8-K 1 lnc1.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: June 30, 2003 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. Regulation FD Disclosure (Also being provided under new Item 12 Results of Operations and Financial Condition). The information in this Report, including the attached Exhibit, is "furnished" pursuant to Item 9 and Item 12 of this Form 8-K. Consequently, it is not deemed "filed" for the purposes of Section 18 of the Securities and Exchange Act of 1934, or otherwise subject to the liabilities of that section. It may only be incorporated by reference in another filing under the Securities Exchange Act of 1934 or the Securities Act of 1933 if such subsequent filing specifically references this Form 8-K or specific parts of it. The furnishing of the information contained in the attached exhibit (statistical supplement) is not intended and should not be construed to imply that such information is material. Item 7. Financial Statements and Exhibits. (c) Exhibits. Exhibit Number Description -------- ------------------------------------------------------------------- 99.1 Lincoln National Corporation Statistical Supplement for the Quarter Ended June 30, 2003 Item 12. Results of Operations and Financial Condition See Item 9, Regulation FD Disclosure, above. Lincoln Statistical Report Second Quarter 2003 Lincoln Financial Group This document is dated August 7, 2003. It may not be accurate after such date and LNC does not undertake to update or keep it accurate after such date. Table of Contents LFG Analyst Coverage Notes Financial Highlights 1 - 4 Eleven-Year Summary 5 Quarterly Summary 6 Reconciliation of Business Segments to Consolidated Income Statement 7 - 8 Statement of Consolidated Income 9 - 10 Reconciliation of Business Segments to Consolidated Balance Sheets 11 - 12 Five-Year Comparative Balance Sheet 13 Quarterly Balance Sheet 14 Lincoln Retirement ------------------ Income Statement & Operational Data 15 - 16 Account Value Roll Forward 17 - 18 Life Insurance -------------- Income Statement 19 - 20 Operational Data 21 Account Value Roll Forward 22 - 23 Investment Management --------------------- Income Statement 24 - 25 Assets Under Management Roll Forward 26 - 27 Lincoln UK ---------- Income Statement 28 - 29 Operational Data 30 Other Operations 31 ---------------- Consolidated ------------ Domestic Retail Deposits / Account Balances 32 Total Domestic Net Flows 32 Assets Managed 33 Investment Data 34 Common Stock / Debt Information 35 Retroactive Adoption of FAS 123 36 6/30/03 ii NOTES Definitions and Presentation * Operating income represents after-tax results excluding, as applicable, realized gains or losses on investments and derivatives, restructuring charges, the cumulative effect of accounting changes, reserve changes on business sold through reinsurance, gains or losses on sale of subsidiaries and certain other items. Operating income is an internal measure used by LNC in the management of its operations. Management believes that this performance measure explains the results of operations of the LNC's ongoing operations in a manner that allows for a better understanding of the underlying trends in LNC's current business. * 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 interest expense) by average capital. The difference between return on capital and return on shareholders' equity represents the affect of leveraging on LNC's consolidated results. * Accumulated other comprehensive income (AOCI) represents unrealized gains (losses) on investments, net gains (losses) derivative instruments, cumulative translation adjustments and minimum pension liability adjustments, net of tax. * Certain operating and statistical measures are included in this report to provide supplemental data that indicate trends in LNC's current business. These measures include deposits, net flows, first year premium, inforce and assets under management. * Certain reclassifications have been made to the prior periods to conform to the June 30, 2003 presentation. Accounting Changes * Effective January 1, 2003, LNC adopted the fair value recognition method of accounting for its stock option incentive plans under Statement of Financial Accounting Standards (FAS) No. 123, Accounting for Stock-based Compensation (FAS 123). LNC adopted the retroactive restatment method under FAS No. 148, Accounting for Stock-based Compensation - Transition and Disclosure. As a result, LNC has chosen to restate 2001 and 2002 to reflect stock-based compensation cost under the fair value method in FAS 123 for all employee awards granted, modified or settled in fiscal years beginning after December 31, 1994. See page 36 for details on the restatement by segment.
PAGE 1 Financial Highlights Unaudited [Amounts in Millions, except Per Share] For the Quarter Ended June 30 For the Six Months Ended June 30 ---------------------------------------- ---------------------------------------- 2003 2002 2003 2002 Amount Amount Change % Change Amount Amount Change % Change ------- ------- ------- ------- ------- ------- ------- ------- Net Income 142.7 48.5 94.2 194.0% 184.3 134.2 50.1 37.3% Less: Realized gains (losses) on investments (1.1) (52.7) 51.5 (59.4) (120.3) 60.9 Gains (losses) on derivatives (0.6) 0.3 (0.9) (1.8) 0.4 (2.2) Amortization of deferred gain-reserve development (0.1) (14.4) 14.3 (0.2) (14.4) 14.2 Restructuring charges (8.8) (1.0) (7.7) (12.4) (1.0) (11.4) ------- ------- ------- ------- ------- ------- ------- ------- Income from Operations 153.3 116.4 37.0 31.8% 258.1 269.5 (11.4) (4.2%) ======= ======= ======= ======= ======= ======= ======= ======= Net Income - By Segment Lincoln Retirement 81.7 9.2 72.5 789.5% 88.6 55.7 32.9 59.0% Life Insurance 65.6 56.7 8.9 15.7% 114.1 100.2 13.9 13.9% Investment Management 4.6 (0.8) 5.3 (695.1%) 5.6 1.3 4.3 325.4% Lincoln UK 12.4 9.3 3.2 34.6% 19.3 19.5 (0.3) (1.5%) Corporate & Other (21.6) (25.8) 4.2 (43.3) (42.6) (0.7) ------- ------- ------- ------- ------- ------- ------- ------- Total 142.7 48.5 94.2 194.0% 184.3 134.2 50.1 37.3% ======= ======= ======= ======= ======= ======= ======= ======= Income from Operations - By Segment Lincoln Retirement 86.1 46.8 39.3 84.0% 143.5 126.2 17.4 13.8% Life Insurance 71.8 72.8 (1.0) (1.4%) 132.4 143.2 (10.7) (7.5%) Investment Management 4.5 (0.3) 4.8 (1483.1%) 5.8 2.7 3.1 112.9% Lincoln UK 12.4 6.1 6.4 105.4% 19.3 19.9 (0.6) (3.0%) Corporate & Other (21.5) (8.9) (12.6) (43.0) (22.5) (20.5) ------- ------- ------- ------- ------- ------- ------- ------- Total 153.3 116.4 37.0 31.8% 258.1 269.5 (11.3) (4.2%) ======= ======= ======= ======= ======= ======= ======= ======= Earnings per share (diluted) Net Income $0.80 $0.26 $0.54 209.7% $1.03 $0.71 $0.32 45.1% Less: Realized gains (losses) on investments ($0.01) ($0.27) $0.26 ($0.33) ($0.63) $0.29 Gains (losses) on derivatives $0.00 $0.00 $0.00 ($0.01) $0.00 ($0.01) Amortizatiion of deferred gain-reserve development $0.00 ($0.08) $0.08 $0.00 ($0.08) $0.08 Restructuring charges ($0.05) ($0.01) ($0.04) ($0.07) ($0.01) ($0.06) ------- ------- ------- ------- ------- ------- ------- ------- Income from Operations $0.86 $0.62 $0.24 38.9% $1.44 $1.42 $0.02 1.4% ======= ======= ======= ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------ Revenue 1,213.2 1,157.5 55.7 4.8% 2,312.5 2,283.4 29.0 1.3% Less: Realized Gains (Losses) on Investments (1.7) (81.5) 79.8 (97.9%) (91.3) (185.0) 93.7 (50.6%) Gains (Losses) on Derivatives (1.0) 0.4 (1.4) (2.8) 0.6 (3.4) Amortizatiion of deferred gain-reserve development (0.2) 0.0 (0.2) (0.4) 0.0 (0.4) ------- ------- ------- ------- ------- ------- ------- ------- Operating Revenue 1,216.0 1,238.5 (22.5) (1.8%) 2,407.0 2,467.8 (60.8) (2.5%) ======= ======= ======= ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------ Revenue - By Segment Lincoln Retirement 486.4 442.6 43.8 9.9% 884.2 895.6 (11.4) (1.3%) Life Insurance 474.0 439.8 34.2 7.8% 931.6 863.8 67.8 7.8% Investment Management 116.4 106.1 10.4 9.8% 218.5 213.4 5.1 2.4% Lincoln UK 60.2 80.5 (20.3) (25.2%) 129.1 133.6 (4.6) (3.4%) Corporate & Other 76.1 88.5 (12.4) (14.0%) 149.2 177.0 (27.9) (15.7%) ------- ------- ------- ------- ------- ------- ------- ------- Total 1,213.2 1,157.5 55.7 4.8% 2,312.5 2,283.4 29.0 1.3% ======= ======= ======= ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------ Operating Revenue - By Segment Lincoln Retirement 487.0 498.8 (11.9) (2.4%) 962.5 1,002.3 (39.8) (4.0%) Life Insurance 476.2 464.6 11.6 2.5% 947.0 929.9 17.0 1.8% Investment Management 116.3 106.7 9.6 9.0% 218.8 215.6 3.2 1.5% Lincoln UK 60.2 75.9 (15.8) (20.7%) 129.1 134.2 (5.1) (3.8%) Corporate & Other 76.3 92.4 (16.1) (17.5%) 149.6 185.8 (36.2) (19.5%) ------- ------- ------- ------- ------- ------- ------- ------- Total 1,216.0 1,238.5 (22.5) (1.8%) 2,407.0 2,467.8 (60.8) (2.5%) ======= ======= ======= ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------ Operational Data by Segment (Billions, except where noted): Lincoln Retirement Gross Deposits 1.363 1.640 (0.277) (16.9%) 2.787 3.354 (0.567) (16.9%) Net Flows 0.099 0.223 (0.124) (55.6%) 0.195 0.311 (0.116) (37.3%) Account Values (Gross) 51.320 49.885 1.435 2.9% 51.320 49.885 1.436 2.9% Account Values (Net of Reinsurance) 49.151 48.115 1.036 2.2% 49.151 48.115 1.037 2.2% Life Insurance Segment First Year Premium - Retail (in millions) 173.479 155.801 17.678 11.3% 344.183 295.178 49.005 16.6% First Year Premium - COLI (in millions) 61.786 46.631 15.155 32.5% 72.357 53.504 18.853 35.2% First Year Premium - Total (in millions) 235.265 202.432 32.834 16.2% 416.540 348.683 67.857 19.5% In-force 266.467 244.750 21.717 8.9% 266.467 244.750 21.717 8.9% Account Values 12.663 11.759 0.904 7.7% 12.663 11.759 0.904 7.7% Investment Management Segment Retail Deposits 1.282 1.356 (0.074) (5.5%) 2.423 2.557 (0.134) (5.2%) Retail Net Flows 0.302 0.167 0.135 81.0% 0.316 0.256 0.060 23.4% Institutional In-flows 0.853 1.232 (0.380) (30.8%) 1.939 2.709 (0.770) (28.4%) Institutional Net Flows 0.289 0.455 (0.166) (36.5%) 0.618 1.187 (0.568) (47.9%) Total Net Flows 0.591 0.622 (0.031) (5.0%) 0.935 1.442 (0.508) (35.2%) Assets Under Management - Retail and Inst'l 52.457 48.741 3.716 7.6% 52.457 48.741 3.716 7.6% Assets Under Management - Insurance Assets 43.857 38.476 5.381 14.0% 43.857 38.476 5.381 14.0% Assets Under Management - Total Segment 96.314 87.217 9.097 10.4% 96.314 87.217 9.097 10.4% Consolidated Consolidated Domestic Retail Deposits 2.960 3.240 (0.280) (8.6%) 5.839 6.315 (0.475) (7.5%) Consolidated Domestic Retail Account Balances 81.284 77.651 3.633 4.7% 81.284 77.651 3.633 4.7% Total Retail Net Flows 0.723 0.737 (0.014) (1.9%) 1.291 1.160 0.131 11.3% Total Net Flows 1.021 1.166 (0.145) (12.4%) 1.889 2.342 (0.454) (19.4%) Total Assets Under Management 127.397 119.536 7.861 6.6% 127.397 119.536 7.861 6.6% ------------------------------------------------------------------------------------------------------------------------------
PAGE 2 Financial Highlights Unaudited [Amounts in Millions, except Per Share] For the Quarter Ended June 30 For the Six Months Ended June 30 ------------------------------------- ------------------------------------- 2003 2002 2003 2002 Amount Amount Change % Change Amount Amount Change % Change ------- ------- ------- ------- ------- ------- ------- ------- Consolidated Operational Data: Balance Sheet Assets - End of Period 99,532.8 95,114.2 4,418.6 4.6% 99,532.8 95,114.2 4,418.6 4.6% Shareholders' Equity Beg of Period (including AOCI) 5,450.0 5,173.2 276.8 5,347.5 5,303.8 43.7 End of Period (including AOCI) 5,815.9 5,352.8 463.1 5,815.9 5,352.8 463.1 End of Period (excluding AOCI) 4,699.8 5,020.3 (320.5) 4,699.8 5,020.3 (320.5) Average Equity (excluding AOCI) 4,672.0 5,165.8 (493.8) 4,677.0 5,172.8 (495.8) Return on Equity Net Income/Average Equity (excluding AOCI) 12.2% 3.8% 8.5% 7.9% 5.2% 2.7% Inc from Operations/Average Equity (excluding AOCI) 13.1% 9.0% 4.1% 11.0% 10.4% 0.6% Return on Capital Inc from Operations/Average Capital 10.7% 7.7% 3.0% 9.2% 8.8% 0.4% Common Stock Outstanding Average for the Period - Diluted 179.2 188.5 (9.3) (4.9%) 178.8 189.2 (10.4) (5.5%) End of Period - Assuming Conv of Pref. 178.0 184.5 (6.5) (3.5%) 178.0 184.5 (6.5) (3.5%) End of Period - Diluted 179.5 186.1 (6.6) (3.5%) 179.5 186.1 (6.6) (3.5%) Book Value (including AOCI) 32.68 29.01 3.67 12.6% 32.68 29.01 3.67 12.6% Book Value (excluding AOCI) 26.41 27.21 (0.80) (2.9%) 26.41 27.21 (0.80) (2.9%) Cash Returned to Shareholders Share Repurchase - dollar amount 0.0 175.7 (175.7) 0.0 226.7 (226.7) Dividends Declared to Shareholders 61.5 59.6 1.9 120.8 119.6 1.2 ------- ------- ------- ------- ------- ------- Total Cash Returned to Shareholders 61.5 235.3 (173.8) 120.8 346.3 (225.5) ======= ======= ======= ======= ======= ======= Share Repurchase - number of shares 0.000 3.885 (3.885) 0.000 4.885 (4.885) Dividend Declared on Common Stock - per share $0.335 $0.320 $0.015 4.7% $0.670 $0.640 $0.030 4.7% For the Quarter Ended June 30 For the Six Months Ended June 30 ------------------------------------- ------------------------------------- 2003 2002 2003 2002 Amount Amount Amount Amount ------- ------- ------- ------- Comprehensive Income Net Income 142.7 48.5 184.3 134.2 Foreign Currency Translation 28.5 42.8 17.5 30.0 Net Unrealized Gains (Losses) on Securities 245.9 293.8 364.5 130.0 Gains (Losses) on Derivatives 3.8 0.1 0.4 1.2 Minimum Pension Liability Adjustment (1.5) (2.6) (0.9) (1.9) ------- ------- ------- ------- Comprehensive Income 419.5 382.6 565.9 293.5 ------- ------- ------- -------
PAGE 3 Financial Highlights Unaudited [Amounts in Millions] For the Quarter Ended June 30 For the Six Months Ended June 30 ------------------------------------- ------------------------------------- 2003 2002 2003 2002 Amount Amount Change % Change Amount Amount Change % Change ------- ------- ------- ------- ------- ------- ------- ------- Consolidated Condensed Statements of Income Revenue: Insurance Premiums and Fees 413.8 436.8 (23.1) (5.3%) 816.9 868.4 (51.4) (5.9%) Investment Advisory Fees 49.4 47.8 1.6 3.3% 93.5 95.8 (2.2) (2.3%) Net Investment Income 660.2 657.4 2.8 0.4% 1,314.9 1,312.2 2.7 0.2% Realized Gains (Losses) on Investments (1.7) (81.5) 79.8 (91.3) (185.0) 93.7 Gains (Losses) on Derivatives (1.0) 0.4 (1.4) (2.8) 0.6 (3.4) Amortization of Deferred Gain on Indemnity Reinsurance 18.2 22.0 (3.8) (17.3%) 36.6 46.2 (9.6) (20.8%) Other 74.3 74.5 (0.2) (0.3%) 144.7 145.3 (0.6) (0.4%) ------- ------- ------- ------- ------- ------- ------- ------- Total Revenue 1,213.2 1,157.5 55.7 4.8% 2,312.5 2,283.4 29.0 1.3% ------- ------- ------- ------- ------- ------- ------- ------- Benefits and Expenses: Benefits 593.2 648.3 (55.1) (8.5%) 1,206.2 1,251.7 (45.5) (3.6%) Underwriting, Acquisition, Insurance and Other Expenses 432.3 462.2 (29.9) (6.5%) 883.1 889.3 (6.1) (0.7%) ------- ------- ------- ------- ------- ------- ------- ------- Total Benefits and Expenses 1,025.5 1,110.5 (85.1) (7.7%) 2,089.4 2,141.0 (51.6) (2.4%) ------- ------- ------- ------- ------- ------- ------- ------- Income before Federal Taxes 187.7 46.9 140.7 223.1 142.4 80.7 Federal Income Taxes 45.0 (1.6) 46.6 38.8 8.3 30.5 ------- ------- ------- ------- ------- ------- ------- ------- Net Income 142.7 48.5 94.2 193.9% 184.3 134.2 50.1 37.4% ======= ======= ======= ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------ Income before Tax By Segment Lincoln Retirement 99.0 (2.2) 101.1 85.7 42.9 42.8 Life Insurance 95.7 79.4 16.2 164.4 142.1 22.3 Investment Management 7.2 (1.0) 8.2 9.1 2.4 6.6 Lincoln UK 19.1 9.0 10.1 29.6 18.8 10.9 Corporate and Other (33.2) (38.3) 5.1 (65.7) (63.7) (2.0) ------- ------- ------- ------- ------- ------- Income before Tax 187.7 46.9 140.7 223.1 142.4 80.7 ------------------------------------------------------------------------------------------------------------------------------ Pre-Tax Realized Gains (Losses) by Segment* Lincoln Retirement (0.6) (56.3) 55.7 (78.3) (106.7) 28.4 Life Insurance (2.2) (24.8) 22.5 (15.4) (66.2) 50.7 Investment Management 0.1 (0.7) 0.7 (0.4) (2.2) 1.8 Lincoln UK 0.0 4.5 (4.5) (0.0) (0.6) 0.5 Corporate and Other 0.0 (3.9) 3.9 0.0 (8.7) 8.7 ------- ------- ------- ------- ------- ------- Pre-Tax Realized Gains (Losses) on Investments and Derivatives (2.7) (81.1) 78.4 (94.1) (184.4) 90.3 After-Tax Realized Gains (Losses) by Segment* Lincoln Retirement (0.4) (36.5) 36.1 (50.9) (69.5) 18.6 Life Insurance (1.5) (16.1) 14.6 (10.0) (43.0) 33.0 Investment Management 0.0 (0.4) 0.5 (0.2) (1.4) 1.2 Lincoln UK 0.0 3.2 (3.2) (0.0) (0.4) 0.4 Corporate and Other 0.0 (2.4) 2.5 0.0 (5.7) 5.7 ------- ------- ------- ------- ------- ------- After-Tax Realized Gains (Losses) on Investments and Derivatives (1.8) (52.4) 50.6 (61.2) (119.9) 58.7 * Includes both realized gains (losses) on investments and gains (losses) on derivatives.
