======= ======= ======= ======= ======= * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5). ** Includes the transfer of the Legacy Life block of business to the Life Insurance segment in the first quarter of 2002.
Page 19 Lincoln Retirement Annuity Account Value Roll Forward Unaudited [Billions of Dollars] 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Fixed Annuities- Bal Beg-of-Year 17.214 18.111 18.210 16.615 18.004 Gross Deposits 1.452 2.563 2.074 3.342 3.672 Withdrawals (incl charges) & deaths (2.468) (2.521) (3.283) (2.448) (2.637) ------- ------- ------- ------- ------- Net cash flows (1.016) 0.042 (1.209) 0.894 1.035 Transfer from (to) var annuities (0.356) (0.783) (1.329) (0.428) 0.108 Interest credited 0.994 0.840 0.944 0.923 0.940 Acq of new business/companies 1.274 ------- ------- ------- ------- ------- Fixed Annuities-Gross 18.111 18.210 16.615 18.004 20.087 Reinsurance Ceded (1.606) (1.419) (1.221) (1.514) (2.003) ------- ------- ------- ------- ------- Fixed Annuities-Bal End -of-Year 16.505 16.791 15.394 16.491 18.085 ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits * 1.265 2.310 1.918 3.213 3.600 Variable Annuities-Bal Beg-of-Year 27.346 33.358 41.493 39.427 34.638 Gross Deposits 2.791 2.553 3.165 3.067 2.743 Withdrawals (incl charges) & deaths (3.019) (3.760) (4.830) (3.856) (3.325) ------- ------- ------- ------- ------- Net cash flows (0.228) (1.207) (1.665) (0.789) (0.582) Transfer from (to) fixed annuities 0.389 0.787 1.320 0.428 (0.122) Invest inc & change in mkt value 5.414 8.555 (1.721) (4.428) (6.497) Acq(sale) of new business/companies 0.437 ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Year 33.358 41.493 39.427 34.638 27.438 ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits * 2.641 2.409 2.667 2.624 2.569 Total Annuities - Bal Beg-of-Year 44.560 51.469 59.703 56.042 52.642 Gross Deposits 4.244 5.116 5.239 6.409 6.415 Withdrawals (incl charges) & deaths (5.487) (6.281) (8.113) (6.304) (5.962) ------- ------- ------- ------- ------- Net cash flows (1.244) (1.165) (2.874) 0.105 0.453 Transfers 0.033 0.004 (0.009) (0.013) Interest credited & change in mkt value 6.408 9.395 (0.777) (3.505) (5.558) Acq of new business/companies 1.711 Total Gross Annuities-Bal ------- ------- ------- ------- ------- End-of-Year 51.469 59.703 56.042 52.642 47.525 Reinsurance Ceded (1.606) (1.419) (1.221) (1.514) (2.003) ------- ------- ------- ------- ------- Total Annuities (Net of Ceded) - Bal End-of-Year 49.862 58.284 54.821 51.129 45.522 ======= ======= ======= ======= ======= Total Annuities Incremental Deposits * 3.906 4.719 4.585 5.837 6.169 Var Ann Under Agree - Included above 0.649 0.719 0.941 1.077 1.186 Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.709 0.459 1.712 1.844 Withdrawals (1.367) (2.271) (1.604) (1.473) Net Flows (0.658) (1.812) 0.108 0.371 Gross Fixed Account Values 10.475 Reinsurance Ceded (2.003) Net Fixed Account Values 8.473 Variable Annuities - including fixed portion of variable contracts Deposits 4.407 4.780 4.697 4.571 Withdrawals (4.915) (5.842) (4.700) (4.489) Net Flows (0.508) (1.062) (0.003) 0.082 Variable Account Values 37.050 Fixed Portion of Variable Contracts Deposits 1.853 1.615 1.630 1.828 Withdrawals (1.154) (1.012) (0.844) (1.164) Net Flows 0.699 0.603 0.786 0.664 Fixed Portion of Variable Account Values 11.614 Average Daily Variable Account Values 35.932 41.776 35.573 30.826 ----------------------------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income 7.22% 7.38% 7.38% 6.98% Interest Credited 5.13% 5.24% 5.33% 4.87% ------- ------- ------- ------- Spread 2.09% 2.14% 2.05% 2.11% * Incremental Deposits represent gross deposits reduced by transfers from other Lincoln Retirement products. ** For the annuity products spread, the yield on earning assets is calculated as net investment income on fixed product investment portfolios divided by average earning assets. The average crediting rate is calculated using interest credited on annuity products less bonus credits and excess DCA interest, divided by average fixed account values net of co-insured account values. Fixed account values reinsured under modified co-insurance agreements are included in account values for this calculation since assets (and therefore margin) are retained under these agreements.
PAGE 20 Lincoln Retirement Annuity Account Value Roll Forward Unaudited [Billions of Dollars] Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal Beg-of-Quarter 18.210 17.614 17.199 16.930 16.615 16.598 Gross Deposits 0.589 0.490 0.513 0.482 0.560 0.668 Withdrawals (incl charges) & deaths (0.875) (0.796) (0.802) (0.810) (0.787) (0.574) ------- ------- ------- ------- ------- ------- Net cash flows (0.287) (0.307) (0.288) (0.328) (0.227) 0.094 Transfer from (to) var annuities (0.550) (0.346) (0.217) (0.216) (0.014) (0.222) Interest credited 0.241 0.238 0.235 0.230 0.225 0.226 Acq of new business/companies ------- ------- ------- ------- ------- ------- Fixed Annuities-Gross 17.614 17.199 16.930 16.615 16.598 16.696 Reinsurance Ceded (1.371) (1.316) (1.270) (1.221) (1.169) (1.146) ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal End-of-Quarter 16.244 15.884 15.660 15.394 15.430 15.551 ------- ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits* 0.560 0.447 0.464 0.447 0.536 0.611 Variable Annuities-Bal Beg-of-Quarter 41.493 44.640 43.097 42.743 39.427 34.733 Gross Deposits 0.797 0.793 0.729 0.846 0.887 0.703 Withdrawals (incl charges) & deaths (1.210) (1.168) (1.253) (1.199) (1.250) (0.993) ------- ------- ------- ------- ------- ------- Net cash flows (0.413) (0.375) (0.524) (0.353) (0.363) (0.290) Transfer from (to) fixed annuities 0.549 0.343 0.216 0.212 0.011 0.227 Invest inc & change in mkt value 3.011 (1.511) (0.046) (3.175) (4.342) 2.291 Acq(sale) of new business/companies ------- ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Quarter 44.640 43.097 42.743 39.427 34.733 36.961 ------- ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits 0.732 0.699 0.586 0.650 0.683 0.612 Total Annuities -Bal Beg-of-Quarter 59.703 62.255 60.297 59.673 56.042 51.332 Gross Deposits 1.386 1.283 1.242 1.328 1.447 1.371 Withdrawals (incl charges) & deaths (2.085) (1.964) (2.055) (2.009) (2.037) (1.567) ------- ------- ------- ------- ------- ------- Net cash flows (0.700) (0.682) (0.812) (0.681) (0.590) (0.196) Transfers (0.001) (0.003) (0.001) (0.004) (0.003) 0.005 Interest credited & change in mkt value 3.252 (1.273) 0.189 (2.945) (4.117) 2.517 Acq of new business/companies Total Gross Annuities-Bal ------- ------- ------- ------- ------- ------- End-of-Quarter 62.255 60.297 59.673 56.042 51.332 53.658 Reinsurance Ceded (1.371) (1.316) (1.270) (1.221) (1.169) (1.146) ------- ------- ------- ------- ------- ------- Total Annuities (Net of Ceded) - Bal End-of-Qtr 60.884 58.981 58.403 54.821 50.163 52.512 ======= ======= ======= ======= ======= ======= Total Annuities Incremental Deposits * 1.292 1.145 1.050 1.097 1.219 1.223 Var Ann Under Agree - Included above 0.866 0.868 0.962 0.941 0.904 0.975 -------------------------------------------------------------------------------------------------------------------------------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.134 0.126 0.114 0.085 0.160 0.329 Withdrawals (0.612) (0.557) (0.532) (0.570) (0.556) (0.356) Net Flows (0.479) (0.431) (0.417) (0.485) (0.396) (0.027) Gross Fixed Account Values Reinsurance Ceded Net Fixed Account Values Variable Annuities - including fixed portion of variable contracts Deposits 1.252 1.157 1.128 1.243 1.287 1.042 Withdrawals (1.473) (1.408) (1.523) (1.439) (1.481) (1.211) Net Flows (0.221) (0.251) (0.395) (0.196) (0.194) (0.169) Variable Account Values Fixed Portion of Variable Contracts Deposits 0.455 0.364 0.399 0.397 0.400 0.339 Withdrawals (0.263) (0.240) (0.270) (0.240) (0.231) (0.218) Net Flows 0.192 0.124 0.129 0.157 0.169 0.121 Fixed Portion of Variable Account Values Average Daily Variable Account Values 42.185 42.182 43.055 39.682 38.180 36.499 -------------------------------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income 7.35% 7.41% 7.40% 7.37% 7.50% 7.45% Interest Credited 5.33% 5.37% 5.12% 5.14% 5.40% 5.29% ------- ------- ------- ------- ------- ------- Spread 2.02% 2.04% 2.28% 2.23% 2.10% 2.16% Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal Beg-of-Quarter 16.696 17.317 18.004 18.178 18.679 19.561 Gross Deposits 0.896 1.218 0.906 0.853 1.090 0.822 Withdrawals (incl charges) & deaths (0.525) (0.562) (0.730) (0.551) (0.827) (0.531) ------ ------- ------- ------- ------- ------- Net cash flows 0.372 0.656 0.176 0.302 0.264 0.291 Transfer from (to) var annuities 0.021 (0.213) (0.232) (0.032) 0.379 (0.007) Interest credited 0.228 0.244 0.230 0.231 0.239 0.240 Acq of new business/companies ------ ------- ------- ------- ------- ------- Fixed Annuities-Gross 17.317 18.004 18.178 18.679 19.561 20.087 Reinsurance Ceded (1.266) (1.514) (1.645) (1.770) (1.913) (2.003) ------ ------- ------- ------- ------- ------- Fixed Annuities-Bal End-of-Quarter 16.051 16.491 16.533 16.909 17.650 18.085 ------ ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits* 0.873 1.193 0.881 0.839 1.072 0.808 Variable Annuities-Bal Beg-of-Quarter 36.961 30.506 34.638 35.150 31.206 25.942 Gross Deposits 0.684 0.793 0.808 0.787 0.603 0.545 Withdrawals (incl charges) & deaths (0.795) (0.818) (0.896) (0.866) (0.799) (0.763) ------ ------- ------- ------- ------- ------- Net cash flows (0.111) (0.025) (0.088) (0.079) (0.196) (0.217) Transfer from (to) fixed annuities (0.023) 0.213 0.234 0.032 (0.388) 0.000 Invest inc & change in mkt value (6.321) 3.944 0.366 (3.897) (4.680) 1.713 Acq(sale) of new business/companies ------ ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Quarter 30.506 34.638 35.150 31.206 25.942 27.438 ------ ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits 0.604 0.725 0.725 0.744 0.573 0.528 Total Annuities -Bal Beg-of-Quarter 53.658 47.823 52.642 53.329 49.886 45.503 Gross Deposits 1.580 2.011 1.714 1.640 1.694 1.368 Withdrawals (incl charges) & deaths (1.320) (1.380) (1.626) (1.417) (1.626) (1.294) ------ ------- ------- ------- ------- ------- Net cash flows 0.261 0.631 0.088 0.223 0.068 0.074 Transfers (0.002) 0.002 (0.009) (0.006) Interest credited & change in mkt value (6.093) 4.188 0.596 (3.666) (4.440) 1.953 Acq of new business/companies Total Gross Annuities-Bal ------ ------- ------- ------- ------- ------- End-of-Quarter 47.823 52.642 53.329 49.886 45.503 47.525 Reinsurance Ceded (1.266) (1.514) (1.645) (1.770) (1.913) (2.003) ------ ------- ------- ------- ------- ------- Total Annuities (Net of Ceded) - Bal End-of-Qtr 46.558 51.129 51.684 48.116 43.590 45.522 ====== ======= ======= ======= ======= ======= Total Annuities Incremental Deposits * 1.477 1.918 1.606 1.583 1.645 1.336 Var Ann Under Agree - Included above 0.907 1.077 1.207 1.175 1.083 1.186 -------------------------------------------------------------------------------------------------------------------------------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.489 0.734 0.505 0.430 0.558 0.351 Withdrawals (0.340) (0.352) (0.463) (0.267) (0.518) (0.228) Net Flows 0.149 0.382 0.042 0.163 0.041 0.122 Gross Fixed Account Values 9.761 10.048 10.219 10.475 Reinsurance Ceded (1.645) (1.770) (1.913) (2.003) Net Fixed Account Values 8.116 8.278 8.306 8.473 Variable Annuities - including fixed portion of variable contracts Deposits 1.091 1.277 1.209 1.210 1.135 1.017 Withdrawals (0.979) (1.028) (1.163) (1.150) (1.108) (1.066) Net Flows 0.112 0.249 0.046 0.060 0.027 (0.048) Variable Account Values 43.568 39.838 35.286 37.050 Fixed Portion of Variable Contracts Deposits 0.407 0.484 0.401 0.423 0.532 0.472 Withdrawals (0.184) (0.210) (0.267) (0.284) (0.309) (0.303) Net Flows 0.223 0.274 0.134 0.139 0.223 0.169 Fixed Portion of Variable Account Values 8.417 8.631 9.344 9.612 Average Daily Variable Account Values 34.399 33.216 34.341 33.502 28.023 27.431 -------------------------------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income 7.33% 7.26% 7.15% 7.11% 6.87% 6.89% Interest Credited 5.34% 5.28% 5.14% 4.92% 4.76% 4.72% ------ ------- ------- ------- ------- ------- Spread 1.99% 1.98% 2.01% 2.18% 2.11% 2.17% * Incremental Deposits represent gross deposits reduced by transfers from other Lincoln Retirement products. ** For the annuity products spread, the yield on earning assets is calculated as net investment income on fixed product investment portfolios divided by average earning assets. The average crediting rate is calculated using interest credited on annuity products less bonus credits and excess DCA interest, divided by average fixed account values net of co-insured account values. Fixed account values reinsured under modified co-insurance agreements are included in account values for this calculation since assets (and therefore margin) are retained under these agreements.