PAGE 4 Financial Highlights Unaudited [Amounts in Millions] As of ---------------------------------------------------------------- June December 2003 2002 Amount Amount Change % Change --------- --------- --------- --------- Consolidated Condensed Balance Sheets Assets: Investments: Securities Available for Sale: Fixed Maturities 35,354.5 32,767.5 2,587.0 7.9% Equities 257.3 337.2 (79.9) (23.7%) Mortgage Loans on Real Estate 4,314.3 4,205.5 108.8 2.6% Real Estate 240.3 279.7 (39.4) (14.1%) Policy Loans 1,919.6 1,945.6 (26.0) (1.3%) Other Long-Term Investments 505.6 464.4 41.2 8.9% --------- --------- --------- --------- Total Investments 42,591.6 39,999.9 2,591.7 6.5% Other Assets: Assets Held in Separate Accounts 39,942.8 36,178.3 3,764.5 10.4% Other Assets 16,998.4 17,006.5 (8.1) (0.0%) --------- --------- --------- --------- Total Assets 99,532.8 93,184.6 6,348.2 6.8% ========= ========= ========= ========= Liabilities and Shareholders' Equity Liabilities: Insurance and Investment Contract Liabilities 46,172.1 44,845.3 1,326.8 3.0% Liabilities Related to Separate Accounts 39,942.8 36,178.3 3,764.5 10.4% Other Liabilities 7,601.9 6,813.6 788.4 11.6% --------- --------- --------- --------- Total Liabilities 93,716.9 87,837.2 5,879.7 6.7% Shareholders' Equity: Net Unrealized Gains(Losses) on Securities and Derivatives 1,146.6 781.6 365.0 46.7% Minimum Pension Liability Adjustment (98.8) (97.8) (0.9) 1.0% Foreign Currency Translation Adjustment 68.4 50.8 17.5 34.5% Other Shareholders' Equity 4,699.8 4,612.9 86.9 1.9% --------- --------- --------- --------- Total Shareholders' Equity 5,815.9 5,347.5 468.4 8.8% --------- --------- --------- --------- Total Liabilities and Shareholders' Equity 99,532.8 93,184.6 6,348.2 6.8% ========= ========= ========= ========= ------------------------------------------------------------------------------------------------------------ As of ---------------------------------------------------------------- June December 2003 2002 Amount Amount Change % Change --------- --------- --------- --------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 2,970.9 2,885.3 85.6 3.0% Deferral 289.1 627.3 (338.2) (53.9%) Amortization (164.1) (346.7) 182.6 (52.7%) --------- --------- --------- --------- Included in Total Benefits and Expenses 124.9 280.6 (155.7) (55.5%) Adjustment related to realized (gains) losses on securities available-for-sale 38.3 115.0 (76.7) (66.7%) Adjustment related to unrealized (gains) losses on securities available-for-sale (453.5) (338.5) (115.0) 34.0% Foreign currency translation adjustment 16.3 56.9 (40.6) (71.4%) Other -- (28.4) 28.4 (100.0%) --------- --------- --------- --------- Balance at end-of-period 2,697.0 2,970.9 (273.9) (9.2%) ========= ========= ========= ========= Roll Forward of Present Value of In-Force Balance at beginning-of-year 1,250.1 1,362.5 (112.4) (8.2%) Amortization (36.3) (136.5) 100.2 (73.4%) Foreign currency translation adjustment 6.9 24.1 (17.2) (71.4%) --------- --------- --------- --------- Balance at end-of-period 1,220.8 1,250.1 (29.4) (2.4%) ========= ========= ========= =========
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 1,787.7 1,968.3 2,133.7 2,115.8 2,068.1 2,023.0 Life Insurance 1,785.0 1,840.6 1,819.0 1,760.4 1,378.5 544.8 Investment Management 413.1 451.2 513.7 514.9 509.6 459.1 Lincoln UK 277.2 290.7 433.8 446.6 439.7 427.3 Corporate & Other 372.4 1,827.3 1,946.9 1,966.0 1,691.1 1,444.3 ------- ------- ------- ------- ------- ------- Total Revenue 4,635.5 6,378.0 6,847.1 6,803.7 6,087.1 4,898.5 ======= ======= ======= ======= ======= ======= Net Income Lincoln Retirement 53.7 265.1 358.6 291.5 273.8 263.3 Life Insurance 206.1 229.3 249.3 211.5 127.5 39.1 Investment Management (1.4) (9.0) 37.0 51.6 44.4 25.1 Lincoln UK 37.7 66.8 (13.2) (18.2) 71.7 (106.8) Corporate & Other (247.3) (6.6) (10.2) (76.1) (7.6) (198.4) ------- ------- ------- ------- ------- ------- Total Net Inc from Cont Oper 48.8 545.7 621.4 460.4 509.8 22.2 Discontinued Operations - - - - - 911.8 ------- ------- ------- ------- ------- ------- Total Net Income 48.8 545.7 621.4 460.4 509.8 934.0 ======= ======= ======= ======= ======= ======= Income from Operations Lincoln Retirement 183.4 316.2 362.0 299.4 262.4 223.0 Life Insurance 269.0 275.3 259.9 212.0 149.2 39.9 Investment Management 1.8 (6.1) 44.1 61.0 43.9 18.1 Lincoln UK 34.6 58.1 61.0 (13.9) 70.9 (108.3) Corporate & Other (57.2) 1.0 (8.0) (83.1) 4.0 (223.3) ------- ------- ------- ------- ------- ------- Total Income from Cont Oper 431.6 644.4 719.1 475.5 530.4 (50.6) Discontinued Operations - - - - - 110.1 ------- ------- ------- ------- ------- ------- Income from Operations 431.6 644.4 719.1 475.5 530.4 59.4 ======= ======= ======= ======= ======= ======= OTHER DATA Assets 93,184.6 98,041.6 99,844.1 103,095.7 93,836.3 77,174.7 Shareholders' Equity Including AOCI 5,347.5 5,303.8 4,954.1 4,263.9 5,387.9 4,982.9 Excluding AOCI 4,612.9 5,130.6 4,920.1 4,699.5 4,785.5 4,500.7 Average Equity (excluding AOCI) 4,983.3 5,056.0 4,811.8 4,786.2 4,636.3 4,172.7 Common Shares Outstanding (millions) End of Period - Diluted 178.5 189.3 195.2 197.0 203.4 204.7 Average for the Period - Diluted 184.6 191.5 194.9 200.4 203.3 208.0 Per Share Data (Diluted) Net Income from Continuing Operations $0.26 $2.85 $3.19 $2.30 $2.51 $0.11 Net Income $0.26 $2.85 $3.19 $2.30 $2.51 $4.49 Income (Loss) from Continuing Operations $2.34 $3.37 $3.69 $2.37 $2.61 ($0.24) Income from Operations * $2.34 $3.37 $3.69 $2.37 $2.61 $0.29 Shareholders' Equity Per Share Shareholders' Equity (Includes AOCI) $30.10 $28.32 $25.92 $21.76 $26.59 $24.63 Shareholders' Equity (Excludes accum AOCI) $25.97 $27.39 $25.74 $23.98 $23.62 $22.25 Dividends Declared (Common Stock) $1.30 $1.24 $1.18 $1.12 $1.06 $1.00 Return on Equity Net Income/Average Equity 1.0% 10.8% 12.9% 9.6% 11.0% 22.4% Inc from Operations/Average Equity 8.7% 12.7% 14.9% 9.9% 11.4% 1.4% Market Value of Common Stock High for the Year $53.650 $52.75 $56.38 $57.50 $49.44 $39.06 Low for the Year $25.150 $38.00 $22.63 $36.00 $33.50 $24.50 Close for the Year $31.580 $48.57 $47.31 $40.00 $40.91 $39.06 Ten-year compound annual For the Year Ended December 31 1996 1995 1994 1993 1992 growth ------- ------- ------- ------- ------- ------- Revenue Lincoln Retirement 1,805.0 1,877.1 1,506.2 1,603.8 1,336.2 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 1,575.6 1,552.5 1,744.1 2,680.9 2,780.9 ------- ------- ------- ------- ------- ------- Total Revenue 4,733.6 4,586.5 3,932.5 4,937.1 4,742.1 (0.2%) ======= ======= ======= ======= ======= ======= Net Income Lincoln Retirement 204.3 248.8 142.4 127.1 89.4 (5.0%) Life Insurance 51.8 40.6 34.2 37.8 46.8 16.0% 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 (15.7%) 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 (18.1%) ======= ======= ======= ======= ======= ======= Income from Operations Lincoln Retirement 174.6 175.2 142.4 127.1 89.4 7.4% Life Insurance 41.2 35.4 34.2 37.8 46.8 19.1% Investment Management 18.6 20.6 Lincoln UK 66.0 45.9 17.2 11.9 9.2 14.2% 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 11.0% 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 6.0% ======= ======= ======= ======= ======= ======= OTHER DATA Assets 71,713.4 63,257.7 48,864.8 47,825.1 39,042.2 9.1% Shareholders' Equity Including AOCI 4,470.0 4,378.1 3,042.1 4,072.3 2,826.8 6.6% Excluding AOCI 3,990.6 3,669.2 3,353.1 3,157.6 2,664.1 5.6% Average Equity (excluding AOCI) 3,851.7 3,400.3 3,288.6 3,009.0 2,575.0 6.8% 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) Net Income from Continuing Operations $1.69 $1.44 $0.79 $0.37 $1.45 (15.6%) Net Income $2.44 $2.30 $1.68 $1.55 $1.92 (18.0%) Income (Loss) from Continuing Operations $1.42 $0.67 $1.05 $0.96 $0.81 11.1% Income from Operations * $2.06 $1.46 $1.87 $1.67 $1.29 6.1% Shareholders' Equity Per Share Shareholders' Equity (Includes AOCI) $21.50 $20.95 $14.67 $19.69 $15.13 7.1% Shareholders' Equity (Excludes accum AOCI) $19.19 $17.55 $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 Net Income/Average Equity 13.3% 15.5% 10.6% 10.6% 13.9% Inc from Operations/Average Equity 11.3% 9.8% 11.8% 11.4% 9.3% Market Value of Common Stock High for the Year $28.50 $26.88 $22.19 $24.13 $19.03 Low for the Year $20.38 $17.31 $17.31 $17.34 $12.63 Close for the Year $26.25 $26.88 $17.50 $21.75 $18.50 5.5% Note: 2001 and 2002 have been restated for the adoption of the fair value method of accounting for stock options under FAS 123.
PAGE 6 Quarterly Summary Unaudited [Millions of Dollars except Per Share] Jun Sep Dec Mar Jun For the Quarter Ended 2001 2001 2001 2002 2002 ------- ------- ------- ------- ------- Revenue Lincoln Retirement 512.1 478.2 467.5 453.0 442.6 Life Insurance 455.7 460.6 464.7 423.9 439.8 Investment Management 114.7 108.8 110.8 107.3 106.1 Lincoln UK 63.4 85.0 53.4 53.2 80.5 Corporate & Other 447.6 485.3 367.4 88.5 88.5 ------- ------- ------- ------- ------- Total Revenue 1,593.5 1,618.0 1,463.8 1,126.0 1,157.5 ======= ======= ======= ======= ======= Net Income Lincoln Retirement 78.9 57.6 53.1 46.6 9.2 Life Insurance 52.6 63.8 50.9 43.5 56.7 Investment Management (1.8) (2.1) (2.4) 2.1 (0.8) Lincoln UK 17.1 13.5 22.0 10.3 9.3 Corporate & Other (15.7) (24.6) 33.2 (16.8) (25.8) ------- ------- ------- ------- ------- Total Net Income 131.1 108.0 156.9 85.6 48.5 ======= ======= ======= ======= ======= Income from Operations Lincoln Retirement 89.8 71.4 73.7 79.4 46.8 Life Insurance 66.2 69.1 72.3 70.4 72.8 Investment Management (1.0) (1.6) (1.3) 3.1 (0.3) Lincoln UK 15.7 9.6 19.0 13.8 6.1 Corporate & Other (13.1) (16.3) 23.0 (13.6) (8.9) ------- ------- ------- ------- ------- Income from Operations 157.5 132.2 186.7 153.1 116.4 ======= ======= ======= ======= ======= OTHER DATA Assets 96,464.2 90,242.4 98,041.6 97,888.5 95,114.2 Shareholders' Equity Beg of Period (including ACOI) 5,126.1 5,088.9 5,405.0 5,303.8 5,173.2 End of Period (including AOCI) 5,088.9 5,405.0 5,303.8 5,173.2 5,352.8 End of Period (excluding AOCI) 5,001.1 5,129.8 5,130.6 5,174.7 5,020.3 Average Equity (excluding AOCI) 4,955.9 5,124.8 5,179.0 5,179.8 5,165.8 Common Shares Outstanding Average for the Period - Diluted 190.4 192.8 190.9 190.0 188.5 End of Period - Diluted 190.9 191.2 189.3 190.2 186.1 Per Share Data (Diluted) Net Income $0.69 $0.56 $0.82 $0.45 $0.26 Income from Operations $0.83 $0.69 $0.98 $0.81 $0.62 Shareholders' Equity Shareholders' Equity (including AOCI) 27.04 28.48 28.32 27.53 29.01 Shareholders' Equity (excluding AOCI) 26.58 27.03 27.39 27.54 27.21 Dividends Declared (Common Stock) 0.305 0.305 0.320 0.320 0.320 Return on Equity Net Income/Average Equity 10.6% 8.4% 12.1% 6.6% 3.8% Inc from Operations/Average Equity 12.7% 10.3% 14.4% 