PAGE 21 Life Insurance Segment Income Statements Unaudited [Millions of Dollars] 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Operating Revenue Premiums 185.9 235.8 227.3 212.4 203.8 Surrender charges 52.1 66.3 66.4 66.1 54.1 Mortality assessments 350.1 444.6 465.2 499.4 501.5 Expense assessments 146.2 165.8 191.8 191.4 199.5 Other revenue and fees 2.6 9.8 14.2 17.9 23.7 Net investment income 642.6 840.1 871.5 910.2 899.1 ------- ------- ------- ------- ------- Operating Revenue 1379.5 1762.6 1836.4 1897.5 1881.7 ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 371.3 430.4 411.5 418.6 427.4 Div accum & div to policyholders 70.7 81.5 80.8 78.5 76.0 Interest credited to policy bal. 393.1 493.8 525.4 569.9 598.6 ------- ------- ------- ------- ------- Total insurance benefits 835.1 1005.8 1017.8 1067.0 1101.9 Underwriting, acquisition, insurance and other expenses*: Commissions 107.5 163.4 152.8 142.1 139.8 Other volume related expenses 122.7 185.6 200.9 176.4 190.4 Operating and administrative expenses 144.9 171.2 164.4 161.0 157.8 Taxes, licenses and fees 29.7 51.8 48.5 49.2 53.2 Par policyholder interests (4.3) 3.3 1.1 0.0 0.0 Foreign exchange 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Subtotal 400.6 575.2 567.6 528.7 541.2 Deferral of acquisition costs (324.8) (336.6) DAC amortization 95.0 105.8 ------- ------- ------- ------- ------- DAC deferral net of amortization (159.3) (235.0) (286.5) (229.8) (230.7) PVIF amortization 51.9 58.8 103.7 75.9 73.9 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 293.1 399.1 384.8 374.7 384.4 Goodwill amortization 19.7 23.4 23.7 23.7 0.0 ------- ------- ------- ------- ------- Operating Benefits and Expenses 1147.8 1428.2 1426.3 1465.4 1486.3 ------- ------- ------- ------- ------- Income from Operations Before Tax 231.6 334.3 410.1 432.1 395.4 Federal income taxes 82.4 122.3 150.1 153.0 123.5 ------- ------- ------- ------- ------- Income from Operations 149.2 212.0 259.9 279.0 271.9 ------- ------- ------- ------- ------- Realized gains (losses) on investments (1.7) (0.5) (10.7) (38.5) (63.8) Gains (losses) on derivatives 0.0 0.0 0.0 1.6 1.0 Restructuring charges (20.0) 0.0 0.0 (3.5) 0.0 ------- ------- ------- ------- ------- Income before Accounting Changes 127.5 211.5 249.3 238.6 209.0 Cumulative effect of accounting changes 0.0 0.0 0.0 (5.5) 0.0 ------- ------- ------- ------- ------- Net Income 127.5 211.5 249.3 233.1 209.0 ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 168.9 235.4 283.6 302.7 271.9 Net Income -before Goodwill Amort. 147.1 234.9 273.0 256.7 209.0 Effective tax rate 35.6% 36.6% 36.6% 35.4% 31.2% Operating Revenue 1379.5 1762.6 1836.4 1897.5 1881.7 Realized gains (losses) on investments (1.0) (2.2) (17.4) (57.6) (98.2) Gains (losses) on derivatives 0.0 0.0 0.0 0.7 1.5 Total Revenue 1378.5 1760.4 1819.0 1840.6 1785.0 ======= ======= ======= ======= ======= Average capital 1948.0 2712.3 2640.2 2731.5 2841.7 Return on average capital 7.7% 7.8% 9.8% 10.2% 9.6%
PAGE 22 Life Insurance Segment Income Statements Unaudited [Millions of Dollars] For the Quarter Ended Mar Jun Sep Dec Mar Jun 2000 2000 2000 2001 2001 2001 ------- ------- ------- ------- ------- ------- Operating Revenue Premiums 52.9 56.3 50.9 67.1 50.9 50.7 Surrender charges 16.2 16.5 13.8 19.9 17.2 13.5 Mortality assessments 112.2 114.5 116.3 122.1 124.3 124.8 Expense assessments 45.3 44.1 46.9 55.5 47.4 45.3 Other revenue and fees 3.2 3.6 3.8 3.7 5.1 3.8 Net investment income 215.6 215.5 220.6 219.7 223.0 227.4 ------- ------- ------- ------- ------- ------- Operating Revenue 445.5 450.5 452.4 488.0 467.9 465.5 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 98.3 96.3 95.8 121.0 99.9 103.5 Div accum & div to policyholders 20.4 18.7 16.4 25.3 17.5 19.0 Interest credited to policy bal. 126.3 128.7 134.0 136.5 138.3 141.2 ------- ------- ------- ------- ------- ------- Total insurance benefits 245.0 243.7 246.2 282.9 255.7 263.8 Underwriting, acquisition, insurance and other expenses*: Commissions 32.2 34.2 39.8 46.6 33.4 31.1 Other volume related expenses 43.5 44.8 48.6 64.0 34.8 43.3 Operating and administrative expenses 40.4 40.8 39.4 43.8 40.4 40.7 Taxes, licenses and fees 13.4 9.8 11.4 13.9 12.5 12.3 Par policyholder interests (1.5) 1.6 1.4 (0.5) (0.0) 0.0 Foreign exchange 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Subtotal 128.0 131.1 140.7 167.9 121.1 127.3 Deferral of acquisition costs (68.8) DAC amortization 15.8 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (53.2) (53.6) (76.8) (103.0) (45.2) (53.0) PVIF amortization 24.6 23.4 31.0 24.7 22.9 17.7 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 99.4 100.9 94.9 89.6 98.8 92.0 Goodwill amortization 5.9 5.9 5.9 5.9 5.9 5.9 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 350.3 350.6 347.0 378.4 360.5 361.7 ------- ------- ------- ------- ------- ------- Income from Operations Before Tax 95.2 99.9 105.4 109.6 107.4 103.8 Federal income taxes 34.8 37.4 38.9 39.0 38.8 36.7 ------- ------- ------- ------- ------- ------- Income from Operations 60.4 62.4 66.5 70.6 68.6 67.1 ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (2.4) (4.0) 1.0 (5.2) (5.4) (6.4) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 (0.0) 0.1 Restructuring charges 0.0 0.0 0.0 0.0 0.0 (2.0) Income before Accounting Changes 58.1 58.4 67.4 65.4 63.2 58.8 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 (0.2) (5.3) ------- ------- ------- ------- ------- ------- Net Income 58.1 58.4 67.4 65.4 62.9 53.5 ======= ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 66.3 68.4 72.4 76.5 74.5 73.0 Net Income -before Goodwill Amort. 64.0 64.4 73.4 71.3 68.9 59.5 Effective tax rate 36.5% 37.5% 36.9% 35.6% 36.1% 35.3% Operating Revenue 445.5 450.5 452.4 488.0 467.9 465.5 Realized gains (losses) on investments (3.8) (6.3) 0.8 (8.1) (8.2) (10.0) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 (0.0) 0.2 ------- ------- ------- ------- ------- ------- Total Revenue 441.7 444.2 453.2 479.9 459.6 455.7 ======= ======= ======= ======= ======= ======= Average capital 2,655.3 2,615.0 2,650.5 2,640.0 2,729.8 2,715.7 Return on average capital 9.1% 9.6% 10.0% 10.7% 10.1% 9.9% -------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 1,079.3 1,064.1 Deferral 64.5 68.8 Amortization (19.3) (15.8) ------- ------- ------- ------- ------- ------- Operating 45.2 53.0 Adjustment related to realized (gains) losses on securities available-for-sale 7.8 13.3 Adjustment related to unrealized (gains) losses on securities available-for-sale (68.5) 20.7 Other** 0.2 0.1 ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 1,064.1 1,151.1 ======= ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 1,040.5 1,017.6 Amortization (22.9) (17.7) Other ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 1,017.6 999.9 ======= ======= ======= ======= ======= ======= For the Quarter Ended Sep Dec Mar Jun Sep Dec 2001 2002 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- C> Operating Revenue Premiums 46.4 64.3 51.1 47.5 48.6 56.4 Surrender charges 15.6 19.9 11.7 13.5 13.4 15.5 Mortality assessments 124.7 125.5 123.9 123.9 126.3 127.3 Expense assessments 46.0 52.8 46.9 47.2 49.2 56.3 Other revenue and fees 3.0 6.0 5.7 6.7 5.1 6.2 Net investment income 233.2 226.6 226.0 225.7 224.1 223.3 ------- ------- ------- ------- ------- ------- Operating Revenue 468.9 495.2 465.3 464.6 466.8 485.0 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 102.3 112.9 104.1 103.6 105.2 114.6 Div accum & div to policyholders 16.5 25.4 17.8 18.2 17.2 22.8 Interest credited to policy bal. 143.5 146.9 146.3 148.9 152.6 150.7 ------- ------- ------- ------- ------- ------- Total insurance benefits 262.3 285.2 268.1 270.8 275.1 288.0 Underwriting, acquisition, insurance and other expenses*: Commissions 32.5 45.1 34.6 34.8 31.8 38.6 Other volume related expenses 41.4 56.9 42.7 43.6 45.8 58.3 Operating and administrative expenses 41.6 38.3 37.1 37.1 40.0 43.6 Taxes, licenses and fees 12.0 12.5 13.2 15.3 13.2 11.5 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 0.0 Foreign exchange 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Subtotal 127.5 152.8 127.5 130.8 130.7 152.1 Deferral of acquisition costs (85.3) (106.3) (74.3) (82.2) (78.7) (101.4) DAC amortization 29.7 30.2) 22.1 23.6 23.9 36.3 ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (55.5) (76.1) (52.3) (58.6) (54.8) (65.1) PVIF amortization 20.5 14.7 16.9 16.3 23.3 17.4 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 92.5 91.4 92.1 88.5 99.3 104.4 Goodwill amortization 5.9 5.9 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 360.8 382.5 360.2 359.3 374.4 392.5 ------- ------- ------- ------- ------- ------- Income from Operations Before Tax 108.1 112.7 105.1 105.3 92.4 92.5 Federal income taxes 38.1 39.5 34.0 31.8 29.0 28.8 ------- ------- ------- ------- ------- ------- Income from Operations 70.1 73.2 71.1 73.5 63.4 63.8 ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (5.3) (21.3) (26.9) (16.4) (16.9) (3.6) Gains (losses) on derivatives (0.0) 1.5 0.0 0.3 0.6 0.1 Restructuring charges 0.0 (1.5 0.0 0.0 0.0 0.0 Income before Accounting Changes 64.7 51.9 44.2 57.4 47.1 60.2 Cumulative effect of accounting changes 0.0 (0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Net Income 64.7 51.9 44.2 57.4 47.1 60.2 ======= ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 76.0 79.1 71.1 73.5 63.4 63.8 Net Income -before Goodwill Amort. 70.6 57.8 44.2 57.4 47.1 60.2 Effective tax rate 35.2% 35.0 32.3% 30.2% 31.3% 31.1% Operating Revenue 468.9 495.2 465.3 464.6 466.8 485.0 Realized gains (losses) on investments (8.2) (31.1) (41.4) (25.4) (25.9) (5.5) Gains (losses) on derivatives (0.1) 0.6 0.0 0.6 0.7 0.1 ------- ------- ------- ------- ------- ------- Total Revenue 460.6 464.7 423.9 439.8 441.6 479.6 ======= ======= ======= ======= ======= ======= Average capital 2,736.3 2,744.4 2,801.9 2,865.8 2,852.9 2,846.2 Return on average capital 10.2% 10.7% 10.2% 10.3% 8.9% 9.0% -------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 1,151.1 1,156.0 1,265.6 1,385.3 1,404.9 1,362.1 Deferral 85.3 106.3 74.3 82.2 78.7 101.4 Amortization (29.7) (30.2) (22.1) (23.6) (23.9) (36.3) ------- ------- ------- ------- ------- ------- Operating 55.5 76.1 52.3 58.6 54.8 65.1 Adjustment related to realized (gains) losses on securities available-for-sale 7.2 14.7 15.8 11.2 11.7 1.0 Adjustment related to unrealized (gains) losses on securities available-for-sale (59.6) 18.5 34.0 (51.9) (109.3) (3.7) Other** 1.8 0.3 17.6 1.7 ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 1,156.0 1,265.6 1,385.3 1,404.9 1,362.1 1,424.5 ======= ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 999.9 978.7 964.0 947.1 930.7 907.4 Amortization (20.5) (14.7) (16.9) (16.3) (23.3) (17.4) Other (0.7) (0.1) 0.1 ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 978.7 964.0 947.1 930.7 907.4 890.1 ======= ======= ======= ======= ======= ======= * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5). ** Includes the transfer of the Legacy Life block of business from the Lincoln Retirement segment in the first quarter of 2002.
PAGE 23 Life Insurance Segment Operational Data Unaudited [Millions of Dollars] 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 233.0 342.9 289.3 292.7 495.3 Variable Universal Life 101.3 142.2 218.7 228.6 134.5 Whole Life 20.0 23.9 22.4 26.3 30.3 Term 48.0 45.9 41.9 30.8 32.3 ------- ------- ------- ------- ------- Total Retail 402.3 555.0 572.3 578.4 692.3 Corporate Owned Life Insurance (COLI) 4.0 14.7 87.0 47.3 88.1 ------- ------- ------- ------- ------- Total 406.3 569.7 659.3 625.6 780.4 ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 35.0 188.3 200.6 196.1 201.7 Lincoln Financial Distributors 356.3 367.9 444.7 413.0 556.3 Other* 15.0 13.5 14.0 16.6 22.4 ------- ------- ------- ------- ------- Total by Distribution 406.3 569.7 659.3 625.6 780.4 ======= ======= ======= ======= ======= Life Insurance In-Force (Billions) Universal Life & Other 105.837 109.288 115.872 121.168 126.016 Term Insurance 67.076 85.701 100.130 113.226 127.880 ------- ------- ------- ------- ------- Total Life Segment In-Force 172.914 194.988 216.002 234.394 253.896 ======= ======= ======= ======= ======= For the Quarter Ended Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 72.3 63.7 72.4 80.9 57.7 70.0 Variable Universal Life 44.0 44.5 55.1 75.1 56.0 52.2 Whole Life 3.9 4.5 6.0 8.0 4.1 5.1 Term 13.1 12.1 9.1 7.6 6.5 7.2 ------- ------- ------- ------- ------- ------- Total Retail 133.3 124.8 142.6 171.6 124.2 134.6 Corporate Owned Life Insurance (COLI) 12.7 19.5 5.8 49.0 7.1 21.0 ------- ------- ------- ------- ------- ------- Total 146.0 144.3 148.4 220.7 131.3 155.6 ------- ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 46.1 37.0 51.3 66.2 38.1 48.2 Lincoln Financial Distributors 96.8 104.4 92.9 150.6 89.1 104.0 Other* 3.0 2.9 4.2 3.9 4.2 3.4 ------- ------- ------- ------- ------- ------- Total by Distribution 146.0 144.3 148.4 220.7 131.3 155.6 ======= ======= ======= ======= ======= ======= Insurance In-Force (Billions) Universal Life & Other 108.817 110.448 112.884 115.872 116.747 118.007 Term Insurance 92.857 97.039 98.424 100.130 102.467 105.265 ------- ------- ------- ------- ------- ------- Total Segment In-Force 201.674 207.487 211.308 216.002 219.214 223.272 ======= ======= ======= ======= ======= ======= For the Quarter Ended Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 67.4 97.5 86.4 98.9 132.9 177.1 Variable Universal Life 50.1 70.2 39.0 42.4 26.1 27.0 Whole Life 6.7 10.4 5.2 6.4 7.7 11.0 Term 8.1 9.1 8.7 8.1 7.3 8.1 ------- ------- ------- ------- ------- ------- Total Retail 132.4 187.2 139.4 155.8 174.0 223.2 Corporate Owned Life Insurance (COLI) 5.1 14.2 6.9 46.6 7.8 26.8 ------- ------- ------- ------- ------- ------- Total 137.4 201.3 146.3 202.4 181.8 249.9 ------- ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 41.8 68.0 41.5 48.3 46.9 64.9 Lincoln Financial Distributors 90.4 129.5 100.9 151.6 132.7 171.1 Other* 5.2 3.8 3.8 2.6 2.2 13.9 ------- ------- ------- ------- ------- ------- Total by Distribution 137.4 201.3 146.3 202.4 181.8 249.9 ======= ======= ======= ======= ======= ======= Insurance In-Force (Billions) Universal Life & Other 119.029 121.168 122.316 123.674 124.085 126.016 Term Insurance 108.723 113.226 117.752 121.076 123.945 127.880 ------- ------- ------- ------- ------- ------- Total Segment In-Force 227.751 234.394 240.068 244.750 248.030 253.896 ======= ======= ======= ======= ======= ======= * Other consists of distribution arrangements with third-party intermediaries.