11.8% 9.0% Market Value of Common Stock Highest Price $52.300 $52.750 $49.450 $53.650 $52.540 Lowest Price $41.280 $41.000 $40.000 $47.200 $40.750 Closing Price $51.750 $46.630 $48.570 $50.730 $42.000 Sep Dec Mar Jun For the Quarter Ended 2002 2002 2003 2003 ------- ------- ------- ------- Revenue Lincoln Retirement 440.7 451.4 397.8 486.4 Life Insurance 441.6 479.6 457.5 474.0 Investment Management 97.5 102.2 102.1 116.4 Lincoln UK 91.8 51.8 68.9 60.2 Corporate & Other 91.8 103.6 73.0 76.1 ------- ------- ------- ------- Total Revenue 1,163.4 1,188.6 1,099.3 1,213.2 ======= ======= ======= ======= Net Income Lincoln Retirement (7.0) 5.0 6.9 81.7 Life Insurance 46.4 59.5 48.5 65.6 Investment Management (3.9) 1.1 1.0 4.6 Lincoln UK 0.2 17.9 6.8 12.4 Corporate & Other (172.1) (32.6) (21.7) (21.6) ------- ------- ------- ------- Total Net Income (136.4) 51.0 41.6 142.7 ======= ======= ======= ======= Income from Operations Lincoln Retirement 21.8 35.4 57.4 86.1 Life Insurance 62.7 63.1 60.7 71.8 Investment Management (3.0) 2.1 1.3 4.5 Lincoln UK (0.6) 15.3 6.8 12.4 Corporate & Other (18.8) (15.9) (21.5) (21.5) ------- ------- ------- ------- Income from Operations 62.1 100.0 104.8 153.3 ======= ======= ======= ======= OTHER DATA Assets 90,483.9 93,184.6 92,497.6 99,532.8 Shareholders' Equity Beg of Period (including ACOI) 5,352.8 5,436.8 5,347.5 5,450.0 End of Period (including AOCI) 5,436.8 5,347.5 5,450.0 5,815.9 End of Period (excluding AOCI) 4,591.8 4,612.9 4,610.5 4,699.8 Average Equity (excluding AOCI) 4,944.0 4,643.6 4,682.0 4,672.0 Common Shares Outstanding Average for the Period - Diluted 183.2 178.4 178.3 179.2 End of Period - Diluted 178.2 178.5 178.4 179.5 Per Share Data (Diluted) Net Income ($0.74) $0.29 $0.23 $0.80 Income from Operations $0.34 $0.56 $0.59 $0.86 Shareholders' Equity Shareholders' Equity (including AOCI) 30.64 30.10 30.66 32.68 Shareholders' Equity (excluding AOCI) 25.87 25.97 25.94 26.41 Dividends Declared (Common Stock) 0.320 0.335 0.335 0.335 Return on Equity Net Income/Average Equity (11.0%) 4.4% 3.6% 12.2% Inc from Operations/Average Equity 5.0% 8.6% 8.9% 13.1% Market Value of Common Stock Highest Price $42.080 $35.950 $35.700 $37.500 Lowest Price $29.120 $25.150 $24.730 $27.870 Closing Price $30.550 $31.580 $28.000 $35.630
PAGE 7 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Investment For the Quarter Ended June 30 Lincoln Retirement Life Insurance Management Lincoln UK ------------------- ------------------- ------------------- ------------------- Jun Jun Jun Jun Jun Jun Jun Jun 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Revenue Life and annuity premiums 3.0 13.1 49.6 47.5 13.2 11.4 Surrender charges 8.5 7.2 12.4 13.5 0.0 Mortality assessments 128.4 123.9 9.2 8.3 Expense assessments 104.3 120.7 49.6 47.2 (0.0) 24.5 27.8 Health premiums 0.0 0.1 0.5 0.7 Investment advisory fees 74.8 72.1 Other revenue and fees 1.3 (1.3) 7.3 6.7 29.5 22.0 (3.9) 12.5 Net investment income 369.8 359.1 229.0 225.7 12.1 12.7 16.7 15.3 Realized gains (losses) on investments 0.9 (56.2) (2.6) (25.4) 0.1 (0.7) 0.0 4.5 Gains (losses) on derivatives (1.5) (0.1) 0.3 0.6 -------- -------- -------- -------- -------- -------- -------- -------- Total Revenue 486.4 442.6 474.0 439.8 116.4 106.1 60.2 80.5 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 34.8 72.5 110.5 103.6 21.4 15.5 Div accum & div to policyholders 17.6 18.2 Interest credited to policy bal. 217.1 221.8 149.8 148.9 0.0 Health policy benefits 0.0 0.0 2.9 3.5 -------- -------- -------- -------- -------- -------- -------- -------- Total insurance benefits 251.9 294.3 277.9 270.8 0.0 24.3 19.0 Underwriting, acquisition, insurance and other expenses: Commissions 74.2 82.5 30.7 34.8 (0.0) 0.8 1.9 Other volume related expenses 14.7 16.9 43.2 43.6 (0.0) Operating and administrative expenses 56.6 53.8 38.5 38.2 104.4 100.8 20.5 18.9 Restructuring charges 6.2 1.6 7.3 Taxes, licenses and fees 4.3 4.2 13.8 15.3 2.8 4.2 Par policyholder interests Foreign exchange -------- -------- -------- -------- -------- -------- -------- -------- Subtotal 156.0 159.0 133.4 132.0 107.2 105.0 21.3 20.9 Deferral of acquisition costs (51.0) (60.8) (79.7) (82.2) (0.8) (1.0) DAC amortization 28.5 48.3 29.5 23.6 1.9 20.9 -------- -------- -------- -------- -------- -------- -------- -------- DAC deferral net of amortization (22.6) (12.6) (50.2) (58.6) 1.2 19.9 PVIF amortization 2.1 3.9 17.2 16.3 (5.7) 11.7 Other intangibles amortization 2.0 2.0 -------- -------- -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 135.5 150.4 100.4 89.6 109.2 107.0 16.8 52.5 Goodwill amortization Interest 0.0 0.0 -------- -------- -------- -------- -------- -------- -------- -------- Benefits and Expenses 387.4 444.7 378.3 360.4 109.2 107.0 41.1 71.5 -------- -------- -------- -------- -------- -------- -------- -------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 99.0 (2.2) 95.7 79.4 7.2 (1.0) 19.1 9.0 Federal income taxes 17.3 (11.3) 30.1 22.7 2.6 (0.2) 6.6 (0.3) -------- -------- -------- -------- -------- -------- -------- -------- Income Before Cumulative Effect of Accounting Changes 81.7 9.2 65.6 56.7 4.6 (0.8) 12.4 9.3 Cumulative effect of accounting changes -------- -------- -------- -------- -------- -------- -------- -------- Net Income 81.7 9.2 65.6 56.7 4.6 (0.8) 12.4 9.3 ======== ======== ======== ======== ======== ======== ======== ======== Less: Restructuring charges (4.0) (1.0) (4.7) Realized gains (losses) on investments 1.0 (36.6) (1.9) (16.4) 0.0 (0.4) 0.0 3.2 Gains (losses) on derivatives (1.4) 0.1 0.4 0.3 Reserve increase on business sold through reinsurance Gain on sale of subsidiaries Cumulative effect of accounting changes -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations 86.1 46.8 71.8 72.8 4.5 (0.3) 12.4 6.1 ======== ======== ======== ======== ======== ======== ======== ========
PAGE 7A Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Corporate and Consolidating For the Quarter Ended June 30 Other Operations Adjustments Consolidated ----------------- ------------------ ------------------- Jun Jun Jun Jun Jun Jun 2003 2002 2003 2002 2003 2002 ----- ------ ------ ------ ------ ------ Revenue Life and annuity premiums (3.4) 65.9 68.7 Surrender charges 0.4 0.6 21.3 21.3 Mortality assessments (1.9) (1.7) 135.6 130.5 Expense assessments 1.9 1.7 10.6 10.7 190.9 208.0 Health premiums (0.5) 7.6 0.1 8.3 Investment advisory fees (25.4) (24.3) 49.4 47.8 Amortization of deferred gain 18.2 22.0 18.2 22.0 Amortization of deferred gain- reserve development (0.2) (0.2) Other revenue and fees 105.4 96.8 (65.1) (61.6) 74.5 75.1 Net investment income 33.7 46.3 (1.1) (1.6) 660.2 657.4 Earnings in Unconsolidated Affiliates (0.6) (0.6) Realized gains (losses) on investments (0.2) (3.8) (1.7) (81.5) Gains (losses) on derivatives 0.2 (0.1) (1.0) 0.4 ------ ------- ------- ------- ------- ------- Total Revenue 156.7 164.7 (80.6) (76.2) 1,213.2 1,157.5 ------ ------- ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits (11.7) (0.1) 155.1 191.5 Div accum & div to policyholders 0.0 17.6 18.2 Interest credited to policy bal. 32.9 3.7 6.6 8.0 406.3 382.5 Health policy benefits 11.2 30.4 14.2 33.9 ------ ------- ------- ------- ------- ------- Total insurance benefits 32.4 34.0 6.6 8.0 593.2 626.1 Underwriting, acquisition, insurance and other expenses: Commissions 19.7 22.3 7.4 6.9 132.9 148.6 Other volume related expenses 47.1 46.0 (39.5) (40.9) 65.4 65.5 Operating and administrative expenses 64.4 53.3 (48.9) (45.7) 235.5 219.4 Restructuring charges 13.5 1.6 Taxes, licenses and fees 2.2 (0.2) 23.1 23.5 Par policyholder interests Foreign exchange 0.6 0.6 ------ ------- ------- ------- ------- ------- Subtotal 133.4 122.0 (81.0) (79.6) 470.3 459.2 Deferral of acquisition costs (1.4) (9.0) (10.7) (140.6) (156.1) DAC amortization 0.1 0.0 4.0 7.8 64.0 100.5 ------ ------- ------- ------- ------- ------- DAC deferral net of amortization 0.1 (1.4) (5.1) (2.9) (76.5) (55.5) PVIF amortization 13.6 31.9 Other intangibles amortization 2.0 2.0 ------ ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 133.5 120.6 (86.1) (82.6) 409.3 437.6 Goodwill amortization Interest 24.1 26.2 (1.1) (1.6) 23.0 24.6 ------ ------- ------- ------- ------- ------- Total Benefits and Expenses 190.0 203.1 (80.6) (76.2) 1,025.5 1,110.5 ------ ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes (33.2) (38.3) (0.0) 187.7 46.9 Federal income taxes (11.7) (12.5) (0.0) 45.0 (1.6) Income Before Cumulative Effect of ------ ------- ------- ------- ------- ------- Accounting Changes (21.6) (25.8) 0.0 142.7 48.5 ------ ------- ------- ------- ------- ------- Cumulative effect of accounting changes ------ ------- ------- ------- ------- ------- Net Income (21.6) (25.8) 0.0 142.7 48.5 ====== ======= ======= ======= ======= ======= Less: Restructuring charges (8.8) (1.0) Realized gains (losses) on investments (0.4) (2.4) 0.0 (1.1) (52.7) Gains (losses) on derivatives 0.4 (0.1) (0.6) 0.3 Reserve increase on business sold through reinsurance (0.1) (14.4) (0.1) (14.4) Gain on sale of subsidiaries Cumulative effect of accounting changes ------ ------- ------- ------- ------- ------- Income from Operations (21.5) (8.9) (0.0) 153.3 116.4 ====== ======= ======= ======= ======= =======
PAGE 8 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Investment For the Six Months Ended June 30 Lincoln Retirement Life Insurance Management Lincoln UK ------------------- ------------------- ------------------- ------------------- Jun Jun Jun Jun Jun Jun Jun Jun 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Revenue Life and annuity premiums 8.5 25.3 97.4 98.6 25.3 22.8 Surrender charges 15.4 15.1 23.8 25.2 0.0 Mortality assessments 258.1 247.8 18.3 14.8 Expense assessments 201.8 241.7 97.9 94.1 (0.0) 46.1 53.1 Health premiums 0.1 0.1 1.2 1.4 Investment advisory fees 143.1 145.1 Other revenue and fees (0.1) 4.5 13.1 12.4 51.5 45.0 6.4 12.3 Net investment income 736.9 715.7 456.6 451.7 24.2 25.5 31.9 29.9 Realized gains (losses) on investments (75.8) (106.7) (15.2) (66.8) (0.4) (2.2) (0.0) (0.6) Gains (losses) on derivatives (2.5) (0.0) (0.2) 0.6 -------- -------- -------- -------- -------- -------- -------- -------- Total Revenue 884.2 895.6 931.6 863.8 218.5 213.4 129.1 133.6 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 99.9 127.9 214.3 207.7 37.6 30.5 Div accum & div to policyholders 32.0 36.0 Interest credited to policy bal. 437.2 447.9 299.9 295.2 0.0 Health policy benefits 0.0 0.0 4.9 6.8 -------- -------- -------- -------- -------- -------- -------- -------- Total insurance benefits 537.0 575.8 546.2 538.9 0.0 42.5 37.3 Underwriting, acquisition, insurance and other expenses: Commissions 141.0 165.0 63.1 69.4 (0.0) 1.9 3.2 Other volume related expenses 28.6 26.9 97.4 86.3 (0.0) Operating and administrative expenses 110.7 108.4 79.1 76.4 199.6 198.0 38.8 36.2 Restructuring charges 6.2 1.6 12.8 Taxes, licenses and fees 10.0 8.9 28.2 28.5 5.8 8.7 Par policyholder interests Foreign exchange -------- -------- -------- -------- -------- -------- -------- -------- Subtotal 296.4 310.7 280.6 260.6 205.4 206.8 40.7 39.5 Deferral of acquisition costs (98.8) (122.6) (170.7) (156.5) (1.7) (1.9) DAC amortization 59.4 80.9 76.5 45.7 20.5 27.6 -------- -------- -------- -------- -------- -------- -------- -------- DAC deferral net of amortization (39.4) (41.6) (94.3) (110.8) 18.9 25.7 PVIF amortization 4.4 7.7 34.6 33.1 (2.7) 12.4 Other intangibles amortization 4.0 4.2 -------- -------- -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 261.4 276.8 220.9 182.8 209.4 211.0 56.9 77.5 -------- -------- -------- -------- -------- -------- -------- -------- Benefits and Expenses 798.5 852.7 767.2 721.7 209.4 211.0 99.4 114.9 -------- -------- -------- -------- -------- -------- -------- -------- Income from Before Federal Income Tax and Cumulative Effect of Accounting Changes 85.7 42.9 164.4 142.1 9.1 2.4 29.6 18.8 Federal income taxes (2.9) (12.8) 50.3 41.9 3.5 1.1 10.4 (0.7) -------- -------- -------- -------- -------- -------- -------- -------- Income Before Cumulative Effect of Accounting Changes 88.6 55.7 114.1 100.2 5.6 1.3 19.3 19.5 Cumulative effect of accounting changes -------- -------- -------- -------- -------- -------- -------- -------- Net Income 88.6 55.7 114.1 100.2 5.6 1.3 19.3 19.5 ======== ======== ======== ======== ======== ======== ======== ======== Less: Restructuring charges (4.0) (1.0) (8.3) Realized gains (losses) on investments (49.3) (69.5) (9.9) (43.4) (0.2) (1.4) (0.0) (0.4) Gains (losses) on derivatives (1.6) 0.1 (0.1) 0.3 Reserve increase on business sold through reinsurance Gain on sale of subsidiaries Cumulative effect of accounting changes -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations 143.5 126.2 132.4 143.2 5.8 2.7 19.3 19.9 ======== ======== ======== ======== ======== ======== ======== ========
PAGE 8A Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Corporate and Consolidating For the Six Months Ended June 30 Other Operations Adjustments Consolidated ----------------- ------------------ ------------------- Jun Jun Jun Jun Jun Jun 2003 2002 2003 2002 2003 2002 ----- ------ ------ ------ ------ ------ Revenue Life and annuity premiums (3.4) 131.2 143.4 Surrender charges 1.1 1.1 40.2 41.4 Mortality assessments (1.9) (1.7) 274.5 260.9 Expense assessments 1.9 1.7 20.2 21.3 368.0 411.9 Health premiums 1.8 9.3 3.1 10.8 Investment advisory fees (49.6) (49.4) 93.5 95.8 Amortization of deferred gain 36.6 46.2 36.6 46.2 Amortization of deferred gain- reserve development (0.4) (0.4) Other revenue and fees 210.9 196.2 (136.7) (124.5) 145.1 145.9 Net investment income 67.3 92.5 (2.1) (3.1) 1,314.9 1,312.2 Earnings in Unconsolidated Affiliates (0.6) (0.6) Realized gains (losses) on investments 0.2 (8.7) (91.3) (185.0) Gains (losses) on derivatives (0.2) (0.0) (2.8) 0.6 ------ ------- ------- ------- ------- ------- Total Revenue 316.3 331.5 (167.1) (154.4) 2,312.5 2,283.4 ------ ------- ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits (9.7) 1.5 342.2 367.6 Div accum & div to policyholders 0.0 32.0 36.0 Interest credited to policy bal. 65.4 29.5 13.2 16.1 815.6 788.6 Health policy benefits 11.5 30.4 16.5 37.3 ------ ------- ------- ------- ------- ------- Total insurance benefits 67.2 61.4 13.2 16.1 1,206.2 1,229.5 Underwriting, acquisition, insurance and other expenses: Commissions 38.0 41.5 14.6 13.6 258.6 292.8 Other volume related expenses 98.1 91.0 (87.2) (83.9) 137.0 120.2 Operating and administrative expenses 120.3 113.2 (95.3) (92.1) 453.2 440.1 Restructuring charges 19.0 1.6 Taxes, licenses and fees 9.8 14.0 53.8 60.1 Par policyholder interests Foreign exchange (0.0) 0.6 (0.0) 0.6 ------ ------- ------- ------- ------- ------- Subtotal 266.2 260.3 (167.8) (162.4) 921.5 915.4 Deferral of acquisition costs (1.4) (17.9) (21.6) (289.1) (304.0) DAC amortization 0.1 0.2 7.5 16.5 164.1 170.9 ------ ------- ------- ------- ------- ------- DAC deferral net of amortization 0.1 (1.2) (10.4) (5.1) (124.9) (133.1) PVIF amortization 36.3 53.3 Other intangibles amortization 4.0 4.2 ------ ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 266.4 259.1 (178.2) (167.4) 836.8 839.8 Interest 48.4 52.5 (2.1) (3.1) 46.3 49.5 ------ ------- ------- ------- ------- ------- Total Benefits and Expenses 382.0 395.2 (167.1) (154.4) 2,089.4 2,141.0 ------ ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes (65.7) (63.7) 223.1 142.4 Federal income taxes (22.5) (21.1) 38.8 8.3 Income Before Cumulative Effect of ------ ------- ------- ------- ------- ------- Accounting Changes (43.3) (42.6) 184.3 134.2 ------ ------- ------- ------- ------- ------- Cumulative effect of accounting changes ------ ------- ------- ------- ------- ------- Net Income (43.3) (42.6) 184.3 134.2 ====== ======= ======= ======= ======= ======= Less: Restructuring charges (12.3) (1.0) Realized gains (losses) on investments 0.1 (5.7) (59.4) (120.3) Gains (losses) on derivatives (0.1) (0.0) (1.8) 0.4 Reserve increase on business sold through reinsurance (0.2) (14.4) (0.2) (14.4) Gain on sale of subsidiaries Cumulative effect of accounting changes ------ ------- ------- ------- ------- ------- Income from Operations (43.0) (22.5) 0.0 258.1 269.5 ====== ======= ======= ======= ======= =======
PAGE 9 Statement of Consolidated Income Unaudited [Millions of Dollars] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- Revenue Life and annuity premiums 985.6 1183.0 1403.3 1363.4 295.6 143.4 131.2 Surrender charges 91.5 110.2 114.7 101.5 87.8 41.4 40.2 Mortality assessments 380.1 496.4 496.5 533.3 530.3 260.9 274.5 Expense assessments 773.8 896.0 1013.1 880.1 792.7 411.9 368.0 Health premiums 635.1 698.5 409.8 340.6 20.3 10.8 3.1 Investment advisory fees 227.1 223.8 213.1 197.2 183.3 95.8 93.5 Amortization of deferred gain 20.4 75.2 46.2 36.6 Amortization of deferred gain- reserve development (0.8) (0.4) Other revenue and fees 261.0 344.5 441.1 328.7 299.5 145.9 145.1 Net investment income 2,710.6 2,842.5 2,784.1 2,708.7 2,631.9 1,312.2 1,314.9 Earnings in Unconsolidated Affiliates 3.3 5.8 (0.4) 5.7 (0.6) (0.6) Realized gains (losses) on investments 19.0 3.0 (28.3) (92.4) (280.9) (185.0) (91.3) Gains (losses) on derivatives (9.3) 1.2 0.6 (2.8) ------- ------- ------- ------- ------- ------- ------- Total Revenue 6,087.1 6,803.7 6,847.1 6,378.0 4,635.5 2,283.4 2,312.5 ------- ------- ------- ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 1,237.7 1,546.6 1,546.4 1,517.9 811.3 367.6 342.2 Div accum & div to policyholders 78.0 88.4 87.6 83.7 76.0 36.0 32.0 Interest credited to policy bal. 1,446.2 1,510.4 1,474.2 1,506.0 1,617.1 788.6 815.6 Health policy benefits 566.9 659.7 449.0 302.1 49.7 37.3 16.5 Reserve developments on Reins. business sold 305.4 22.2 ------- ------- ------- ------- ------- ------- ------- Total insurance benefits 3,328.9 3,805.0 3,557.2 3,409.7 2,859.5 1,251.7 1,206.2 Underwriting, acquisition, insurance and other expenses: Commissions 740.1 961.0 919.1 860.3 579.4 292.8 258.6 Other volume related expenses 150.7 197.1 253.8 184.8 256.8 120.2 137.0 Operating and administrative expenses 997.9 1165.3 1157.0 1114.5 928.0 440.1 453.2 Restructuring charges 52.8 27.4 104.9 38.0 (2.2) 1.6 19.0 Taxes, licenses and fees 73.1 77.9 107.5 122.9 106.8 60.1 53.8 Par policyholder interests (4.3) 3.3 1.1 Foreign exchange (1.5) 1.9 (2.9) (1.4) 0.3 0.6 (0.0) ------- ------- ------- ------- ------- ------- ------- Subtotal 2,008.8 2,433.8 2,540.6 2,319.1 1,869.0 915.4 921.5 Deferral of acquisition costs (714.1) (627.3) (304.0) (289.1) DAC amortization 367.8 346.7 170.9 164.1 ------- ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (208.2) (314.6) (427.5) (346.3) (280.6) (133.1) (124.9) PVIF amortization 77.1 102.5 132.6 113.1 136.5 53.3 36.3 Other intangibles amortization 18.8 18.0 17.7 12.1 8.2 4.2 4.0 ------- ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 1,896.5 2,239.7 2,263.5 2,098.0 1,733.2 839.8 836.8 Goodwill amortization 44.5 49.2 45.1 43.4 Interest 117.1 133.7 139.5 121.0 96.6 49.5 46.3 ------- ------- ------- ------- ------- ------- ------- Total Benefits and Expenses 5,386.9 6,227.6 6,005.3 5,672.1 4,689.3 2,141.0 2,089.4 ------- ------- ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 700.2 576.1 841.8 705.9 (53.8) 142.4 223.1 Federal income taxes 190.4 115.7 220.4 144.7 (102.6) 8.3 38.8 Income Before Cumulative Effect of ------- ------- ------- ------- ------- ------- ------- Accounting Changes 509.8 460.4 621.4 561.2 48.8 134.2 184.3 ------- ------- ------- ------- ------- ------- ------- Cumulative effect of accounting changes (15.6) ------- ------- ------- ------- ------- ------- ------- Net Income 509.8 460.4 621.4 545.7 48.8 134.2 184.3 ======= ======= ======= ======= ======= ======= ======= Less: Restructuring charges (34.3) (18.9) (80.2) (24.7) 2.0 (1.0) (12.3) Realized gains (losses) on investments 13.7 3.8 (17.5) (68.7) (177.2) (120.3) (59.4) Gains (losses) on derivatives (4.9) 0.8 0.4 (1.8) Reserve increase on business sold through reinsurance (199.1) (14.4) (0.2) Gain on sale of subsidiaries 15.0 (9.4) Cumulative Effect of Accounting Changes (15.6) ------- ------- ------- ------- ------- ------- ------- Income from Operations 530.4 475.5 719.1 644.4 431.6 269.5 258.1 ======= ======= ======= ======= ======= ======= ======= -------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 3,070.5 2,885.3 2,885.3 2,970.9 Deferral 714.1 627.3 304.0 289.1 Amortization (367.8) (346.7) (170.9) (164.1) ------- ------- ------- ------- Included in Total Benefits and Expenses 346.3 280.6 133.1 124.9 Adjustment related to realized (gains) losses on securities available-for-sale 112.9 115.0 74.3 38.3 Adjustment related to unrealized (gains) losses on securities available-for-sale (187.2) (338.5) (37.2) (453.4) Foreign currency translation adjustment (16.0) 56.9 29.5 16.3 Disposition of business (425.9) 0.0 0.0 0.0 Other (15.3) (28.4) (28.3) 0.0 ------- ------- ------- ------- Balance at end-of-year 2,885.3 2,970.9 3,056.7 2,697.0 ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-year 1,483.3 1,362.5 1,362.5 1,250.1 Amortization (113.1) (136.5) (53.3) (36.3) Foreign currency translation adjustment (7.0) 24.1 12.3 6.9 Other (0.7) (0.0) (0.1) 0.0 ------- ------- ------- ------- Balance at end-of-year 1,362.5 1,250.1 1,321.4 1,220.7 ======= ======= ======= ======= Note: 2001 and 2002 have been restated for the adoption of the fair value method of accounting for stock options under FAS 123.