PAGE 24 Life Insurance Segment Life Insurance Account Value Roll Forward Unaudited [Billions of Dollars] 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- Universal Life-Bal Beg-of-Year 2.558 6.259 6.650 6.976 7.508 Deposits 0.675 1.017 0.955 1.043 1.332 Withdrawals & deaths (0.701) (0.452) (0.426) (0.319) (0.426) -------- -------- -------- -------- -------- Net cash flows (0.026) 0.564 0.528 0.724 0.906 Policyholder assessments 0.000 (0.544) (0.584) (0.598) (0.648) Interest credited 0.350 0.370 0.382 0.405 0.428 Acq of new business/transfers between segments 3.378 0.000 0.000 0.000 0.018 -------- -------- -------- -------- -------- Universal Life-Bal End of Year(1) 6.259 6.650 6.976 7.508 8.211 -------- -------- -------- -------- -------- Variable Universal Life-Bal Beg-of-Year 0.480 1.200 1.605 1.808 1.746 Deposits 0.193 0.326 0.607 0.584 0.504 Withdrawals & deaths (0.100) (0.099) (0.132) (0.251) (0.193) -------- -------- -------- -------- -------- Net cash flows 0.093 0.228 0.475 0.332 0.311 Policyholder assessments 0.000 (0.084) (0.141) (0.170) (0.186) Invest inc & chg in mkt value 0.105 0.370 (0.130) (0.225) (0.313) Acq of new business/transfers between segments 0.522 (0.110) 0.000 0.000 0.132 -------- -------- -------- -------- -------- Variable Universal Life -Bal End-of-Year 1.200 1.605 1.808 1.746 1.690 -------- -------- -------- -------- -------- Interest Sensitive Whole Life - Bal Beg-of-Year 0.000 1.784 1.963 2.062 2.123 Deposits 0.340 0.355 0.322 0.307 0.301 Withdrawals & deaths (0.294) (0.162) (0.168) (0.200) (0.199) -------- -------- -------- -------- -------- Net cash flows 0.046 0.193 0.154 0.107 0.103 Policyholder assessments 0.000 (0.168) (0.168) (0.164) (0.167) Interest credited 0.096 0.109 0.113 0.118 0.127 Acq of new business/transfers between segments 1.642 0.045 0.000 0.000 0.000 -------- -------- -------- -------- -------- Int Sensitive Whole Life-Bal End -of -Year 1.784 1.963 2.062 2.123 2.186 -------- -------- -------- -------- -------- --------------------------------------------------------------------------------------------- Total Segment- Life Insurance Account Values Bal Beg-of-Year 3.038 9.243 10.217 10.847 11.377 Deposits 1.207 1.698 1.884 1.934 2.138 Withdrawals & deaths (1.095) (0.713) (0.727) (0.771) (0.818) -------- -------- -------- -------- -------- Net cash flows 0.113 0.985 1.158 1.163 1.320 Policyholder assessments (0.795) (0.893) (0.931) (1.002) Invest inc & change in market value 0.551 0.849 0.364 0.299 0.241 Acq of new business/transfers between segments 5.542 (0.065) 0.150 -------- -------- -------- -------- -------- Total Segment -Bal End-of-Year 9.243 10.217 10.847 11.377 12.086 ======== ======== ======== ======== ======== (1) Includes fixed investment option of VUL products.
PAGE 25 Life Insurance Segment Life Insurance Account Value Roll Forward Unaudited [Billions of Dollars] Mar Jun Sep Dec Mar Jun For the Quarter Ended 2000 2000 2000 2000 2001 2001 ------ ------ ------ ------ ------ ----- Universal Life-Bal Beg-of-Quarter 6.650 6.729 6.782 6.878 6.976 7.063 Deposits 0.252 0.212 0.227 0.265 0.227 0.270 Withdrawals & deaths (0.121) (0.111) (0.080) (0.114) (0.091) (0.071) ------- ------- ------- ------- ------- ------- Net cash flows 0.131 0.101 0.146 0.151 0.136 0.199 Policyholder assessments (0.145) (0.143) (0.146) (0.150) (0.147) (0.147) Interest credited 0.093 0.095 0.096 0.097 0.098 0.100 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Universal Life-Bal End-of-Quarter (1) 6.729 6.782 6.878 6.976 7.063 7.216 ------- ------- ------- ------- ------- ------- Variable Universal Life-Bal Beg of Quarter 1.605 1.771 1.764 1.812 1.808 1.633 Deposits 0.112 0.128 0.123 0.245 0.136 0.138 Withdrawals & deaths (0.019) (0.028) (0.037) (0.048) (0.049) (0.060) ------- ------- ------- ------- ------- ------- Net cash flows 0.093 0.100 0.085 0.197 0.087 0.078 Policyholder assessments (0.032) (0.033) (0.036) (0.041) (0.041) (0.041) Invest inc & chg in mkt value 0.105 (0.074) (0.001) (0.160) (0.221) 0.096 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Variable Universal Life -Bal End-of-Quarter 1.771 1.764 1.812 1.808 1.633 1.766 ------- ------- ------- ------- ------- ------- Interest Sensitive Whole Life - Bal Beg-of-Quarter 1.963 1.970 1.993 2.026 2.062 2.068 Deposits 0.060 0.071 0.079 0.113 0.056 0.069 Withdrawals & deaths (0.042) (0.037) (0.033) (0.056) (0.041) (0.043) ------- ------- ------- ------- ------- ------- Net cash flows 0.018 0.034 0.045 0.057 0.014 0.027 Policyholder assessments (0.039) (0.040) (0.040) (0.050) (0.037) (0.040) Interest credited 0.028 0.028 0.027 0.029 0.028 0.030 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Int Sensitive Whole Life-Bal End-of-Quarter 1.970 1.993 2.026 2.062 2.068 2.084 ------- ------- ------- ------- ------- ------- ----------------------------------------------------------------------------------------------------------------------------- Total Segment- Life Insurance Account Values Bal Beg-of-Quarter 10.218 10.470 10.538 10.716 10.847 10.764 Deposits 0.424 0.411 0.428 0.622 0.418 0.477 Withdrawals & deaths (0.182) (0.176) (0.151) (0.218) (0.181) (0.173) ------- ------- ------- ------- ------- ------- Net cash flows 0.242 0.235 0.277 0.404 0.237 0.304 Policyholder assessments (0.215) (0.216) (0.221) (0.241) (0.225) (0.228) Invest inc & change in market value 0.227 0.048 0.123 (0.033) (0.094) 0.226 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Total Segment -Bal End-of-Quarter 10.470 10.538 10.716 10.847 10.764 11.066 ======= ======= ======= ======= ======= ======= Sep Dec Mar Jun Sep Dec For the Quarter Ended 2001 2001 2002 2002 2002 2002 ------ ------ ------ ------ ------ ----- Universal Life-Bal Beg-of-Quarter 7.216 7.315 7.508 7.622 7.838 7.987 Deposits 0.233 0.314 0.248 0.364 0.310 0.410 Withdrawals & deaths (0.085) (0.073) (0.097) (0.096) (0.108) (0.125) ------- ------- ------- ------- ------- ------- Net cash flows 0.147 0.241 0.150 0.268 0.201 0.286 Policyholder assessments (0.150) (0.153) (0.158) (0.158) (0.162) (0.170) Interest credited 0.102 0.105 0.104 0.106 0.110 0.108 Acq of new business/transfers between segments 0.000 0.000 0.018 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Universal Life-Bal End-of-Quarter (1) 7.315 7.508 7.622 7.838 7.987 8.211 ------- ------- ------- ------- ------- ------- Variable Universal Life-Bal Beg of Quarter 1.766 1.527 1.746 1.919 1.776 1.575 Deposits 0.124 0.186 0.129 0.147 0.102 0.126 Withdrawals & deaths (0.055) (0.088) (0.055) (0.057) (0.034) (0.047) ------- ------- ------- ------- ------- ------- Net cash flows 0.069 0.098 0.074 0.090 0.068 0.079 Policyholder assessments (0.042) (0.045) (0.047) (0.046) (0.046) (0.047) Invest inc & chg in mkt value (0.266) 0.166 0.013 (0.186) (0.224) 0.083 Acq of new business/transfers between segments 0.000 0.000 0.132 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Variable Universal Life -Bal End-of-Quarter 1.527 1.746 1.919 1.776 1.575 1.690 ------- ------- ------- ------- ------- ------- Interest Sensitive Whole Life - Bal Beg-of-Quarter 2.084 2.096 2.123 2.126 2.145 2.164 Deposits 0.077 0.105 0.063 0.066 0.073 0.100 Withdrawals & deaths (0.054) (0.061) (0.051) (0.039) (0.045) (0.063) ------- ------- ------- ------- ------- ------- Net cash flows 0.022 0.044 0.012 0.026 0.027 0.037 Policyholder assessments (0.041) (0.047) (0.042) (0.039) (0.040) (0.046) Interest credited 0.030 0.030 0.033 0.032 0.031 0.031 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.000 Int Sensitive Whole Life-Bal ------- ------- ------- ------- ------- ------- End-of-Quarter 2.096 2.123 2.126 2.145 2.164 2.186 ------- ------- ------- ------- ------- ------- ----------------------------------------------------------------------------------------------------------------------------- Total Segment- Life Insurance Account Values Bal Beg-of-Quarter 11.066 10.939 11.377 11.667 11.759 11.726 Deposits 0.434 0.605 0.440 0.577 0.484 0.636 Withdrawals & deaths (0.195) (0.222) (0.204) (0.192) (0.187) (0.234) ------- ------- ------- ------- ------- ------- Net cash flows 0.239 0.383 0.236 0.385 0.297 0.402 Policyholder assessments (0.232) (0.246) (0.246) (0.244) (0.248) (0.263) Invest inc & change in market value (0.134) 0.301 0.151 (0.049) (0.082) 0.222 Acq of new business/transfers between segments 0.000 0.000 0.150 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Total Segment -Bal End-of-Quarter 10.939 11.377 11.667 11.759 11.726 12.086 ======= ======= ======= ======= ======= ======= (1) Includes fixed investment option of VUL products.
PAGE 26 Investment Management Income Statements Unaudited [Millions of Dollars] For the Year Ended December 31 1998 1999 2000 2001 2002 ------ ------ ------ ------ ------ Operating Revenue Investment advisory fees - External 249.0 248.6 231.6 197.2 183.3 Investment advisory fees - Insurance Assets 82.5 83.6 88.9 87.5 83.8 Other revenue and fees 92.5 106.6 115.9 99.2 87.0 Net investment income 67.0 56.9 57.7 53.6 50.5 ------- ------- ------- ------- ------- Operating Revenue 491.0 495.6 494.2 437.4 404.7 ------- ------- ------- ------- ------- Operating Benefits and Expenses Underwriting, acquisition, insurance and other expenses*: Operating and administrative expenses 366.8 350.2 375.4 364.8 342.3 Taxes, licenses and fees 15.9 16.4 17.1 22.2 17.7 ------- ------- ------- ------- ------- Subtotal 382.7 366.6 392.5 387.0 360.0 Other intangibles amortization 18.8 17.7 16.3 10.8 8.2 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 401.5 384.3 408.7 397.8 368.3 Goodwill amortization 16.3 16.2 16.2 16.2 0.0 Interest on notes payable 0.4 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Operating Benefits and Expenses 418.2 400.5 425.0 414.1 368.3 ------- ------- ------- ------- ------- Income from Operations Before Tax 72.8 95.1 69.2 23.4 36.4 Federal income taxes 28.9 34.1 25.1 8.7 7.5 ------- ------- ------- ------- ------- Income from Operations 43.9 61.0 44.1 14.6 28.9 ------- ------- ------- ------- ------- Realized gains (losses) on investments 0.5 (0.1) (2.5) (2.4) (3.5) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 Restructuring charges 0.0 (9.2) (4.6) (0.4) 0.3 ------- ------- ------- ------- ------- Income before Accounting Changes 44.4 51.6 37.0 11.9 25.6 Cumulative effect of accounting changes 0.0 0.0 0.0 (0.1) 0.0 ------- ------- ------- ------- ------- Net Income 44.4 51.6 37.0 11.8 25.6 ======= ======= ======= ======= ======= Income from Operations- before Goodwill Amortization 60.3 77.2 60.3 30.9 28.9 Income from Operations - before Goodwill & Intang. Amort 72.6 88.7 70.9 37.9 34.3 Net Income - before Goodwill Amortization 60.8 67.9 53.2 28.0 25.6 Net Income -before Goodwill & Intang. Amort. 73.1 79.4 63.8 35.0 31.0 Operating Revenue 491.0 495.6 494.2 437.4 404.7 Realized gains (losses) on investments 0.9 (0.1) (3.9) (3.7) (5.4) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total Revenue 491.9 495.5 490.3 433.7 399.3 ======= ======= ======= ======= ======= Average Capital (Securities at Cost) 642.3 593.9 575.2 543.7 562.1 Return on Capital 6.8% 10.3% 7.7% 2.7% 5.1%
PAGE 27 Investment Management Income Statements Unaudited [Millions of Dollars] For the Quarter Ended Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 -------- -------- -------- -------- -------- -------- Operating Revenue Investment advisory fees - External 60.0 57.9 56.9 56.7 50.5 51.1 Investment advisory fees - Insurance Assets 21.0 22.3 22.5 23.1 22.1 21.6 Other revenue and fees 31.9 31.0 26.4 26.6 26.3 25.7 Net investment income 13.0 12.6 18.3 13.8 14.1 13.0 -------- -------- -------- -------- -------- -------- Operating Revenue 126.0 123.8 124.1 120.2 113.0 111.4 -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Underwriting, acquisition, insurance and other expenses*: Operating and administrative expenses 92.7 90.5 96.3 95.9 94.3 94.1 Taxes, licenses and fees 5.5 4.8 3.6 3.2 6.4 5.3 -------- -------- -------- -------- -------- -------- Subtotal 98.2 95.3 99.9 99.1 100.8 99.4 Other intangibles amortization 4.4 4.0 4.0 4.0 4.0 2.3 -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 102.5 99.3 103.9 103.0 104.7 101.6 Goodwill amortization 4.1 4.1 4.1 4.1 4.1 4.1 Interest on notes payable 0.0 0.0 0.0 0.0 0.0 0.0 -------- -------- -------- -------- -------- -------- Operating Benefits & Expenses 106.6 103.3 107.9 107.1 108.8 105.7 -------- -------- -------- -------- -------- -------- Income from Operations Before Tax 19.4 20.5 16.2 13.1 4.2 5.7 Federal income taxes 7.0 7.4 6.3 4.4 1.8 2.0 -------- -------- -------- -------- -------- -------- Income from Operations 12.4 13.1 9.9 8.7 2.4 3.7 -------- -------- -------- -------- -------- -------- Realized gains (losses) on investments (0.1) (2.0) (0.2) (0.2) (0.5) (0.7) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 Restructuring charges 0.0 (2.7) 0.0 (1.9) 0.0 0.0 -------- -------- -------- -------- -------- -------- Income before Accounting Changes 12.3 8.4 9.7 6.6 2.0 3.0 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 (0.1) -------- -------- -------- -------- -------- -------- Net Income 12.3 8.4 9.7 6.6 2.0 2.9 -------- -------- -------- -------- -------- -------- Inc from Oper -before Goodwill Amortization 16.5 17.1 14.0 12.7 6.5 7.7 Inc from Oper -before Goodwill & Intang. Amort 19.4 19.7 16.6 15.2 9.1 9.2 Net Income -before Goodwill Amortization 16.4 12.4 13.7 10.6 6.0 6.9 Net Income -before Goodwill & Intang. Amort 19.2 15.0 16.3 13.1 8.6 8.4 Operating Revenue 126.0 123.8 124.1 120.2 113.0 111.4 Realized gains (losses) on investments (0.2) (3.1) (0.4) (0.3) (0.7) (1.1) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 -------- -------- -------- -------- -------- -------- Total Revenue 125.8 120.7 123.8 120.0 112.3 110.3 ======== ======== ======== ======== ======== ======== Average Capital (Securities at Cost) 581.5 593.0 567.7 558.5 548.3 542.8 Return on Capital 8.6% 8.8% 7.0% 6.2% 1.8% 2.7% For the Quarter Ended Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 -------- -------- -------- -------- -------- -------- Operating Revenue Investment advisory fees - External 46.2 49.3 48.0 47.8 42.9 44.7 Investment advisory fees - Insurance Assets 21.8 22.0 21.2 20.7 20.8 21.1 Other revenue and fees 23.9 23.4 23.0 22.0 19.9 22.1 Net investment income 13.6 12.8 12.8 12.7 12.4 12.7 -------- -------- -------- -------- -------- -------- Operating Revenue 105.5 107.6 105.1 103.1 96.0 100.5 -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Underwriting, acquisition, insurance and other expenses*: Operating and administrative expenses 88.0 88.4 86.9 87.6 86.6 81.2 Taxes, licenses and fees 4.8 5.7 6.3 5.3 2.9 3.3 -------- -------- -------- -------- -------- -------- Subtotal 92.8 94.1 93.2 92.9 89.5 84.4 Other intangibles amortization 2.3 2.3 2.2 2.0 2.0 2.0 -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 95.1 96.4 95.4 95.0 91.5 86.4 Goodwill amortization 4.1 4.1 0.0 0.0 0.0 0.0 Interest on notes payable 0.0 0.0 0.0 0.0 0.0 0.0 -------- -------- -------- -------- -------- -------- Operating Benefits & Expenses 99.2 100.4 95.4 95.0 91.5 86.4 -------- -------- -------- -------- -------- -------- Income from Operations Before Tax 6.3 7.1 9.7 8.1 4.6 14.1 Federal income taxes 2.9 2.1 1.7 1.5 0.6 3.8 -------- -------- -------- -------- -------- -------- Income from Operations 3.5 5.1 8.0 6.6 4.0 10.3 -------- -------- -------- -------- -------- -------- Realized gains (losses) on investments (0.5) (0.7) (1.0) (0.4) (1.2) (0.9) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 Restructuring charges 0.0 (0.4) 0.0 0.0 0.3 0.0 -------- -------- -------- -------- -------- -------- Income before Accounting Changes 2.9 4.0 7.0 6.2 3.1 9.3 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 0.0 -------- -------- -------- -------- -------- -------- Net Income 2.9 4.0 7.0 6.2 3.1 9.3 -------- -------- -------- -------- -------- -------- Inc from Oper -before Goodwill Amortization 7.5 9.1 8.0 6.6 4.0 10.3 Inc from Oper -before Goodwill & Intang. Amort 9.0 10.6 9.4 7.9 5.3 11.6 Net Income -before Goodwill Amortization 7.0 8.1 7.0 6.2 3.1 9.3 Net Income -before Goodwill & Intang. Amort 8.5 9.5 8.4 7.5 4.4 10.6 Operating Revenue 105.5 107.6 105.1 103.1 96.0 100.5 Realized gains (losses) on investments (0.8) (1.1) (1.5) (0.7) (1.8) (1.5) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 -------- -------- -------- -------- -------- -------- Total Revenue 104.7 106.5 103.5 102.4 94.3 99.1 ======== ======== ======== ======== ======== ======== Average Capital (Securities at Cost) 543.1 540.6 546.1 568.6 567.1 566.7 Return on Capital 2.5% 3.8% 5.8% 4.6% 2.8% 7.3%
PAGE 28 Investment Management Assets Under Management Roll Forward Unaudited [Billions of Dollars] 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Retail Fixed - Bal Beg-of-Year 8.125 8.219 7.423 6.608 7.120 Fund Sales 1.166 0.991 0.769 0.876 1.218 Redemptions (1.234) (1.424) (1.401) (1.051) (1.182) Net Money Market (0.141) (0.111) (0.207) (0.046) (0.050) Transfers 0.132 0.177 (0.168) 0.405 0.206 ------- ------- ------- ------- ------- Net Cash Flows(1) (0.077) (0.367) (1.007) 0.184 0.192 Market 0.170 (0.429) 0.099 0.328 0.320 Acquisitions/addition of Assets under Administration(1) 0.094 ------- ------- ------- ------- ------- Balance End-of-Year 8.219 7.423 6.608 7.120 7.631 ------- ------- ------- ------- ------- Retail Equity - Bal Beg-of-Year 17.754 22.081 23.384 21.523 17.987 Fund Sales 3.581 3.270 4.116 2.817 4.477 Redemptions (2.459) (4.972) (4.431) (2.838) (3.690) Net Money Market (0.001) (0.001) 0.001 Transfers 0.730 (0.144) (0.178) (0.538) (0.173) ------- ------- ------- ------- ------- Net Cash Flows(1) 1.851 (1.847) (0.492) (0.560) 0.614 Market 2.476 3.150 (1.711) (2.976) (3.685) Acquisitions/addition of Assets under Administration(1) 0.342 ------- ------- ------- ------- ------- Balance at End-of-Year 22.081 23.384 21.523 17.987 14.917 ------- ------- ------- ------- ------- Total Retail - Bal Beg-of-Year 25.879 30.300 30.807 28.131 25.107 Retail Sales-Annuities 2.240 1.561 1.782 1.701 2.751 Retail Sales-Mutual Funds 1.912 2.151 2.577 1.523 1.829 Retail Sales-Managed Acct. & Other 0.595 0.549 0.525 0.469 1.115 ------- ------- ------- ------- ------- Total Retail Sales 4.747 4.261 4.885 3.693 5.695 Redemptions (3.693) (6.396) (5.832) (3.889) (4.873) Net Money Market (0.142) (0.112) (0.206) (0.046) (0.050) Transfers 0.862 0.033 (0.346) (0.133) 0.033 ------- ------- ------- ------- ------- Net Cash Flows(1) 1.774 (2.214) (1.500) (0.375) 0.806 Market 2.647 2.721 (1.612) (2.649) (3.364) Acquisitions/addition of Assets under Administration(1) 0.435 ------- ------- ------- ------- ------- Balance at End-of-Year 30.300 30.807 28.130 25.107 22.547 ------- ------- ------- ------- ------- ------------------------------------------------------------------------------------------ Institutional Fixed - Bal Beg-of-Year 5.708 6.955 6.936 6.111 5.490 Inflows 2.169 2.001 0.771 0.643 2.281 Withdrawals/Terminations (1.242) (1.700) (1.973) (1.229) (1.146) Transfers (0.074) (0.001) (0.005) 0.017 0.004 ------- ------- ------- ------- ------- Net Cash Flows 0.853 0.300 (1.207) (0.569) 1.139 Market 0.394 (0.319) 0.382 (0.052) 0.607 Acquisitions ------- ------- ------- ------- ------- Balance at End-of-Year 6.955 6.936 6.111 5.490 7.237 ------- ------- ------- ------- ------- Institutional Equity - Bal Beg-of-Year 24.871 24.235 23.631 19.112 17.814 Inflows 3.840 5.249 2.730 3.183 2.913 Withdrawals/Terminations (7.441) (7.800) (7.209) (2.879) (1.991) Transfers 0.047 0.012 (0.008) 0.035 0.045 ------- ------- ------- ------- ------- Net Cash Flows (3.555) (2.539) (4.486) 0.338 0.967 Market 2.919 1.935 (0.033) (1.636) (2.070) Acquisitions ------- ------- ------- ------- ------- Balance at End-of-Year 24.235 23.631 19.112 17.814 16.711 ------- ------- ------- ------- ------- Total Institutional - Bal Beg-of-Year 30.579 31.191 30.568 25.223 23.304 Inflows 6.009 7.250 3.501 3.826 5.194 Withdrawals/Terminations (8.683) (9.500) (9.182) (4.109) (3.137) Transfers (0.027) 0.011 (0.013) 0.052 0.050 ------- ------- ------- ------- ------- Net Cash Flows (2.702) (2.239) (5.693) (0.231) 2.106 Market 3.313 1.616 0.349 (1.688) (1.463) Acquisitions ------- ------- ------- ------- ------- Balance at End-of-Year 31.191 30.568 25.223 23.304 23.948 ------- ------- ------- ------- ------- Total Retail/Institutional - At End-of-Year 61.490 61.375 53.354 48.411 46.495 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Insurance Assets - At End-of-Year 39.432 35.934 35.686 38.119 41.104 ------- ------- ------- ------- ------- Total Assets Under Management At End-of-Year 100.922 97.309 89.040 86.530 87.599 ======= ======= ======= ======= ======= (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. Net Cash Flows from Assets Under Administration are: 0.018 0.081 0.263
PAGE 29 Investment Management Assets Under Management Roll Forward Unaudited [Billions of Dollars] Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Retail Fixed - Bal-Beg-of-Qtr 7.424 7.057 6.764 6.631 6.608 6.751 Fund Sales 0.168 0.166 0.223 0.212 0.248 0.203 Redemptions (0.456) (0.339) (0.328) (0.277) (0.261) (0.285) Net Money Market (0.067) (0.058) (0.031) (0.051) 0.010 (0.030) Transfers (0.102) (0.046) (0.031) 0.010 0.047 (0.002) ------- ------- ------- ------- ------- ------- Net Cash Flows(1) (0.457) (0.277) (0.167) (0.106) 0.043 (0.114) Market (0.003) (0.017) 0.035 0.083 0.100 0.131 Acquisitions/addition of Assets under Admin.(1) 0.094 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 7.057 6.764 6.631 6.608 6.751 6.769 ------- ------- ------- ------- ------- ------- Retail Equity - Bal-Beg-of-Qtr 23.383 24.478 23.496 24.047 21.523 18.254 Fund Sales 1.234 0.884 0.927 1.071 0.917 0.681 Redemptions (1.565) (0.989) (1.040) (0.837) (0.911) (0.666) Net Money Market 0.000 0.000 0.001 0.000 0.000 0.000 Transfers (0.091) 0.018 (0.036) (0.069) (0.070) (0.047) ------- ------- ------- ------- ------- ------- Net Cash Flows(1) (0.423) (0.087) (0.148) 0.165 (0.064) (0.032) Market 1.176 (0.895) 0.699 (2.689) (3.205) 1.532 Acquisitions/addition of Assets under Admin.(1) 0.342 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 24.478 23.496 24.047 21.523 18.254 19.755 ------- ------- ------- ------- ------- ------- Total Retail - Bal-Beg-of-Qtr 30.807 31.535 30.260 30.679 28.132 25.005 Retail Sales-Annuities 0.379 0.358 0.456 0.589 0.540 0.403 Retail Sales-Mutual Funds 0.875 0.586 0.554 0.563 0.483 0.355 Retail Sales-Managed Acct. & Other 0.148 0.106 0.140 0.131 0.142 0.127 ------- ------- ------- ------- ------- ------- Total Retail Sales 1.402 1.050 1.150 1.283 1.165 0.885 Redemptions (2.021) (1.329) (1.368) (1.114) (1.173) (0.951) Net Money Market (0.067) (0.058) (0.030) (0.051) 0.010 (0.030) Transfers (0.193) (0.027) (0.067) (0.059) (0.023) (0.049) ------- ------- ------- ------- ------- ------- Net Cash Flows(1) (0.880) (0.364) (0.315) 0.059 (0.021) (0.146) Market 1.173 (0.911) 0.734 (2.606) (3.105) 1.663 Acquisitions/addition of Assets under Admin.(1) 0.435 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 31.535 30.260 30.679 28.130 25.005 26.523 ------- ------- ------- ------- ------- ------- ----------------------------------------------------------------------------------------------------- Institutional Fixed - Bal-Beg-of-Qtr 6.937 6.873 6.485 6.276 6.111 5.890 Inflows 0.180 0.148 0.308 0.135 0.310 0.233 Withdrawals/Terminations (0.353) (0.520) (0.532) (0.568) (0.432) (0.112) Transfers (0.005) (0.001) 0.000 0.001 0.003 0.010 ------- ------- ------- ------- ------- ------- Net Cash Flows (0.178) (0.373) (0.224) (0.433) (0.119) 0.131 Market 0.114 (0.015) 0.015 0.268 (0.102) (0.212) ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 6.873 6.485 6.276 6.111 5.890 5.809 ------- ------- ------- ------- ------- ------- Institutional Equity - Bal-Beg-of-Qtr 23.631 20.304 20.241 19.044 19.112 17.311 Inflows 0.904 0.669 0.407 0.750 0.881 0.823 Withdrawals/Terminations (3.333) (1.354) (1.154) (1.368) (1.199) (0.501) Transfers (0.004) 0.002 (0.013) 0.007 0.018 (0.008) ------- ------- ------- ------- ------- ------- Net Cash Flows (2.433) (0.683) (0.760) (0.611) (0.299) 0.313 Market (0.894) 0.620 (0.438) 0.679 (1.502) 0.780 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 20.304 20.241 19.044 19.112 17.311 18.405 ------- ------- ------- ------- ------- ------- Total Institutional - Bal-Beg-of-Qtr 30.568 27.177 26.726 25.320 25.223 23.201 Inflows 1.084 0.817 0.715 0.885 1.192 1.056 Withdrawals/Terminations (3.686) (1.874) (1.686) (1.936) (1.631) (0.613) Transfers (0.009) 0.001 (0.012) 0.008 0.022 0.002 ------- ------- ------- ------- ------- ------- Net Cash Flows (2.611) (1.056) (0.983) (1.043) (0.417) 0.445 Market (0.780) 0.605 (0.423) 0.947 (1.605) 0.568 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 27.177 26.726 25.320 25.223 23.201 24.214 ------- ------- ------- ------- ------- ------- Total Retail/Inst - At End-of-Qtr 58.712 56.986 55.998 53.354 48.207 50.738 ------- ------- ------- ------- ------- ------- Insurance Assets-End-of-Qtr 35.541 34.891 34.981 35.686 36.324 36.018 ------- ------- ------- ------- ------- ------- Total Assets Under Management ------- ------- ------- ------- ------- ------- At End-of-Qtr 94.253 91.877 90.979 89.040 84.531 86.756 ======= ======= ======= ======= ======= ======= (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. Net Cash Flows from Assets Under Administration are: 0.006 0.000 0.011 0.001 0.027 0.013 Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Retail Fixed - Bal-Beg-of-Qtr 6.769 7.208 7.120 7.088 7.169 7.516 Fund Sales 0.207 0.218 0.292 0.272 0.325 0.328 Redemptions (0.262) (0.242) (0.289) (0.306) (0.277) (0.311) Net Money Market 0.005 (0.031) (0.003) (0.002) (0.009) (0.035) Transfers 0.388 (0.027) (0.041) 0.021 0.134 0.092 ------- ------- ------- ------- ------- ------- Net Cash Flows(1) 0.338 (0.083) (0.041) (0.015) 0.174 0.074 Market 0.101 (0.004) 0.009 0.096 0.174 0.041 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 7.208 7.120 7.088 7.169 7.516 7.631 ------- ------- ------- ------- ------- ------- Retail Equity - Bal-Beg-of-Qtr 19.755 15.872 17.987 18.252 16.610 