PAGE 10 Statement of Consolidated Income Unaudited [Millions of Dollars] For the Quarter Ended Jun Sep Dec Mar Jun 2001 2001 2001 2002 2002 ------- ------- ------- ------- ------- Revenue Life and annuity premiums 353.9 336.8 270.7 74.7 68.7 Surrender charges 22.8 23.2 27.7 20.2 21.3 Mortality assessments 133.7 133.3 132.6 130.4 130.5 Expense assessments 219.8 217.4 205.9 203.9 208.0 Health premiums 95.7 103.9 36.1 2.4 8.3 Investment advisory fees 49.6 47.2 50.9 48.0 47.8 Amortization of deferred gain 20.4 24.2 22.0 Amortization of deferred gain-reserve development Other revenue and fees 54.9 100.2 87.9 70.8 75.1 Net investment income 680.7 693.3 653.1 654.8 657.4 Earnings in Unconsolidated Affiliates 0.0 0.4 4.3 (0.6) Realized gains (losses) on investments (17.9) (37.1) (16.8) (103.5) (81.5) Gains (losses) on derivatives 0.3 (0.5) (8.9) 0.1 0.4 ------- ------- ------- ------- ------- Total Revenue 1,593.5 1,618.0 1,463.8 1,126.0 1,157.5 ------- ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 373.6 422.6 302.8 176.1 191.5 Div accum & div to policyholders 20.2 18.0 26.6 17.8 18.2 Interest credited to policy bal. 369.7 378.7 390.6 406.2 382.5 Health policy benefits 91.5 83.8 25.0 3.3 33.9 Reserve developments on Reins. business sold 22.2 ------- ------- ------- ------- ------- Total insurance benefits 855.0 903.1 744.9 603.4 648.3 Underwriting, acquisition, insurance and other expenses: Commissions 217.6 207.9 217.9 144.2 148.6 Other volume related expenses 58.9 53.1 29.1 54.7 65.5 Operating and administrative expenses 257.7 279.7 314.9 220.7 219.4 Restructuring charges 5.9 (0.0) 31.0 1.6 Taxes, licenses and fees 29.2 30.0 28.4 36.6 23.5 Par policyholder interests 0.0 Foreign exchange 2.0 (2.5) 1.1 0.0 0.6 ------- ------- ------- ------- ------- Subtotal 571.4 568.3 622.4 456.2 459.2 Deferral of acquisition costs (175.1) (183.4) (194.5) (147.9) (156.1) DAC amortization 82.9 118.0 56.8 70.4 100.5 ------- ------- ------- ------- ------- DAC deferral net of amortization (92.2) (65.4) (137.7) (77.5) (55.5) PVIF amortization 23.6 34.4 21.8 21.3 31.9 Other intangibles amortization 2.6 2.6 2.5 2.2 2.0 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 505.4 539.9 509.0 402.2 437.6 Goodwill amortization 10.9 10.9 10.7 Interest 32.0 29.6 25.0 24.8 24.6 ------- ------- ------- ------- ------- Total Benefits and Expenses 1,403.3 1,483.5 1,289.7 1,030.4 1,110.5 ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 190.2 134.5 174.2 95.5 46.9 Federal income taxes 47.8 26.4 17.3 9.9 (1.6) ------- ------- ------- ------- ------- Income Before Cumulative Effect of Accounting Changes 142.4 108.0 156.9 85.6 48.5 ------- ------- ------- ------- ------- Cumulative effect of accounting changes (11.3) (0.0) ------- ------- ------- ------- ------- Net Income 131.1 108.0 156.9 85.6 48.5 ------- ------- ------- ------- ------- Less: Restructuring charges (3.9) 0.0 (20.2) (1.0) Realized gains (losses) on investments (11.5) (23.8) (20.0) (67.6) (52.7) Gains (losses) on derivatives 0.2 (0.4) (4.6) 0.1 0.3 Reserve increase on business sold through reinsurance (14.4) Gain on sale of subsidiaries 15.0 Cumulative Effect of Accounting Changes (11.3) (0.0) ------- ------- ------- ------- ------- Income from Operations 157.5 132.2 186.7 153.1 116.4 ======= ======= ======= ======= ======= Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 2,963.4 3,129.1 3,087.2 2,885.3 3,114.9 Deferral 175.1 183.4 194.5 147.9 156.1 Amortization (82.9) (118.0) (56.8) (70.4) (100.5) ------- ------- ------- ------- ------- Included in Total Benefits and Expenses 92.2 65.4 137.7 77.5 55.5 Adjustment related to realized (gains) losses on securities available-for-sale 17.8 23.9 49.5 41.9 32.5 Adjustment related to unrealized (gains) losses on securities available-for-sale 55.8 (157.0) 68.1 114.9 (152.1) Foreign currency translation adjustment (0.2) 23.8 (7.2) (12.2) 41.7 Disposition of business (425.9) Other 0.1 2.1 (24.2) 7.5 (35.7) ------- ------- ------- ------- ------- Balance at end-of-period 3,129.1 3,087.2 2,885.3 3,114.9 3,056.7 ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 1,436.0 1,412.3 1,387.4 1,362.5 1,336.1 Amortization (23.6) (34.4) (21.8) (21.3) (31.9) Foreign currency translation adjustment (0.1) 10.3 (3.2) (5.1) 17.4 Other (0.7) (0.1) ------- ------- ------- ------- ------- Balance at end-of-period 1,412.3 1,387.4 1,362.5 1,336.1 1,321.4 ======= ======= ======= ======= ======= For the Quarter Ended Sep Dec Mar Jun 2002 2002 2003 2003 ------- ------- ------- ------- Revenue Life and annuity premiums 71.6 80.7 65.3 65.9 Surrender charges 22.8 23.5 18.9 21.3 Mortality assessments 134.1 135.3 138.9 135.6 Expense assessments 193.2 187.6 177.1 190.9 Health premiums (9.6) 19.1 3.0 0.1 Investment advisory fees 42.9 44.7 44.2 49.4 Amortization of deferred gain 22.1 6.9 18.4 18.2 Amortization of deferred gain-reserve development (1.4) 0.5 (0.2) (0.2) Other revenue and fees 72.1 81.5 70.6 74.5 Net investment income 652.4 667.3 654.6 660.2 Earnings in Unconsolidated Affiliates Realized gains (losses) on investments (37.1) (58.9) (89.6) (1.7) Gains (losses) on derivatives 0.3 0.3 (1.9) (1.0) ------- ------- ------- ------- Total Revenue 1,163.4 1,188.6 1,099.3 1,213.2 ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 229.7 214.0 187.1 155.1 Div accum & div to policyholders 17.2 22.8 14.4 17.6 Interest credited to policy bal. 417.4 411.1 409.3 406.3 Health policy benefits 7.3 5.1 2.3 14.2 Reserve developments on Reins. business sold 270.0 13.2 ------- ------- ------- ------- Total insurance benefits 941.6 666.2 613.0 593.2 Underwriting, acquisition, insurance and other expenses: Commissions 124.6 162.0 125.7 132.9 Other volume related expenses 63.9 72.6 71.5 65.4 Operating and administrative expenses 228.1 259.7 217.8 235.5 Restructuring charges (2.1) (1.7) 5.5 13.5 Taxes, licenses and fees 24.1 22.6 30.6 23.1 Par policyholder interests Foreign exchange 0.4 (0.6) (0.0) ------- ------- ------- ------- Subtotal 439.1 514.6 451.2 470.3 Deferral of acquisition costs (155.5) (167.8) (148.5) (140.6) DAC amortization 113.0 62.8 100.1 64.0 ------- ------- ------- ------- DAC deferral net of amortization (42.5) (105.0) (48.4) (76.5) PVIF amortization 40.2 43.0 22.7 13.6 Other intangibles amortization 2.0 2.0 2.0 2.0 ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 438.8 454.5 427.5 409.3 Goodwill amortization Interest 23.7 23.5 23.3 23.0 ------- ------- ------- ------- Total Benefits and Expenses 1,404.1 1,144.2 1,063.9 1,025.5 ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes (240.7) 44.4 35.4 187.7 Federal income taxes (104.3) (6.6) (6.1) 45.0 ------- ------- ------- ------- Income Before Cumulative Effect of Accounting Changes (136.4) 51.0 41.6 142.7 ------- ------- ------- ------- Cumulative effect of accounting changes ------- ------- ------- ------- Net Income (136.4) 51.0 41.6 142.7 ------- ------- ------- ------- Less: Restructuring charges 1.3 1.7 (3.6) (8.8) Realized gains (losses) on investments (23.6) (33.3) (58.2) (1.1) Gains (losses) on derivatives 0.1 0.2 (1.2) (0.6) Reserve increase on business sold through reinsurance (176.4) (8.2) (0.1) (0.1) Gain on sale of subsidiaries (9.4) Cumulative Effect of Accounting Changes ------- ------- ------- ------- Income from Operations 62.1 100.0 104.8 153.3 ======= ======= ======= ======= Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 3,056.6 2,868.7 2,970.9 2,919.0 Deferral 155.5 167.8 148.5 140.6 Amortization (113.0) (62.8) (100.1) (64.0) ------- ------- ------- ------- Included in Total Benefits and Expenses 42.5 105.0 48.4 76.5 Adjustment related to realized (gains) losses on securities available-for-sale 22.9 17.8 30.0 8.3 Adjustment related to unrealized (gains) losses on securities available-for-sale (267.1) (34.2) (119.4) (334.0) Foreign currency translation adjustment 13.8 13.7 (10.9) 27.2 Disposition of business Other (0.0) ------- ------- ------- ------- Balance at end-of-period 2,868.7 2,971.0 2,919.0 2,697.0 ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 1,321.4 1,286.9 1,250.1 1,223.1 Amortization (40.2) (43.0) (22.7) (13.6) Foreign currency translation adjustment 5.7 6.1 (4.3) 11.2 Other 0.1 ------- ------- ------- ------- Balance at end-of-period 1,286.9 1,250.1 1,223.1 1,220.7 ======= ======= ======= =======