13.703 Fund Sales 0.638 0.580 0.908 1.084 1.140 1.345 Redemptions (0.653) (0.607) (0.791) (0.881) (1.137) (0.881) Net Money Market 0.000 0.000 0.000 0.000 0.000 0.000 Transfers (0.441) 0.019 0.014 (0.022) (0.128) (0.036) ------- ------- ------- ------- ------- ------- Net Cash Flows(1) (0.456) (0.008) 0.130 0.182 (0.126) 0.428 Market (3.427) 2.124 0.134 (1.824) (2.782) 0.787 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 15.872 17.987 18.252 16.610 13.703 14.917 ------- ------- ------- ------- ------- ------- Total Retail - Bal-Beg-of-Qtr 26.523 23.079 25.108 25.340 23.779 21.219 Retail Sales-Annuities 0.434 0.323 0.589 0.601 0.756 0.806 Retail Sales-Mutual Funds 0.336 0.348 0.452 0.562 0.416 0.399 Retail Sales-Managed Acct. & Other 0.074 0.127 0.159 0.194 0.293 0.469 ------- ------- ------- ------- ------- ------- Total Retail Sales 0.845 0.798 1.200 1.356 1.465 1.673 Redemptions (0.915) (0.850) (1.081) (1.186) (1.414) (1.192) Net Money Market 0.005 (0.031) (0.003) (0.002) (0.009) (0.035) Transfers (0.053) (0.009) (0.027) (0.001) 0.006 0.056 ------- ------- ------- ------- ------- ------- Net Cash Flows(1) (0.118) (0.091) 0.089 0.167 0.048 0.502 Market (3.326) 2.120 0.143 (1.728) (2.608) 0.827 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 23.079 25.107 25.340 23.779 21.219 22.547 ------- ------- ------- ------- ------- ------- ----------------------------------------------------------------------------------------------------- Institutional Fixed - Bal-Beg-of-Qtr 5.809 5.639 5.490 6.019 6.844 7.208 Inflows 0.020 0.080 0.804 0.663 0.530 0.283 Withdrawals/Terminations (0.493) (0.192) (0.239) (0.161) (0.308) (0.438) Transfers 0.001 0.002 (0.001) 0.000 0.007 (0.002) ------- ------- ------- ------- ------- ------- Net Cash Flows (0.472) (0.109) 0.565 0.503 0.229 (0.157) Market 0.302 (0.040) (0.036) 0.323 0.134 0.186 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 5.639 5.490 6.019 6.844 7.208 7.237 ------- ------- ------- ------- ------- ------- Institutional Equity - Bal-Beg-of-Qtr 18.405 16.240 17.814 18.642 18.118 14.935 Inflows 0.863 0.615 0.672 0.569 0.631 1.040 Withdrawals/Terminations (0.555) (0.624) (0.512) (0.635) (0.523) (0.322) Transfers 0.009 0.016 0.006 0.018 0.011 0.010 ------- ------- ------- ------- ------- ------- Net Cash Flows 0.317 0.007 0.167 (0.047) 0.119 0.728 Market (2.482) 1.567 0.661 (0.476) (3.302) 1.048 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 16.240 17.814 18.642 18.118 14.935 16.711 ------- ------- ------- ------- ------- ------- Total Institutional - Bal-Beg-of-Qtr 24.214 21.879 23.304 24.660 24.962 22.142 Inflows 0.883 0.696 1.476 1.232 1.162 1.323 Withdrawals/Terminations (1.048) (0.816) (0.751) (0.796) (0.831) (0.760) Transfers 0.010 0.018 0.006 0.019 0.017 0.008 ------- ------- ------- ------- ------- ------- Net Cash Flows (0.155) (0.103) 0.731 0.455 0.348 0.572 Market (2.180) 1.527 0.625 (0.153) (3.168) 1.234 ------- ------- ------- ------- ------- ------- Balance at End-of-Qtr 21.879 23.304 24.660 24.962 22.142 23.948 ------- ------- ------- ------- ------- ------- Total Retail/Inst - At End-of-Qtr 44.959 48.411 50.001 48.741 43.361 46.495 ------- ------- ------- ------- ------- ------- Insurance Assets-End-of-Qtr 37.337 38.119 37.171 38.476 40.416 41.104 ------- ------- ------- ------- ------- ------- Total Assets Under Management ------- ------- ------- ------- ------- ------- At End-of-Qtr 82.296 86.530 87.171 87.217 83.777 87.599 ======= ======= ======= ======= ======= ======= (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. Net Cash Flows from Assets Under Administration are: 0.007 0.034 0.090 0.061 0.045 0.067
PAGE 30 Lincoln UK Income Statements Unaudited [Millions of Dollars] For the Year Ended December 31 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Operating Revenue Premiums 156.6 145.1 148.4 46.1 50.6 Mortality assessments 29.3 27.1 31.4 33.9 32.4 Expense assessments 153.6 182.3 178.1 134.8 105.3 Other revenue and fees 11.2 13.8 2.6 (1.4) 24.9 Net investment income 87.9 75.3 70.3 64.8 62.1 ------- ------- ------- ------- ------- Operating Revenue 438.6 443.6 430.6 278.2 275.4 ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 151.0 306.2 178.5 83.4 84.2 Underwriting, acquisition, insurance and other expenses*: Commissions 52.6 54.5 37.7 10.8 6.1 Operating and administrative expenses 125.8 153.0 140.5 80.0 74.5 ------- ------- ------- ------- ------- Subtotal 178.5 207.4 178.2 90.8 80.6 Deferral of acquisition costs (4.2) (3.4) DAC amortization 35.8 50.0 ------- ------- ------- ------- ------- DAC deferral net of amortization (16.0) (12.4) (7.2) 31.7 46.5 PVIF amortization 13.2 28.4 4.7 22.5 30.8 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 175.6 223.5 175.7 145.0 157.9 Goodwill amortization 6.3 7.0 4.0 0.6 0.0 ------- ------- ------- ------- ------- Operating Benefits and Expenses 332.9 536.7 358.2 229.0 242.1 ------- ------- ------- ------- ------- Income from Operations Before Tax 105.8 (93.1) 72.4 49.2 33.3 Federal income taxes 34.8 (79.2) 11.3 (11.1) (3.7) ------- ------- ------- ------- ------- Income from Operations 70.9 (13.9) 61.0 60.2 37.0 ------- ------- ------- ------- ------- Realized gains (losses) on investments 0.8 2.1 2.3 8.7 1.3 Restructuring charges 0.0 (6.5) (76.5) 0.0 1.7 ------- ------- ------- ------- ------- Income before Accounting Changes 71.7 (18.2) (13.2) 68.9 40.0 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Net Income 71.7 (18.2) (13.2) 68.9 40.0 ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 77.2 (6.9) 65.1 60.9 37.0 Net Income -before Goodwill Amort. 78.0 (11.3) (9.2) 69.6 40.0 Effective tax rate 32.9% 85.1% 15.7% (22.5%) (11.2%) Operating revenue 438.6 443.6 430.6 278.2 275.4 Realized gains (losses) on investments 1.1 3.0 3.2 12.4 1.9 Gains(losses) on derivatives ------- ------- ------- ------- ------- Total Revenue 439.7 446.6 433.8 290.7 277.2 ======= ======= ======= ======= ======= Average capital 517.7 551.2 488.2 559.7 503.1 Return on average capital 13.7% (2.5%) 12.5% 10.8% 7.4% Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 635.0 587.3 Deferral 4.2 3.4 Amortization (35.8) (50.0) ------- ------- Operating (31.6) (46.6) Foreign currency translation adjustment (16.0) 56.9 Other 0.0 0.0 ------- ------- Balance at end-of-year 587.3 597.6 ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-year 273.6 244.0 Amortization (22.5) (30.7) Foreign currency translation adjustment (7.0) 24.1 Other ------- ------- Balance at end-of-year 244.0 237.4 ======= ======= * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 31 Lincoln UK Income Statements Unaudited [Millions of Dollars] For the Quarter Ended Mar Jun Sep Dec Mar Jun Sep 2000 2000 2000 2000 2001 2001 2001 ------- ------- ------- ------- ------- ------- ------- Operating Revenue Premiums 39.0 36.3 32.5 40.5 12.8 9.6 11.8 Mortality assessments 6.3 8.0 9.6 7.5 9.4 8.9 8.5 Expense assessments 46.5 44.3 52.6 34.6 43.7 31.4 35.5 Other revenue and fees 6.3 (3.4) (0.1) (0.3) 4.5 (5.4) 8.8 Net investment income 18.9 18.5 16.1 16.7 17.9 16.9 14.8 ------- ------- ------- ------- ------- ------- ------- Operating Revenue 117.1 103.7 110.8 99.0 88.3 61.4 79.5 ------- ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 35.0 37.4 51.9 54.2 24.0 17.9 20.7 Underwriting, acquisition, insurance and other expenses*: Commissions 13.8 11.1 9.3 3.5 3.0 3.3 2.6 Operating and administrative expenses 44.9 36.9 39.4 19.3 18.7 17.6 19.7 ------- ------- ------- ------- ------- ------- ------- Subtotal 58.8 48.0 48.7 22.7 21.7 20.9 22.3 Deferral of acquisition costs (0.9) (1.1) (1.3) DAC amortization 18.4 2.6 18.7 ------- ------- ------- ------- ------- ------- ------- DAC deferral net of amortization 0.3 (12.3) (6.7) 11.6 17.6 1.5 17.4 PVIF amortization 1.3 3.1 1.2 (0.9) 5.8 1.8 9.4 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 60.4 38.8 43.1 33.4 45.0 24.2 49.0 Goodwill amortization 1.3 1.3 1.2 0.2 0.2 0.2 0.2 ------- ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses 96.7 77.5 96.3 87.7 69.2 42.3 69.9 ------- ------- ------- ------- ------- ------- ------- Income from Operations Before Tax 20.4 26.2 14.5 11.3 19.1 19.1 9.6 Federal income taxes 4.7 6.9 3.9 (4.2) 4.7 2.9 (0.5) ------- ------- ------- ------- ------- ------- ------- Income from Operations 15.7 19.3 10.6 15.5 14.4 16.2 10.1 ------- ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (0.2) (0.1) (0.0) 2.6 0.4 1.4 3.9 Restructuring charges 0.0 0.0 (40.5) (36.1) 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Income before Accounting Changes 15.5 19.1 (29.9) (17.9) 14.8 17.6 14.0 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Net Income 15.5 19.1 (29.9) (17.9) 14.8 17.6 14.0 ======= ======= ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 17.1 20.5 11.8 15.7 14.5 16.4 10.3 Net Income -before Goodwill Amort. 16.8 20.4 (28.7) (17.8) 14.9 17.8 14.2 Effective tax rate 22.9% 26.4% 27.2% (37.1%) 24.6% 15.3% (5.7%) Operating revenue 117.1 103.7 110.8 99.0 88.3 61.4 79.5 Realized gains (losses) on investments (0.4) (0.2) (0.0) 3.8 0.6 2.0 5.5 ------- ------- ------- ------- ------- ------- ------- Total Revenue 116.8 103.5 110.7 102.8 88.8 63.4 85.0 ======= ======= ======= ======= ======= ======= ======= Average capital 516.4 500.8 486.5 448.9 548.7 553.2 575.4 Return on average capital 12.2% 15.4% 8.7% 13.8% 10.5% 11.7% 7.0% ---------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 635.0 585.1 583.4 Deferral 0.9 1.1 1.3 Amortization (18.4) (2.6) (18.7) ------- ------- ------- Operating (17.5) (1.5) (17.5) Foreign currency translation adjustment (32.4) (0.2) 23.8 Other ------- ------- ------- Balance at end-of-year 585.1 583.4 589.7 ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-year 273.6 253.8 251.9 Amortization (5.8) (1.8) (9.4) Foreign currency translation adjustment (14.0) (0.1) 10.3 Other ------- ------- ------- Balance at end-of-year 253.8 251.9 252.8 ======= ======= ======= For the Quarter Ended Dec Mar Jun Sep Dec 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- Operating Revenue Premiums 11.9 12.1 12.1 12.4 14.2 Mortality assessments 7.1 6.5 8.3 8.7 8.9 Expense assessments 24.1 25.3 27.8 29.4 22.8 Other revenue and fees (9.2) (0.2) 12.5 24.5 (11.9) Net investment income 15.2 14.7 15.2 15.6 16.6 ------- ------- ------- ------- ------- Operating Revenue 49.1 58.3 75.9 90.6 50.6 ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 20.8 18.3 19.0 23.8 23.1 Underwriting, acquisition, insurance and other expenses*: Commissions 1.9 1.3 1.9 1.6 1.3 Operating and administrative expenses 24.1 16.6 18.3 19.6 20.0 ------- ------- ------- ------- ------- Subtotal 25.9 17.9 20.2 21.1 21.3 Deferral of acquisition costs (0.9) (0.9) (1.0) (0.9) (0.6) DAC amortization (3.9) 6.7 21.0 33.8 (11.5) ------- ------- ------- ------- ------- DAC deferral net of amortization (4.8) 5.8 19.9 33.0 (12.1) PVIF amortization 5.6 0.7 11.7 12.8 5.5 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 26.8 24.4 51.8 66.9 14.7 Goodwill amortization 0.2 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Operating Benefits and Expenses 47.8 42.7 70.9 90.7 37.8 ------- ------- ------- ------- ------- Income from Operations Before Tax 1.4 15.6 5.1 (0.2) 12.8 Federal income taxes (18.1) 1.1 (1.6) (0.2) (3.1) ------- ------- ------- ------- ------- Income from Operations 19.5 14.4 6.7 (0.0) 15.9 ------- ------- ------- ------- ------- Realized gains (losses) on investments 3.0 (3.6) 3.2 0.9 0.8 Restructuring charges 0.0 0.0 0.0 0.0 1.7 ------- ------- ------- ------- ------- Income before Accounting Changes 22.5 10.8 9.8 0.8 18.5 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Net Income 22.5 10.8 9.8 0.8 18.5 ======= ======= ======= ======= ======= Inc from Oper -before Goodwill Amort. 19.7 14.4 6.7 (0.0) 15.9 Net Income -before Goodwill Amort. 22.7 10.8 9.8 0.8 18.5 Effective tax rate (1337.4%) 7.3% (31.3%) 88.2% (24.3%) Operating revenue 49.1 58.3 75.9 90.6 50.6 Realized gains (losses) on investments 4.3 (5.1) 4.5 1.2 1.2 ------- ------- ------- ------- ------- Total Revenue 53.4 53.2 80.5 91.8 51.8 ======= ======= ======= ======= ======= Average capital 561.3 510.0 485.3 500.3 516.9 Return on average capital 13.9% 11.3% 5.5% (0.0%) 12.3% ----------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 589.7 587.3 569.4 591.0 571.8 Deferral 0.9 0.9 1.0 0.9 0.6 Amortization 3.9 (6.7) (21.0) (33.8) 11.5 ------- ------- ------- ------- ------- Operating 4.9 (5.7) (20.1) (33.0) 12.1 Foreign currency translation adjustment (7.2) (12.2) 41.7 13.8 13.7 Other ------- ------- ------- ------- ------- Balance at end-of-year 587.3 569.4 591.0 571.8 597.6 ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-year 252.8 244.0 238.3 243.9 236.8 Amortization (5.6) (0.7) (11.7) (12.8) (5.5) Foreign currency translation adjustment (3.2) (5.1) 17.4 5.7 6.1 Other ------- ------- ------- ------- ------- Balance at end-of-year 244.0 238.3 243.9 236.8 237.4 ======= ======= ======= ======= ======= * Does not include restructuring charges which is consistent with the definition of "Income from Operations" (see page 5).
PAGE 32 Lincoln UK Operational Data Unaudited [Millions of Dollars] For the Year Ended December 31 1998 1999 2000 2001 2002 ------ ------ ------ ------ ------ Unit Linked Assets - Beg-of-Year (Billions) 5.643 6.265 7.220 6.441 5.607 Deposits 0.473 0.537 0.554 0.481 0.453 Withdrawals (incl. chgs) & Deaths (0.547) (0.566) (0.644) (0.529) (0.519) ------ ------ ------ ------ ------ Net Cash Flows (0.074) (0.029) (0.090) (0.048) (0.066) Inv Inc & Chg in Mkt Val 0.662 1.154 (0.154) (0.617) (1.004) Acq of new business/companies Foreign currency adjustment 0.035 (0.170) (0.536) (0.169) 0.542 ------ ------ ------ ------ ------ Unit Linked Assets - End-of-Year 6.265 7.220 6.441 5.607 5.079 ======= ======= ======= ======= ======= Individual Life In-force (Billions) 25.002 25.698 24.290 20.878 18.900 Exchange Rate - Dollars to Pounds For-the-Period 1.658 1.617 1.518 1.441 1.503 End-of-Period 1.660 1.615 1.493 1.456 1.610 For the Quarter Ended Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 ------ ------ ------ ------ ------ ----- Unit Linked Assets Balance-Beg-of-Quarter (Billions) 7.220 7.031 6.726 6.499 6.441 5.677 Deposits 0.159 0.134 0.145 0.116 0.132 0.111 Withdrawals (incl. chgs) & Deaths (0.170) (0.162) (0.159) (0.153) (0.147) (0.131) ------ ------ ------ ------ ------ ----- Net Cash Flows (0.011) (0.028) (0.014) (0.037) (0.015) (0.020) Inv Inc & Chg in Mkt Val (0.077) 0.047 (0.025) (0.100) (0.421) 0.115 Acq of new business/companies Foreign currency adjustment (0.101) (0.324) (0.189) 0.078 (0.328) (0.004) ------ ------ ------ ------ ------ ----- Unit Linked Assets - End-of-Quarter 7.031 6.726 6.499 6.441 5.677 5.768 ======= ======= ======= ======= ======= ======= Individual Life In-force (Billions) 26.514 25.225 24.535 24.290 21.894 21.519 Exchange Rate - Dollars to Pounds For-the-Quarter 1.599 1.536 1.482 1.454 1.455 1.421 End-of-Quarter 1.591 1.517 1.475 1.493 1.416 1.415 For the Quarter Ended Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 ------ ------ ------ ------ ------ ----- Unit Linked Assets Balance-Beg-of-Quarter (Billions) 5.768 5.218 5.607 5.618 5.520 4.825 Deposits 0.128 0.111 0.114 0.115 0.119 0.104 Withdrawals (incl. chgs) & Deaths (0.136) (0.115) (0.127) (0.137) (0.126) (0.129) ------ ------ ------ ------ ------ ----- Net Cash Flows (0.009) (0.004) (0.013) (0.022) (0.006) (0.025) Inv Inc & Chg in Mkt Val (0.768) 0.457 0.141 (0.479) (0.812) 0.146 Acq of new business/companies Foreign currency adjustment 0.226 (0.063) (0.117) 0.403 0.123 0.133 ------ ------ ------ ------ ------ ----- Unit Linked Assets - End-of-Quarter 5.218 5.607 5.618 5.520 4.825 5.079 ======= ======= ======= ======= ======= ======= Individual Life In-force (Billions) 21.299 20.878 20.010 20.401 19.815 18.900 Exchange Rate - Dollars to Pounds For-the-Quarter 1.442 1.448 1.423 1.464 1.555 1.570 End-of-Quarter 1.474 1.456 1.426 1.532 1.569 1.610
PAGE 33 Other Operations Unaudited [Millions of Dollars] For the Year Ended December 31 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Revenue Lincoln Financial Advisors 286.4 317.0 377.5 360.7 318.0 Lincoln Financial Distributors 33.5 107.5 119.9 113.4 127.3 ------- ------- ------- ------- ------- Total Distribution 319.9 424.4 497.4 474.0 445.4 Reinsurance 1581.2 1824.1 1770.6 1699.4 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 0.0 20.4 75.2 Other [Including Consolidating Adjustments] (192.7) (277.5) (292.6) (360.4) (151.8) ------- ------- ------- ------- ------- Operating Revenue 1708.3 1971.0 1975.4 1833.4 368.8 ------- ------- ------- ------- ------- Realized gains (losses) on investments 0.5 14.4 (5.0) 8.2 24.8 Gains (losses) on derivatives 0.0 0.0 0.0 (9.7) 0.9 Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 12.8 (8.3) ------- ------- ------- ------- ------- Total Revenue 1708.9 1985.4 1970.4 1844.7 386.3 ======= ======= ======= ======= ======= Income (Loss) Lincoln Financial Advisors (23.7) (20.8) (11.7) (15.9) (27.6) Lincoln Financial Distributors (8.2) (14.0) (18.5) (30.7) (33.9) ------- ------- ------- ------- ------- Total Distribution (31.9) (34.8) (30.2) (46.6) (61.5) Reinsurance 104.9 40.1 122.5 128.8 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 0.0 12.9 48.9 LNC Financing (51.5) (83.5) (84.9) (77.9) (43.0) Other Corporate (17.5) (5.0) (15.4) (2.4) 4.7 ------- ------- ------- ------- ------- Inc (Loss) from Operations 4.0 (83.1) (8.0) 14.8 (50.8) ------- ------- ------- ------- ------- Realized gains (losses) on investments 2.7 10.2 (3.2) 5.9 16.7 Gains (losses) on derivatives 0.0 0.0 0.0 (6.3) 0.6 Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 15.0 (9.4) Reserve increase on business sold through reinsurance 0.0 0.0 0.0 0.0 (199.1) Restructuring charges (14.3) (3.2) 1.0 (19.5) 1.1 ------- ------- ------- ------- ------- Income before Accounting Changes (7.6) (76.1) (10.2) 9.9 (240.9) Cumulative effect of accounting changes 0.0 0.0 0.0 (2.7) 0.0 ------- ------- ------- ------- ------- Total Net Income (Loss) (7.6) (76.1) (10.2) 7.2 (240.9) ======= ======= ======= ======= ======= Mar Jun Sep Dec Mar Jun For the Quarter Ended 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Revenue Lincoln Financial Advisors 86.4 90.0 91.3 109.8 81.2 83.8 Lincoln Financial Distributors 29.3 28.1 27.5 35.0 25.7 20.7 ------- ------- ------- ------- ------- ------- Total Distribution 115.8 118.1 118.8 144.8 106.9 104.5 Reinsurance 392.7 458.9 457.9 461.0 515.1 451.4 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 0.0 0.0 0.0 0.0 Other [Including Consolidating Adjustments] (67.6) (86.7) (79.2) (59.2) (80.5) (105.2) ------- ------- ------- ------- ------- ------- Operating Revenue 440.9 490.3 497.5 546.6 541.5 450.7 ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (0.8) (1.3) (3.4) 0.4 (10.0) 1.4 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.1 (0.1) Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Total Revenue 440.2 489.0 494.1 547.0 531.6 452.0 ======= ======= ======= ======= ======= ======= Income (Loss) Lincoln Financial Advisors (7.4) (2.9) (3.1) 1.6 (6.8) (12.3) Lincoln Financial Distributors (3.3) (5.2) (5.0) (5.1) (6.9) (11.5) ------- ------- ------- ------- ------- ------- Total Distribution (10.7) (8.1) (8.0) (3.4) (13.8) (23.8) Reinsurance 31.9 25.8 28.2 36.6 46.8 34.1 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 0.0 0.0 0.0 0.0 LNC Financing (21.9) (22.2) (20.9) (19.8) (21.7) (22.0) Other Corporate (5.7) (1.5) 1.6 (9.8) (0.5) 2.0 ------- ------- ------- ------- ------- ------- Inc (Loss) from Oper (6.5) (5.9) 0.9 3.5 10.9 (9.7) ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (0.4) (0.8) (3.2) 1.2 (6.5) 1.0 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.1 (0.1) Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 0.0 0.0 0.0 Reserve increase on business sold through reinsurance 0.0 0.0 0.0 0.0 0.0 0.0 Restructuring charges 0.0 0.0 0.0 1.0 0.0 (1.2) ------- ------- ------- ------- ------- ------- Income before Accounting Changes (6.8) (6.8) (2.3) 5.7 4.4 (10.0) Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 (0.4) (2.2) ------- ------- ------- ------- ------- ------- Total Net Income (Loss) (6.8) (6.8) (2.3) 5.7 4.0 (12.2) ======= ======= ======= ======= ======= ======= Sep Dec Mar Jun Sep Dec For the Quarter Ended 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Revenue Lincoln Financial Advisors 78.9 116.7 75.9 78.1 74.4 89.6 Lincoln Financial Distributors 32.0 35.0 29.4 29.3 31.8 36.9 ------- ------- ------- ------- ------- ------- Total Distribution 111.0 151.7 105.3 107.4 106.2 126.5 Reinsurance 467.4 265.6 0.0 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 20.4 24.1 22.1 22.1 6.9 Other [Including Consolidating Adjustments] (76.0) (98.7) (32.2) (33.4) (65.6) (20.5) ------- ------- ------- ------- ------- ------- Operating Revenue 502.3 339.0 97.1 96.1 62.7 112.9 ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (12.8) 29.5 (4.9) (3.8) 31.8 1.7 Gains (losses) on derivatives (0.0) (9.7) 0.1 (0.1) 0.6 0.3 Gain on sale of reinsurance subsidiaries 0.0 12.8 0.0 0.0 0.0 (8.3) ------- ------- ------- ------- ------- ------- Total Revenue 489.5 371.7 92.3 92.2 95.1 106.7 ======= ======= ======= ======= ======= ======= Income (Loss) Lincoln Financial Advisors (4.2) 7.4 (9.1) (7.7) (8.0) (2.7) Lincoln Financial Distributors (7.8) (4.5) (6.2) (7.3) (12.7) (7.7) ------- ------- ------- ------- ------- ------- Total Distribution (12.0) 3.0 (15.4) (15.0) (20.7) (10.4) Reinsurance 17.2 30.7 0.0 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 12.9 15.7 14.4 14.4 4.5 LNC Financing (19.5) (14.7) (8.2) (9.6) (11.6) (13.5) Other Corporate 1.5 (5.3) (4.1) 2.9 0.7 5.2 ------- ------- ------- ------- ------- ------- Inc (Loss) from Oper (12.9) 26.5 (12.0) (7.3) (17.2) (14.3) ------- ------- ------- ------- ------- ------- Realized gains (losses) on investments (8.3) 19.7 (3.3) (2.4) 21.6 0.8 Gains (losses) on derivatives (0.0) (6.3) 0.1 (0.1) 0.4 0.2 Gain on sale of reinsurance subsidiaries 0.0 15.0 0.0 0.0 0.0 (9.4) Reserve increase on business sold through reinsurance 0.0 0.0 0.0 (14.4) (176.4) (8.2) Restructuring charges 0.0 (18.3) 0.0 0.0 1.1 0.0 ------- ------- ------- ------- ------- ------- Income before Accounting Changes (21.2) 36.7 (15.2) (24.2) (170.6) (31.0) Cumulative effect of accounting changes 0.0 (0.0) 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- Total Net Income (Loss) (21.2) 36.7 (15.2) (24.2) (170.6) (31.0) ======= ======= ======= ======= ======= ======= * The amortization of deferred gain on sale of reinsurance business represents the amortization of deferred gain recognized on the business sold through indemnity reinsurance to Swiss Re.