PAGE 11 Reconciliation of Business Segments to Consolidated Balance Sheets Unaudited [Millions of Dollars] Investment Lincoln Retirement Life Insurance Management Lincoln UK ------------------ ----------------- ------------------ ------------------ ASSETS Jun Dec Jun Dec Jun Dec Jun Dec 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Investments Corporate bonds 14,154.4 12,928.9 8,567.8 7,879.1 520.7 494.5 653.2 621.0 U.S. government bonds 55.7 41.1 61.8 87.0 0.1 0.1 40.1 Foreign government bonds 351.0 259.2 175.3 136.5 3.9 1.5 337.6 307.5 Asset/Mortgage backed securities 3,140.8 3,243.5 938.7 937.0 47.4 47.2 State and municipal bonds 93.6 67.8 29.6 30.4 1.3 Preferred stocks-redeemable 70.7 55.6 31.9 12.5 8.8 8.9 Common stocks 0.1 0.1 0.0 1.5 58.2 128.9 Preferred stocks-equity 34.2 33.6 2.9 2.7 Mortgage loans 2,264.1 2,210.3 1,629.2 1,572.6 79.4 81.2 0.3 0.3 Real estate 0.2 0.2 Policy loans 450.6 469.5 1,461.4 1,468.2 7.6 7.9 Other long-term investments 38.4 27.9 19.2 23.7 -------- -------- -------- -------- -------- -------- -------- -------- Total Investments 20,653.7 19,337.5 12,914.7 12,148.5 664.4 636.1 1,097.2 1,066.0 -------- -------- -------- -------- -------- -------- -------- -------- Allocated investments 3,586.1 3,757.4 1,230.4 1,250.7 92.3 100.0 Notes receivable from LNC 426.2 358.8 247.4 207.7 48.9 51.7 Invest in unconsol affiliates Cash and invested cash (111.5) (76.7) (23.7) (22.7 69.7 52.9 136.0 206.7 Property and equipment 4.6 1.5 3.4 7.7 41.5 44.7 18.7 19.0 Premium and fees receivable (0.3) 0.7 20.1 32.0 44.6 37.0 Accrued investment income 262.0 256.7 184.3 171.7 9.2 9.0 23.0 22.2 Assets held in separate accounts 29,584.4 26,934.1 1,529.6 1,310.4 5,492.5 5,077.9 Federal income tax recoverable Amount recoverable from reinsurers 1,241.0 1,169.7 967.7 920.5 Deferred acquisition costs 653.1 855.8 1,381.3 1,424.5 595.1 597.6 Other intangible assets 37.9 41.8 Present value of in-force 118.3 122.7 855.5 890.1 247.0 237.4 Goodwill 64.1 64.1 855.1 855.1 300.7 300.7 13.7 13.3 Other 188.1 114.1 417.9 395.6 171.9 187.4 112.6 87.0 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets 56,669.9 52,896.4 20,583.5 19,591.6 1,481.1 1,461.4 7,735.8 7,327.1 ======== ======== ======== ======== ======== ======== ======== ======== ----------------------------------------------------------------------------------------------------------------------------- Corporate and Consolidating Other Operations Adjustments Consolidated ----------------- ------------------ ------------------- ASSETS Jun Dec Jun Dec Jun Dec 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- Investments Corporate bonds 4,523.2 4,011.1 28,419.3 25,934.7 U.S. government bonds 404.3 385.4 561.9 513.6 Foreign government bonds 481.7 405.6 1,349.4 1,110.2 Asset/Mortgage backed securities 628.0 787.8 4,754.9 5,015.5 State and municipal bonds 25.9 16.2 150.4 114.4 Preferred stocks-redeemable 7.1 2.1 118.5 79.0 Common stocks 88.2 97.4 146.6 228.0 Preferred stocks-equity 73.6 72.9 110.7 109.2 Mortgage loans 341.3 341.0 4,314.3 4,205.5 Real estate 240.1 279.5 240.3 279.7 Policy loans 1,919.6 1,945.6 Other long-term investments 448.1 412.8 (0.0) (0.0) 505.6 464.4 -------- -------- -------- -------- -------- -------- Total Investments 7,261.6 6,811.9 (0.0) (0.0) 42,591.6 39,999.9 -------- -------- -------- -------- -------- -------- Allocated investments (45.0) (468.2) (4,863.7) (4,639.9) 0.0 (0.0) Notes receivable from LNC (721.4) (617.6) (1.0) (0.5) (0.0) 0.0 Invest in unconsol affiliates Cash and invested cash 1,875.3 1,530.4 1,945.8 1,690.5 Property and equipment 170.9 169.3 239.1 242.1 Premium and fees receivable 331.7 143.2 396.0 212.9 Accrued investment income 76.5 77.0 555.1 536.7 Assets held in separate accounts 3,336.3 2,856.0 39,942.8 36,178.3 Federal income tax recoverable 317.7 317.7 Amount recoverable from reinsurers 5,423.2 5,450.1 (254.8) (260.3) 7,377.1 7,280.0 Deferred acquisition costs 2.0 2.2 65.5 90.8 2,697.1 2,970.9 Other intangible assets 37.9 41.8 Present value of in-force 1,220.8 1,250.1 Goodwill (0.0) (0.0) 1,233.6 1,233.2 Other 748.0 853.2 (342.5) (407.0) 1,295.9 1,230.3 -------- -------- -------- -------- -------- -------- Total Assets 15,122.8 13,951.4 (2,060.3) (2,043.4) 99,532.8 93,184.6 ======== ======== ======== ======== ======== ========
PAGE 12 Reconciliation of Business Segments to Consolidated Balance Sheets Unaudited [Millions of Dollars] Investment Lincoln Retirement Life Insurance Management Lincoln UK ------------------ ------------------ ---------------- ----------------- LIABILITIES and SHAREHOLDERS' EQUITY Jun Dec Jun Dec Jun Dec Jun Dec 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 2,715.8 2,718.5 14,129.3 13,780.9 1,317.7 1,336.2 Health reserves 0.3 0.3 48.0 48.5 Unpaid claims - life and health 50.8 48.3 110.7 108.3 47.4 44.7 Unearned premiums 0.0 0.0 Premium deposit funds 20,711.1 19,921.6 18.6 18.3 30.8 30.8 Participating policyholders' funds 193.8 156.7 Other policyholders' funds 621.8 603.5 Liab related to separate accounts 29,584.4 26,934.1 1,529.6 1,310.4 5,492.5 5,077.9 -------- -------- -------- -------- -------- -------- Total Insurance and Inv Contract Liabilities 53,062.2 49,622.4 16,604.1 15,978.4 6,936.4 6,538.1 Federal income taxes 438.0 220.7 240.7 97.3 19.2 30.1 7.2 (7.2) Short-term debt Long-term debt Minority Interest in pref. securities of sub. Notes payable to LNC 1.6 0.2 Other liabilities 217.1 94.5 558.9 443.9 880.0 835.7 261.7 201.3 Deferred gain on indemnity reinsurance -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 53,718.9 49,937.8 17,403.7 16,519.6 899.2 865.8 7,205.3 6,732.2 -------- -------- -------- -------- -------- -------- -------- -------- Net unrealized gains (losses) on securities 705.2 309.8 359.8 178.0 2.9 6.4 30.9 25.8 Gains (losses) on derivatives* 12.2 10.6 14.5 16.7 Other shareholders' equity 2,233.7 2,638.2 2,806.1 2,878.0 581.6 591.9 533.5 602.1 S/Hs' equity-minimum pension liability adjustment (0.7) (0.7) (2.6) (2.6) (34.0) (33.0) Cumulative effect of accounting change -------- -------- -------- -------- -------- -------- -------- -------- Shareholders' Equity 2,951 2,959 3,180 3,072 582 596 530 595 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and S/Hs' Equity 56,669.9 52,896.4 20,583.5 19,591.6 1,481.1 1,461.4 7,735.8 7,327.1 ======== ======== ======== ======== ======== ======== ======== ======= ---------------------------------------------------------------------------------------------------------------------------- Corporate and Consolidating Other Operations Adjustments Consolidated ------------------ ------------------ ------------------ LIABILITIES and SHAREHOLDERS' EQUITY Jun Dec Jun Dec Jun Dec 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- --------- -------- Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 2,126.1 2,209.4 (94.4) (94.7) 20,194.5 19,950.3 Health reserves 2,655.0 2,640.2 2,703.3 2,689.0 Unpaid claims - life and health 788.1 577.1 997.1 778.4 Unearned premiums 24.0 141.2 24.0 141.2 Premium deposit funds 143.8 40.1 533.4 508.1 21,437.7 20,518.8 Participating policyholders' funds 193.8 156.7 Other policyholders' funds 7.4 621.8 610.9 Liab related to separate accounts 3,336.3 2,856.0 39,942.8 36,178.3 -------- -------- -------- ------- --------- -------- Total Insurance and Inv Contract Liabilities 5,737.0 5,615.4 3,775.3 3,269.4 86,115.0 81,023.6 Federal income taxes (634.0) (659.4) 0.8 318.5 72.0 Short-term debt 83.4 153.0 83.4 153.0 Long-term debt 1,121.4 1,119.2 1,121.4 1,119.2 Preferred securities of subsidiary trusts 397.1 392.7 397.1 392.7 Notes payable to LNC 258.5 308.7 (260.1) (308.9) (0.0) (0.0) Other liabilities 3,783.0 3,277.6 (711.7) (681.5) 4,989.0 4,171.5 Deferred gain on indemnity reinsurance 938.9 977.1 938.9 977.1 -------- -------- -------- -------- -------- -------- Total Liabilities 11,685.5 11,184.4 2,804.3 2,597.4 93,716.9 87,837.2 -------- -------- -------- -------- -------- -------- Net unrealized gains (losses) on securities 13.8 228.2 5.2 5.2 1,117.8 753.3 Gains (losses) on derivatives* 2.2 1.0 28.8 28.3 Other shareholders' equity 3,482.9 2,599.3 (4,869.7) (4,645.9) 4,768.1 4,663.7 Minimum pension liability adjustment (61.6) (61.6) (98.8) (97.8) Cumulative effect of accounting change -------- -------- -------- -------- ------- -------- Shareholders' Equity 3,437.3 2,767.0 (4,864.6) (4,640.7) 5,815.9 5,347.5 -------- -------- -------- -------- ------- -------- -------- -------- -------- -------- --------- -------- Total Liabilities and S/Hs' Equity 15,122.8 13,951.4 (2,060.3) (2,043.4) 99,532.8 93,184.6 ======== ======== ======== ======== ========= ======== * 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 13 Five Year Comparative Balance Sheet Unaudited [Millions of Dollars except Common Share Data] ASSETS 1998 1999 2000 2001 2002 -------- -------- -------- -------- -------- Investments Corporate bonds 22,505.2 21,119.5 21,249.7 23,105.1 25,934.7 U.S. government bonds 1,134.6 538.3 542.9 410.5 513.6 Foreign government bonds 1,321.2 1,447.5 1,321.1 1,174.7 1,110.2 Mortgage backed securities 5,080.5 4,404.0 4,160.4 3,524.7 5,015.5 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 4,393.1 4,735.4 4,663.0 4,535.5 4,205.5 Real estate 488.7 256.2 282.0 267.9 279.7 Policy loans 1,840.0 1,892.4 1,960.9 1,939.7 1,945.6 Other long-term investments 432.0 401.8 463.3 553.8 464.4 -------- -------- -------- -------- -------- Total Investments 37,929.5 35,578.4 35,368.6 36,113.1 39,999.9 -------- -------- -------- -------- -------- Invest in unconsol affiliates 18.8 25.8 6.4 8.1 Cash and invested cash 2,433.4 1,895.9 1,927.4 3,095.5 1,690.5 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 43,408.9 53,654.2 50,579.9 44,833.4 