PAGE 34 Consolidated Domestic Retail Deposits/Account Balances Unaudited [Billions of Dollars] 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Deposits - For the Year Lincoln Retirement - Fixed Annuities 1.452 2.563 2.074 3.342 3.672 Lincoln Retirement - Variable Annuities 2.791 2.553 3.165 3.067 2.743 Lincoln Retirement - Life Insurance 0.000 0.017 0.014 0.012 Life Insurance Segment - Life Insurance 1.207 1.698 1.884 1.934 2.138 Inv Mgmt - Annuities 2.240 1.561 1.782 1.701 2.751 Inv Mgmt - Mutual Funds(1) 1.912 2.151 2.577 1.523 1.829 Inv Mgmt - Wrap Fee & Other 0.595 0.549 0.525 0.469 1.115 Consolidating Adjustments (1.041) (0.499) (0.406) (1.039) (1.464) ------- ------- ------- ------- ------- Gross Deposits 9.157 10.593 11.616 11.009 12.783 Account Balances - End of Year Lincoln Retirement - Fixed Annuities 16.505 16.791 15.394 16.491 18.085 Lincoln Retirement - Variable Annuities 33.358 41.493 39.427 34.638 27.438 Lincoln Retirement - Life Insurance 0.155 0.160 0.149 Life Insurance Segment - Life Insurance 9.243 10.217 10.847 11.377 12.086 Inv Mgmt - Annuities 14.257 15.557 13.527 11.835 9.981 Inv Mgmt - Mutual Funds(1) 13.528 13.632 13.261 11.552 10.297 Inv Mgmt - Wrap Fee & Other 2.512 1.618 1.342 1.719 2.270 Consolidating Adjustments (8.891) (9.175) (7.753) (6.717) (5.100) ------- ------- ------- ------- ------- Account Balances 80.512 90.288 86.205 81.044 75.057 Mar Jun Sep Dec Mar Jun 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Deposits - For the Quarter Lincoln Retirement - Fixed Annuities 0.589 0.490 0.513 0.482 0.560 0.668 Lincoln Retirement - Variable Annuities 0.797 0.793 0.729 0.846 0.887 0.703 Lincoln Retirement - Life Insurance 0.003 0.003 0.004 0.004 0.003 0.004 Life Insurance Segment - Life Insurance 0.424 0.411 0.428 0.622 0.418 0.477 Inv Mgmt - Annuities 0.379 0.358 0.456 0.589 0.540 0.403 Inv Mgmt - Mutual Funds(1) 0.875 0.586 0.554 0.563 0.483 0.355 Inv Mgmt - Managed Acct. & Other 0.148 0.106 0.140 0.131 0.142 0.127 Consolidating Adjustments (0.099) (0.062) (0.100) (0.145) (0.262) (0.202) ------- ------- ------- ------- ------- ------- Gross Deposits 3.115 2.685 2.724 3.092 2.770 2.535 ------- ------- ------- ------- ------- ------- Account Balances - End of Quarter Lincoln Retirement - Fixed Annuities 16.244 15.884 15.660 15.394 15.430 15.551 Lincoln Retirement - Variable Annuities 44.640 43.097 42.743 39.427 34.733 36.961 Lincoln Retirement - Life Insurance 0.169 0.165 0.166 0.160 0.147 0.157 Life Insurance Segment - Life Insurance 10.470 10.538 10.716 10.847 10.764 11.066 Inv Mgmt - Annuities 15.557 14.888 14.853 13.527 11.822 12.532 Inv Mgmt - Mutual Funds(1) 14.671 14.069 14.571 13.261 11.530 12.215 Inv Mgmt - Managed Acct. & Other 1.309 1.304 1.256 1.342 1.653 1.774 Consolidating Adjustments (8.768) (8.419) (8.644) (7.753) (6.834) (7.007) ------- ------- ------- ------- ------- ------- Account Balances 94.292 91.526 91.322 86.205 79.245 83.250 ------- ------- ------- ------- ------- ------- Sep Dec Mar Jun Sep Dec 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Deposits - For the Quarter Lincoln Retirement - Fixed Annuities 0.896 1.218 0.906 0.853 1.090 0.822 Lincoln Retirement - Variable Annuities 0.684 0.793 0.808 0.787 0.603 0.545 Lincoln Retirement - Life Insurance 0.003 0.002 Life Insurance Segment - Life Insurance 0.434 0.605 0.440 0.577 0.484 0.636 Inv Mgmt - Annuities 0.434 0.323 0.589 0.601 0.756 0.806 Inv Mgmt - Mutual Funds(1) 0.336 0.348 0.452 0.562 0.416 0.399 Inv Mgmt - Managed Acct. & Other 0.074 0.127 0.159 0.194 0.293 0.469 Consolidating Adjustments (0.295) (0.279) (0.309) (0.371) (0.504) (0.281) ------- ------- ------- ------- ------- ------- Gross Deposits 2.567 3.137 3.045 3.203 3.139 3.396 ------- ------- ------- ------- ------- ------- Account Balances - End of Quarter Lincoln Retirement - Fixed Annuities 16.051 16.491 16.533 16.909 17.650 18.085 Lincoln Retirement - Variable Annuities 30.506 34.638 35.150 31.206 25.942 27.438 Lincoln Retirement - Life Insurance 0.134 0.149 Life Insurance Segment - Life Insurance 10.939 11.377 11.667 11.759 11.726 12.086 Inv Mgmt - Annuities 10.714 11.835 11.920 10.896 9.327 9.981 Inv Mgmt - Mutual Funds(1) 10.726 11.552 11.597 11.033 10.069 10.297 Inv Mgmt - Managed Acct. & Other 1.635 1.719 1.821 1.847 1.820 2.270 Consolidating Adjustments (6.023) (6.717) (6.684) (6.007) (4.875) (5.100) ------- ------- ------- ------- ------- ------- Account Balances 74.682 81.044 82.005 77.644 71.658 75.057 ------- ------- ------- ------- ------- ------- Total Domestic Net Flows Unaudited [Billions of Dollars] For the Year 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Lincoln Retirement (1.244) (1.244) (1.165) 0.105 0.453 Life Insurance Segment 0.113 0.113 0.985 1.163 1.320 Investment Management Segment- Retail(1) 1.772 1.772 (2.209) (0.375) 0.806 Consolidating Adjustments (0.158) 1.276 1.406 (0.150) 0.008 ------- ------- ------- ------- ------- Total Retail Net Flows 0.483 0.483 (1.114) 0.742 2.587 Investment Management Segment- Institutional (2.702) (2.240) (5.694) (0.228) 2.106 ------- ------- ------- ------- ------- Total Net Flows (2.219) (2.219) (3.354) 0.514 4.693 ------- ------- ------- ------- ------- Mar Jun Sep Dec Mar Jun For the Quarter 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Lincoln Retirement (0.700) (0.682) (0.812) (0.681) (0.590) (0.196) Life Insurance Segment 0.242 0.235 0.277 0.404 0.237 0.304 Investment Management Segment- Retail(1) (0.880) (0.364) (0.315) 0.059 (0.021) (0.146) Consolidating Adjustments 0.717 0.343 0.193 0.151 0.019 (0.034) ------- ------- ------- ------- ------- ------- Total Retail Net Flows (0.620) (0.468) (0.657) (0.066) (0.355) (0.072) Investmenagement Segment- Instit. (2.611) (1.056) (0.983) (1.043) (0.417) 0.445 ------- ------- ------- ------- ------- ------- Total Net Flows (3.231) (1.524) (1.640) (1.110) (0.773) 0.372 ------- ------- ------- ------- ------- ------- Sep Dec Mar Jun Sep Dec For the Quarter 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Lincoln Retirement 0.261 0.631 0.088 0.223 0.068 0.074 Life Insurance Segment 0.239 0.383 0.236 0.385 0.297 0.402 Investment Management Segment- Retail(1) (0.118) (0.091) 0.089 0.167 0.048 0.502 Consolidating Adjustments (0.081) (0.053) (0.037) (0.086) 0.049 0.082 ------- ------- ------- ------- ------- ------- Total Retail Net Flows 0.300 0.869 0.377 0.688 0.462 1.060 Investmenagement Segment- Instit. (0.155) (0.103) 0.731 0.455 0.348 0.572 ------- ------- ------- ------- ------- ------- Total Net Flows 0.145 0.767 1.108 1.143 0.810 1.632 ------- ------- ------- ------- ------- ------- NOTE: Excludes amounts reported as Assets Under Management - Insurance Assets (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. See details on pages 28 and 29.
PAGE 35 Consolidated Investment Data - Assets Managed Unaudited [Billions of Dollars] December 31 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Assets Managed by Source LNC's Investments and Cash: Fixed maturity securities 30.233 27.689 27.450 28.346 32.767 Equity securities 0.543 0.604 0.550 0.470 0.337 Other investments 7.154 7.286 7.369 7.297 6.897 ------- ------- ------- ------- ------- Total LNC Investments(1) 37.929 35.578 35.369 36.113 40.002 Separate accounts 43.409 53.654 50.580 44.833 36.178 Cash and Invested Cash 2.433 1.896 1.927 3.095 1.691 Discontinued Operations ------- ------- ------- ------- ------- Total LNC 83.772 91.128 87.876 84.042 77.871 ------- ------- ------- ------- ------- Non-affiliate assets managed 50.061 49.314 43.397 42.199 41.256 ------- ------- ------- ------- ------- Total Assets Managed 133.833 140.443 131.273 126.241 119.127 ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 61.488 61.374 53.354 48.411 46.495 (See page 22 for additional detail) DLIA-Corp 39.432 35.934 35.686 38.119 41.104 (Assets managed internally-see page 22) Lincoln (UK) 7.573 8.589 7.873 6.847 6.351 Policy Loans (within business units) 1.840 1.892 1.961 1.940 1.946 Non-LNC Affiliates 23.500 32.654 32.399 30.924 23.232 ------- ------- ------- ------- ------- Total Assets Managed 133.833 140.443 131.273 126.241 119.127 ======= ======= ======= ======= ======= Mar Jun Sep Dec Mar Jun End of Quarter 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Assets Managed by Source LNC's Investments and Cash: Fixed maturity securities 27.745 27.078 27.264 27.450 27.811 27.874 Equity securities 0.588 0.560 0.570 0.550 0.560 0.534 Other investments 7.442 7.419 7.471 7.369 7.374 7.388 ------- ------- ------- ------- ------- ------- Total LNC Investments(1) 35.775 35.057 35.305 35.369 35.744 35.796 Separate accounts 56.908 54.924 54.411 50.580 44.506 47.140 Cash and invested cash 1.510 1.619 1.436 1.927 2.015 1.502 ------- ------- ------- ------- ------- ------- Total LNC 94.192 91.601 91.152 87.876 82.266 84.438 ------- ------- ------- ------- ------- ------- Non-affiliate assets managed 47.150 45.945 45.119 43.397 41.904 44.069 ------- ------- ------- ------- ------- ------- Total Assets Managed 141.342 137.546 136.271 131.273 124.170 128.507 ======= ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 58.712 56.986 55.998 53.355 48.208 50.736 (See page 23 for additional detail) DLIA-Corp 35.541 34.891 34.981 35.686 36.324 36.018 (Assets managed internally-see page 23) Lincoln (UK) 8.423 8.058 7.838 7.873 7.012 7.027 Policy Loans (within business units) 1.896 1.915 1.936 1.961 1.947 1.947 Non-LNC Affiliates 36.770 35.696 35.518 32.397 30.680 32.778 ------- ------- ------- ------- ------- ------- Total Assets Managed 141.342 137.546 136.271 131.273 124.170 128.507 ======= ======= ======= ======= ======= ======= Sep Dec Mar Jun Sep Dec End of Quarter 2001 2001 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Assets Managed by Source LNC's Investments and Cash: Fixed maturity securities 28.932 28.346 28.841 29.725 32.037 32.767 Equity securities 0.478 0.470 0.439 0.419 0.397 0.337 Other investments 7.379 7.297 7.084 7.016 6.928 6.897 ------- ------- ------- ------- ------- ------- Total LNC Investments(1) 36.788 36.113 36.363 37.160 39.363 40.002 Separate accounts 39.480 44.833 44.917 40.580 34.069 36.178 Cash and invested cash 1.996 3.095 1.700 2.265 1.600 1.691 ------- ------- ------- ------- ------- ------- Total LNC 78.264 84.042 82.979 80.005 75.031 77.871 ------- ------- ------- ------- ------- ------- Non-affiliate assets managed 39.198 42.199 43.708 43.031 38.506 41.256 ------- ------- ------- ------- ------- ------- Total Assets Managed 117.462 126.241 126.687 123.036 113.538 119.127 ======= ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 44.957 48.412 50.001 48.738 43.357 46.495 (See page 23 for additional detail) DLIA-Corp 37.337 38.119 37.171 38.476 40.416 46.495 (Assets managed internally-see page 23) Lincoln (UK) 6.474 6.847 6.772 6.753 6.068 41.104 Policy Loans (within business units) 1.943 1.940 1.918 1.906 1.899 1.946 Non-LNC Affiliates 26.751 30.923 30.825 27.163 21.798 23.232 ------- ------- ------- ------- ------- ------- Total Assets Managed 117.462 126.241 126.687 123.036 113.538 119.127 ======= ======= ======= ======= ======= ======= (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. See details on pages 28 and 29.
PAGE 36 Consolidated Investment Data Unaudited [Millions of Dollars except as noted] For the Year Ended December 31 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Net Investment Income Fixed Maturity Securities 2065.8 2232.9 2148.7 2121.0 2118.2 Equity Securities 22.8 20.1 19.5 17.6 15.4 Mortgage loans on real estate 383.6 369.2 373.8 374.5 356.8 Real estate 86.8 64.1 51.8 49.5 47.4 Policy loans 99.5 116.5 125.0 125.3 134.5 Invested cash 156.8 110.3 87.2 68.4 36.4 Other investments 88.4 51.8 66.8 69.5 16.3 ------- ------- ------- ------- ------- Investment revenue 2903.7 2964.8 2872.8 2825.8 2725.0 Investment expense (222.3) (157.3) (125.7) (146.2) (116.7) ------- ------- ------- ------- ------- Net Investment Income 2681.4 2807.5 2747.1 2679.6 2608.3 ------- ------- ------- ------- ------- Gross-up of Tax Exempt Income 11.6 8.1 7.8 7.2 7.5 ------- ------- ------- ------- ------- Adjusted Net Invest Income 2693.0 2815.6 2754.9 2686.8 2615.8 ======= ======= ======= ======= ======= Mean Invested Assets (Cost Basis) 36573.8 39027.5 37471.3 37616.9 38828.5 Ratio of Adjusted Net Invest Inc Over Mean Invested Assets 7.36% 7.21% 7.35% 7.14% 6.74% Investment Gains Realized Gains (Losses) on Investments 13.7 3.8 (17.5) (68.7) (177.2) Gains(Losses) on Derivatives 0.0 0.0 0.0 (4.9) 0.8 Incr (Decr) in Unreal Gains on Sec Avail-for-Sale (after DAC/Tax) 116.4 (1018.1) 477.7 183.7 616.3 Incr (Decr) on Derivatives* 21.4 24.4 Incr (Decr) in Foreign Exchange 3.8 (19.9) (8.1) (30.0) (58.8) Incr (Decr) in minimum pension liability (36.0) 61.9 Securities Available-for-Sale [Billions of Dollars at End of Year] Fixed Maturity Sec (Market) 30.233 27.689 27.450 28.346 32.767 Fixed Maturity Sec (Adjusted Cost) 28.640 28.357 27.373 27.956 32.379 Equity Securities (Market) 0.543 0.604 0.550 0.470 0.337 Equity Securities (Adjusted Cost) 0.437 0.482 0.458 0.444 0.326 % of Fixed Maturity Securities (Based on Market) Treasuries and AAA 25.6% 22.8% 22.1% 17.2% 20.1% AA or better 32.6% 29.8% 29.2% 23.6% 25.8% BB or less 7.0% 8.0% 6.7% 8.3% 6.6% --------------------------------------------------------------------------------------------------- For the Quarter Ended Mar Jun Sep Dec Mar Jun 2000 2000 2000 2001 2001 2001 ------- ------- ------- ------- ------- ------- Net Investment Income Fixed Maturity Securities 541.3 544.4 525.3 537.7 526.9 527.0 Equity Securities 3.7 5.7 3.6 6.5 1.0 7.8 Mortgage loans on real estate 92.0 95.1 94.4 92.3 95.7 92.4 Real estate 11.2 12.5 11.8 16.3 12.8 13.1 Policy loans 30.7 30.9 30.5 32.9 31.4 31.4 Invested cash 27.2 15.1 26.5 18.4 22.5 19.8 Other investments 35.1 2.0 26.9 2.9 19.6 18.2 ------- ------- ------- ------- ------- ------- Investment revenue 741.1 705.7 719.1 706.9 709.9 709.7 Investment expense (30.0) (31.8) (29.0) (34.8) (36.1) (36.6) ------- ------- ------- ------- ------- ------- Net Investment Income 711.1 673.8 690.0 672.1 673.7 673.1 ------- ------- ------- ------- ------- ------- Gross-up of Tax Exempt Income 1.5 2.3 1.4 2.6 0.5 3.0 ------- ------- ------- ------- ------- ------- Adjusted Net Invest Income 712.6 676.1 691.5 674.7 674.2 676.1 ======= ======= ======= ======= ======= ======= Mean Invested Assets (Cost Basis) 38237.4 37306.1 37250.8 37090.8 37238.0 37094.5 Ratio of Adjusted Net Invest Inc Over Mean Invested Assets 7.45% 7.25% 7.43% 7.28% 7.24% 7.29% Investment Gains Realized Gains (Losses) on Investments (0.4) (6.7) (11.6) 1.2 (13.4) (11.5) Gains (Losses) on Derivatives 0.0 0.0 0.0 0.0 (0.1) 0.2 Incr (Decr) in Unreal Gains on Sec Avail-for-Sale (after DAC/Tax) 54.5 (145.4) 218.8 349.8 178.4 (114.2) Incr (Decr) on Derivatives* 23.3 3.7 Incr (Decr) in Foreign Exchange (7.3) (0.9) (2.0) 2.0 (17.8) (19.5) Incr (Decr) in minimum pension liability Securities Available-for-Sale [Billions of Dollars at End of Year] Fixed Maturity Sec (Market) 27.745 27.078 27.264 27.450 27.811 27.874 Fixed Maturity Sec (Adjusted Cost) 28.295 27.788 27.727 27.373 27.367 27.681 Equity Securities (Market) 0.588 0.560 0.570 0.550 0.560 0.534 Equity Securities (Adjusted Cost) 0.475 0.446 0.450 0.458 0.507 0.477 % of Fixed Maturity Securities (Based on Market) Treasuries and AAA 22.7% 22.3% 22.3% 22.1% 20.3% 19.3% AA or better 29.5% 29.3% 29.4% 29.2% 27.1% 26.0% BB or less 7.4% 7.4% 6.8% 6.7% 7.2% 7.8% For the Quarter Ended Sep Dec Mar Jun Sep Dec 2001 2002 2002 2002 2002 2002 ------- ------- ------- ------- ------- ------- Net Investment Income Fixed Maturity Securities 536.9 530.1 522.5 523.8 533.7 538.1 Equity Securities 3.7 5.1 3.4 4.3 2.7 5.1 Mortgage loans on real estate 94.2 92.4 89.5 90.2 90.8 86.4 Real estate 12.7 10.9 12.3 11.9 10.0 13.2 Policy loans 31.0 31.6 30.2 31.1 31.1 42.0 Invested cash 14.8 11.3 12.4 9.1 7.9 7.0 Other investments 28.2 3.5 7.8 9.8 (1.2) (0.1) ------- ------- ------- ------- ------- ------- Investment revenue 721.4 684.8 678.1 680.2 675.0 691.7 Investment expense (35.2) (38.2) (29.9) (29.2) (28.0) (29.6) ------- ------- ------- ------- ------- ------- Net Investment Income 686.2 646.6 648.1 651.0 647.0 662.2 ------- ------- ------- ------- ------- ------- Gross-up of Tax Exempt Income 1.5 2.1 1.5 2.0 1.5 2.6 ------- ------- ------- ------- ------- ------- Adjusted Net Invest Income 687.7 648.7 649.6 653.0 648.5 664.7 ======= ======= ======= ======= ======= ======= Mean Invested Assets (Cost Basis) 37685.8 38449.3 38169.9 38235.5 39175.8 39733.1 Ratio of Adjusted Net Invest Inc Over Mean Invested Assets 7.30% 6.75% 6.81% 6.83% 6.62% 6.69% Investment Gains Realized Gains (Losses) on Investments (23.8) (20.0) (67.6) (52.7) (23.6) (33.3) Gains (Losses) on Derivatives (0.4) (4.6) 0.1 0.3 0.2 0.2 Incr (Decr) in Unreal Gains on Sec Avail-for-Sale (after DAC/Tax) 171.8 (52.2) (163.9) 293.8 491.9 (5.6) Incr (Decr) on Derivatives* (6.7) 1.2 1.2 0.0 4.6 1.0 Incr (Decr) in Foreign Exchange 22.2 (14.9) (12.8) 42.8 13.4 15.4 Incr (Decr) in minimum pension liability (36.0) 0.7 (2.6) 2.6 (62.6) Securities Available-for-Sale [Billions of Dollars at End of Year] Fixed Maturity Sec (Market) 28.932 28.346 28.841 29.725 32.037 32.767 Fixed Maturity Sec (Adjusted Cost) 28.253 27.956 30.117 30.420 31.706 32.379 Equity Securities (Market) 0.478 0.470 0.439 0.419 0.397 0.337 Equity Securities (Adjusted Cost) 0.453 0.444 0.398 0.374 0.374 0.326 % of Fixed Maturity Securities (Based on Market) Treasuries and AAA 17.9% 17.2% 17.8% 18.2% 20.0% 20.1% AA or better 24.3% 23.6% 24.7% 25.0% 26.7% 25.8% BB or less 7.2% 8.3% 7.5% 6.4% 6.6% 6.6% * 2001 includes the cumulative effect of accounting change related to the adjustment recorded upon adoption of FAS #133.
PAGE 37 Common Stock / Debt Information Unaudited [Dollars per Share, except Percentages] For the Year Ended December 31 1992 1993 1994 1995 1996 ------- ------- ------- ------- ------- Common Stock [1] Highest Price 19.032 24.125 22.188 26.875 28.500 Lowest Price 12.625 17.344 17.313 17.313 20.375 ------- ------- ------- ------- ------- Closing Price 18.500 21.750 17.500 26.875 26.250 ------- ------- ------- ------- ------- Dividend Payout Ratio [2] 38.9% 52.6% 51.0% 39.7% 38.2% Yield [3] 4.1% 3.8% 4.9% 3.4% 3.7% Preferred Stock Dividend (Millions) 17.246 17.212 17.119 8.644 0.112 Debt: (End of Period) Senior Debt Ratings A.M. Best Fitch AA AA- AA- AA- AA- Moody's A2 A2 A1 A2 A2 Standard and Poors A+ A+ A+ A A Claims Paying Ratings: Lincoln Life - A.M. Best A+ A+ A+ A+ A+ Lincoln Life - Fitch AAA AAA AAA AA+ AA+ Lincoln Life - Moody's A1 A1 Aa3 Aa3 Aa3 Lincoln Life - Standard & Poors AA- AA- AA- AA- AA- First Penn - A.M. Best* A A+ A+ A+ A+ First Penn - Fitch First Penn - Moody's First Penn - Standard & Poors* AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A+ LLA of New York - Fitch* LLA of New York - Moody's A1 LLA of New York - Standard & Poors* AA- Ratios Debt to Total Capitalization [4] 25.7% 21.1% 19.9% 22.8% 18.8% Debt to Equity [4] 34.7% 26.7% 24.9% 29.5% 23.1% For the Year Ended December 31 1997 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- ------- Common Stock [1] Highest Price 39.063 49.438 57.500 56.375 52.750 53.650 Lowest Price 24.500 33.500 36.000 22.625 38.000 25.150 ------- ------- ------- ------- ------- ------- Closing Price 39.063 40.907 40.000 47.313 48.570 31.580 ------- ------- ------- ------- ------- ------- Dividend Payout Ratio [2] 22.8% 43.9% 50.5% 38.3% 41.9% 273.5% Yield [3] 2.7% 2.7% 2.9% 2.6% 2.6% 4.2% Preferred Stock Dividend (Millions) 0.106 0.100 0.089 0.078 0.071 0.061 Debt: (End of Period) Senior Debt Ratings A.M. Best a a a Fitch AA- A+ A+ A+ A+ A Moody's A2 A2 A2 A3 A3 A3 Standard and Poors A A- A- A- A- A- Claims Paying Ratings: Lincoln Life - A.M. Best A+ A A A A A+ Lincoln Life - Fitch AA+ AA+ AA+ AA AA AA Lincoln Life - Moody's Aa3 Aa3 Aa3 Aa3 Aa3 Aa3 Lincoln Life - Standard & Poors AA- AA- AA- AA- AA- AA- First Penn - A.M. Best* A+ A A A A A+ First Penn - Fitch AA+ AA+ AA+ AA AA AA First Penn - Moody's A1 A1 A1 A1 A1 A1 First Penn - Standard & Poors* AA- AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A+ A A A A A+ LLA of New York - Fitch* AA+ AA+ AA+ AA AA AA LLA of New York - Moody's A1 A1 A1 A1 A1 A1 LLA of New York - Standard & Poors* AA- AA- AA- AA- AA- AA- Ratios Debt to Total Capitalization [4] 17.0% 21.2% 23.2% 20.8% 21.4% 23.2% Debt to Equity [4] 20.5% 26.9% 30.3% 26.3% 27.2% 30.6% Mar Jun Sep Dec Mar Jun For the Quarter Ended 2000 2000 2000 2000 2001 2001 ------- ------- ------- ------- ------- ------- Common Stock: Highest Price 41.375 40.063 56.375 50.938 48.250 52.300 Lowest Price 22.625 29.000 35.625 40.875 38.000 41.280 ------- ------- ------- ------- ------- ------- Closing Price 33.500 36.125 48.125 47.313 42.470 51.750 ------- ------- ------- ------- ------- ------- Yield [3] 3.5% 3.2% 2.4% 2.6% 2.9% 2.4% Preferred Stock Dividend 0.022 0.022 0.021 0.013 0.019 0.018 (Millions) Debt: (End of Period) Senior Debt Ratings A.M. Best a a a a Fitch A+ A+ A+ A+ A+ A+ Moody's A2 A2 A2 A3 A3 A3 Standard and Poors A- A- A- A- A- A- Claims Paying Ratings: Lincoln Life - A.M. Best A A A A A A Lincoln Life - Fitch AA+ AA+ AA+ AA AA AA Lincoln Life - Moody's Aa3 Aa3 Aa3 Aa3 Aa3 Aa3 Lincoln Life - Standard & Poors AA- AA- AA- AA- AA- AA- First Penn - A.M. Best* A A A A A A First Penn - Fitch AA+ AA+ AA+ AA AA AA First Penn - Moody's A1 A1 A1 A1 A1 A1 First Penn - Standard & Poors* AA- AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A A A A A A LLA of New York - Fitch* AA+ AA+ AA+ AA AA AA LLA of New York - Moody's A1 A1 A1 A1 A1 A1 LLA of New York - Standard & Poors* AA- AA- AA- AA- AA- AA- Ratios Debt to Total Capitalization [4] 23.3% 21.8% 21.2% 20.8% 22.2% 21.2% Debt to Equity [4] 30.4% 28.0% 27.0% 26.3% 28.5% 27.0% Sep Dec Mar Jun Sep Dec For the Quarter Ended 2001 2001 2002 2002 2002 2002 ------ ------- ------- ------- ------- ------- Common Stock: Highest Price 52.750 49.450 53.650 52.540 42.080 35.950 Lowest Price 41.000 40.000 47.200 40.750 29.120 25.150 ------ ------- ------- ------- ------- ------- Closing Price 46.630 48.570 50.730 42.000 30.550 31.580 ------ ------- ------- ------- ------- ------- Yield [3] 2.6% 2.6% 2.5% 3.0% 4.2% 4.2% Preferred Stock Dividend 0.017 0.017 0.016 0.015 0.015 0.015 (Millions) Debt: (End of Period) Senior Debt Ratings A.M. Best a a a a a a Fitch A+ A+ A+ A+ A A Moody's A3 A3 A3 A3 A3 A3 Standard and Poors A- A- A- A- A- A- Claims Paying Ratings: Lincoln Life - A.M. Best A A A A+ A+ A+ Lincoln Life - Fitch AA AA AA AA AA AA Lincoln Life - Moody's Aa3 Aa3 Aa3 Aa3 Aa3 Aa3 Lincoln Life - Standard & Poors AA- AA- AA- AA- AA- AA- First Penn - A.M. Best* A A A A+ A+ A+ First Penn - Fitch AA AA AA AA AA AA First Penn - Moody's A1 A1 A1 A1 A1 A1 First Penn - Standard & Poors* AA- AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A A A A+ A+ A+ LLA of New York - Fitch* AA AA AA AA AA AA LLA of New York - Moody's A1 A1 A1 A1 A1 A1 LLA of New York - Standard & Poors* AA- AA- AA- AA- AA- AA- Ratios Debt to Total Capitalization [4] 21.1% 21.4% 22.7% 22.6% 23.1% 23.2% Debt to Equity [4] 26.7% 27.2% 29.4% 29.2% 30.0% 30.6% * Rating based on affiliation with Lincoln Life [1] Stock prices shown above include 2-for-1 splits in June 1993, and June 1999 [2] Indicated dividend divided by net income [3] Indicated dividend divided by the closing price [4] Equity used in calculation assumes securities at cost. Minority interest-preferred securities of subsidiary companies (hybrid securities) are considered 50% debt and 50% equity. Return on Equity/Return on Capital: In order to accommodate the various perspectives, LNC presents two separate Return on Equity numbers on pages 2, 5 and 6 of this Statistical Report. "Net Income Divided by Average Shareholders' Equity" tends to fluctuate from period to period due to the realization of gains and losses on investments or sale of subsidiaries. "Income from Operations Divided by Average Shareholders' Equity" is less volatile but leaves out an important element of earnings for a company that has a long-term goal of enhancing shareholder value by realizing investment gains. Return on capital measures the effectiveness of LNC's use of its total capital, which is made up of equity, debt and hybrid securities. Return on capital is calculated by dividing income from operations (after adding back after-tax interest expense) by average capital. The difference between return on capital and return on equity presents the effect of leveraging on LNC's consolidated results.
Lincoln National Corporation Realized Gains (Losses) on Investments For the Year Ended December 31, 2002 (in millions of dollars) Pre-DAC, Net Capital Pre-Tax Loss Add: DAC Less: tax Loss -------- -------- -------- -------- Capital Losses on Sold Securities 1Q02 (95.00) 23.20 24.10 (47.70) 2Q02 (91.10) 25.00 21.60 (44.50) 3Q02 (77.00) 20.90 18.40 (37.70) 4Q02 (58.30) 13.20 14.50 (30.60) -------- -------- -------- -------- 2002 Capital Losses on Sold Securities (Excl. Lincoln UK)* (321.40) 82.30 78.60 (160.50) 2002 Capital Losses on Sold Securities for Lincoln UK (15.20) 0.00 4.56 (10.64) -------- -------- -------- -------- Total Capital Losses on Sold Securities (336.60) 82.30 83.16 (171.14) Write Downs 1Q02 (109.10) 34.30 27.00 (47.80) 2Q02 (76.20) 19.50 19.90 (36.80) 3Q02 (52.50) 14.90 13.10 (24.50) 4Q02 (88.60) 25.60 22.30 (40.70) -------- -------- -------- -------- 2002 Total Write Downs (326.40) 94.30 82.30 (149.80) 2002 Total Capital Losses (663.00) 176.60 165.46 (320.94) Realized Gains 1Q02 64.04 (15.60) (16.93) 31.51 2Q02 49.10 (12.30) (11.40) 25.40 3Q02 65.90 (10.50) (17.70) 37.70 4Q02 76.84 (20.80) (18.84) 37.20 -------- -------- -------- -------- 2002 Realized Gains on Sold Securities (Excl. Lincoln UK) 255.88 (59.20) (64.87) 131.81 2002 Realized Gains on Sold Securities for Lincoln UK 17.06 0.00 (5.12) 11.94 -------- -------- -------- -------- Total Realized Gains on Sold Securities 272.94 (59.20) (69.99) 143.75 Net Realized Capital Gains/(Losses) on Investments 1Q02 (140.06) 41.90 34.17 (63.99) 2Q02 (118.20) 32.20 30.10 (55.90) 3Q02 (63.60) 25.30 13.80 (24.50) 4Q02 (70.06) 18.00 17.96 (34.10) -------- -------- -------- -------- 2002 Realized Capital Gains/(Losses) (Excl. Lincoln UK) (391.92) 117.40 96.03 (178.49) 2002 Realized Capital Gains/(Losses) for Lincoln UK 1.86 0.00 (0.56) 1.30 -------- -------- -------- -------- Net 2002 Realized Capital Gains/(Losses) on Investments (390.06) 117.40 95.47 (177.19) Sale of Affiliate 1Q02 0.00 0.00 0.00 0.00 2Q02 0.00 0.00 0.00 0.00 3Q02 0.00 0.00 0.00 0.00 4Q02 (8.30) 0.00 (1.10) (9.40) -------- -------- -------- -------- 2002 Sale of Affiliate (8.30) 0.00 (1.10) (9.40) ======== ======== ======== ======== * Includes investment expenses of $12.4 million.
Lincoln National Corporation Detail of Unrealized Gains and Losses As of December 31, 2002 (in millions of dollars) Gross Unrealized Gains - Fixed Maturities 2,281.5 Gross Unrealized Gains - Equities 24.5 -------- Total Gross Unrealized Gains 2,306.0 Gross Unrealized Losses - Fixed Maturities (687.8) Gross Unrealized Losses - Equities (8.5) -------- Total Gross Unrealized Losses (696.3) Net Unrealized Gains on Securities (Excl. Lincoln UK) 1,609.6 Net Unrealized Gains for Lincoln UK 57.4 -------- Net Unrealized Gains on Securities 1,667.0 Adjustment for DAC, Policyholder Commitments, Foreign Exchange, and Taxes (855.0) -------- Total Unrealized Gains 812.0 ======== Lincoln National Corporation Fixed Maturity Securities Available-for-Sale Statutory Quality Distribution At 12/31/2002 (in millions of dollars) Statutory NAIC Rating Description Market Value ---------------------------------------------------------------------- 1 Highest Quality 19,080.0 2 High Quality 9,252.8 3 Medium Quality 1,096.1 4 Low Quality 400.7 5 Lower Quality 225.4 6 In or Near Default 170.4 --------- Subtotal Statutory Investments 30,225.4 Other Non-Statutory Investments 2,542.1 --------- Total Fixed Maturity Securities Available-for-Sale 32,767.5 =========