36,178.3 Federal income taxes recoverable 204.1 345.0 207.5 55.5 317.7 Amounts recoverable from reinsurers 3,127.1 3,954.3 3,747.7 6,030.4 7,280.0 Deferred acquisition costs 1,964.4 2,800.3 3,070.5 2,885.3 2,970.9 Other intangible assets 95.1 92.3 73.7 50.1 41.8 Present value of in-force 1,753.3 1,654.2 1,483.3 1,362.5 1,250.1 Goodwill 1,484.3 1,423.0 1,286.0 1,211.8 1,233.2 Other 468.0 675.7 1,021.6 1,174.9 1,230.3 -------- --------- -------- -------- -------- Total Assets 93,836.3 103,095.7 99,844.1 98,041.6 93,184.6 ======== ========= ======== ======== ======== LIABILITIES and SHAREHOLDERS' EQUITY Liabilities Insurance and Investment Contract Liabilities: Life and annuity reserves 16,434.2 17,071.4 17,841.2 17,917.0 19,950.3 Health reserves 2,600.1 2,507.8 2,523.8 2,537.9 2,689.0 Unpaid claims-life and health 1,043.4 1,269.8 1,316.6 1,087.5 778.4 Unearned premiums 62.3 75.8 46.5 66.9 141.2 Premium deposit funds 20,171.9 19,624.1 17,715.5 18,585.0 20,518.8 Participating policyholders' funds 142.7 132.0 139.4 100.2 156.7 Other policyholders' funds 438.4 472.6 522.2 562.7 610.9 Liab related to separate accounts 43,408.9 53,654.2 50,579.9 44,833.4 36,178.3 -------- -------- -------- -------- -------- Total Ins and Inv Contr Liabilities 84,301.9 94,807.7 90,685.1 85,690.6 81,023.6 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 1,119.2 Preferred securities of subsidiary trusts 745.0 745.0 745.0 474.7 392.7 Other liabilities 2,374.6 2,107.0 2,434.7 4,216.1 4,171.5 Deferred gain on indemnity reinsurance 1,144.5 977.1 -------- -------- -------- -------- -------- Total Liabilities 88,448.3 98,831.9 94,890.0 92,737.8 87,837.2 -------- -------- -------- -------- -------- S/Hs' equity-unrealized gains (losses)-cont op. 552.4 (465.7) 12.0 199.6 781.6 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 4,785.6 4,699.5 4,920.1 5,130.6 4,612.9 Cumulative effect of accounting change 17.6 -------- -------- -------- -------- -------- Total Shareholders' Equity 5,387.9 4,263.9 4,954.1 5,303.8 5,347.5 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and Shareholders' Equity 93,836.3 103,095.7 99,844.1 98,041.6 93,184.6 ======== ========= ======== ======== ======== Shareholders' Equity Per Share Book Value, Excluding AOCI $23.62 $23.98 $25.74 $27.39 $25.97 Common shares outstanding 202.6 196.0 191.2 187.3 177.6
PAGE 14 Quarterly Balance Sheet Unaudited [Millions of Dollars except Common Share Data] Jun Sep Dec Mar Jun 2001 2001 2001 2002 2002 -------- -------- -------- -------- -------- ASSETS Investments Corporate bonds 22,116.6 23,424.3 23,105.1 23,470.4 23,993.6 U.S. government bonds 510.0 467.7 410.5 429.1 441.6 Foreign government bonds 1,236.3 1,160.3 1,174.7 1,180.1 1,120.1 Mortgage backed securities 3,844.6 3,765.6 3,524.7 3,613.9 4,031.0 State and municipal bonds 14.1 14.4 44.7 62.6 58.8 Preferred stocks - redeemable 152.2 99.3 85.9 84.6 79.6 Common stocks 373.3 311.2 319.3 284.4 267.7 Preferred stocks - equity 160.8 166.5 151.2 154.2 151.8 Mortgage loans 4,652.8 4,663.1 4,535.5 4,448.2 4,395.4 Real estate 306.9 288.8 267.9 258.2 258.7 Policy loans 1,947.4 1,943.4 1,939.7 1,918.0 1,906.1 Other long-term investments 480.9 483.4 553.8 459.6 456.0 -------- -------- -------- -------- -------- Total Investments 35,796.0 36,788.0 36,113.1 36,363.1 37,160.1 -------- -------- -------- -------- -------- Invest in unconsol affiliates 6.1 6.5 8.1 8.1 7.5 Cash and invested cash 1,501.9 1,996.3 3,095.5 1,699.5 2,265.4 Property and equipment 251.4 261.0 257.5 266.4 253.5 Premiums and fees receivable 303.7 264.5 400.1 376.3 461.4 Accrued investment income 573.2 615.1 563.5 577.1 556.3 Assets held in separate accounts 47,140.2 39,479.8 44,833.4 44,916.7 40,579.6 Federal income taxes recoverable 210.5 71.6 55.5 593.4 483.4 Amount recoverable from reinsurers 3,662.0 3,818.3 6,030.4 6,096.3 6,509.9 Deferred acquisition costs 3,129.1 3,087.2 2,885.3 3,114.9 3,056.6 Other intangible assets 66.7 64.1 50.1 47.9 45.8 Present value of in-force 1,412.3 1,387.4 1,362.5 1,336.1 1,321.4 Goodwill 1,263.6 1,253.2 1,211.8 1,211.5 1,212.4 Other 1,147.7 1,149.4 1,174.9 1,280.9 1,200.6 -------- -------- -------- -------- -------- Total Assets 96,464.2 90,242.4 98,041.6 97,888.5 95,114.2 ======== ======== ======== ======== ======== LIABILITIES and SHAREHOLDERS' EQUITY Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 17,865.3 17,990.8 17,917.0 18,014.6 18,611.2 Health reserves 2,533.9 2,573.2 2,537.9 2,492.4 2,176.1 Unpaid claims-life and health 1,136.5 1,206.6 1,087.5 1,153.6 1,086.1 Unearned premiums 19.0 8.1 66.9 66.5 154.3 Premium deposit funds 17,715.9 18,509.7 18,585.0 18,669.6 19,157.8 Participating policyholders' funds 135.2 118.3 100.2 98.6 91.9 Other policyholders' funds 541.4 554.3 562.7 571.9 584.7 Liab related to separate accounts 47,140.2 39,479.8 44,833.4 44,916.7 40,579.6 -------- -------- -------- -------- -------- Total Ins and Inv Contr Liabilities 87,087.2 80,440.8 85,690.6 85,983.9 82,441.8 Federal income taxes Short-term debt 351.3 539.0 350.2 510.2 211.0 Long-term debt 712.4 712.4 861.8 861.8 1,112.3 Preferred securities of subsidiary trusts 745.0 305.0 474.7 376.2 380.0 Notes payable to LNC (0.0) 0.0 Other liabilities 2,479.4 2,840.2 4,216.1 3,864.6 4,501.1 Deferred gain on indemnity reinsurance 1,144.5 1,118.6 1,115.2 -------- -------- -------- -------- -------- Total Liabilities 91,375.3 84,837.4 92,737.8 92,715.3 89,761.4 -------- -------- -------- -------- -------- S/Hs' equity-unrealized gns (losses) - inv. 76.2 247.9 195.7 31.8 325.7 S/Hs' equity-gains (losses) - derivatives* 9.4 2.9 3.9 22.6 22.7 S/Hs' equity-foreign currency (15.3) 6.9 (8.0) (20.8) 22.0 S/Hs' equity-minimum pension liability adj (36.0) (35.2) (37.8) S/Hs' equity-other 5,001.1 5,129.8 5,130.6 5,174.7 5,020.3 Cumulative effect of accounting change 17.6 17.4 17.6 -------- -------- -------- -------- -------- Total Shareholders' Equity 5,088.9 5,405.0 5,303.8 5,173.2 5,352.8 -------- -------- -------- -------- -------- Total Liabilities and Shareholders' Equity 96,464.2 90,242.4 98,041.6 97,888.5 95,114.2 ======== ======== ======== ======== ======== Shareholders' Equity Per Share Book Value, Excluding AOCI $26.58 $27.03 $27.39 $27.54 $27.21 Common shares outstanding 188.2 189.8 187.3 187.9 184.5 Sep Dec Mar Jun 2002 2002 2003 2003 -------- -------- -------- -------- ASSETS Investments Corporate bonds 25,484.6 25,934.7 26,936.1 28,419.3 U.S. government bonds 495.3 513.6 537.0 561.9 Foreign government bonds 1,038.6 1,110.2 1,206.6 1,349.4 Mortgage backed securities 4,843.7 5,015.5 4,960.1 4,754.9 State and municipal bonds 97.8 114.4 134.9 150.4 Preferred stocks - redeemable 76.8 79.0 112.0 118.5 Common stocks 237.2 228.0 145.0 146.6 Preferred stocks - equity 160.3 109.2 104.5 110.7 Mortgage loans 4,285.2 4,205.5 4,235.5 4,314.3 Real estate 286.4 279.7 242.0 240.3 Policy loans 1,899.0 1,945.6 1,928.8 1,919.6 Other long-term investments 457.7 464.4 465.7 505.6 -------- -------- -------- -------- Total Investments 39,362.6 39,999.9 41,008.4 42,591.6 -------- -------- -------- -------- Invest in unconsol affiliates Cash and invested cash 1,599.9 1,690.5 1,635.5 1,945.8 Property and equipment 252.7 242.1 239.4 239.1 Premiums and fees receivable 577.2 212.9 194.0 396.0 Accrued investment income 568.2 536.7 567.2 555.1 Assets held in separate accounts 34,069.0 36,178.3 34,775.2 39,942.8 Federal income taxes recoverable 340.7 317.7 89.1 Amount recoverable from reinsurers 7,094.5 7,280.0 7,323.5 7,377.1 Deferred acquisition costs 2,868.7 2,970.9 2,919.0 2,697.1 Other intangible assets 43.8 41.8 39.8 37.9 Present value of in-force 1,286.9 1,250.1 1,223.1 1,220.8 Goodwill 1,232.7 1,233.2 1,233.0 1,233.6 Other 1,187.1 1,230.3 1,250.6 1,295.9 -------- -------- -------- -------- Total Assets 90,483.9 93,184.6 92,497.6 99,532.8 ======== ======== ======== ======== LIABILITIES and SHAREHOLDERS' EQUITY Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 19,142.5 19,950.3 20,025.6 20,194.5 Health reserves 2,448.3 2,689.0 2,689.9 2,703.3 Unpaid claims-life and health 1,100.9 778.4 763.1 997.1 Unearned premiums 185.8 141.2 141.1 24.0 Premium deposit funds 20,054.4 20,518.8 21,070.5 21,437.7 Participating policyholders' funds 90.5 156.7 166.3 193.8 Other policyholders' funds 595.7 610.9 607.1 621.8 Liab related to separate accounts 34,069.0 36,178.3 34,775.2 39,942.8 -------- -------- -------- -------- Total Ins and Inv Contr Liabilities 77,687.1 81,023.6 80,238.8 86,115.0 Federal income taxes 72.0 Short-term debt 120.0 153.0 125.4 83.4 Long-term debt 1,118.1 1,119.2 1,118.6 1,121.4 Preferred securities of subsidiary trusts 390.6 392.7 390.8 397.1 Notes payable to LNC (0.0) (0.0) 0.2 (0.0) Other liabilities 4,661.9 4,171.5 4,214.8 4,989.0 Deferred gain on indemnity reinsurance 1,069.5 977.1 959.0 938.9 -------- -------- -------- -------- Total Liabilities 85,047.1 87,837.2 87,047.6 93,716.9 -------- -------- -------- -------- S/Hs' equity-unrealized gns (losses) - inv. 817.5 753.3 872.0 1,117.8 S/Hs' equity-gains (losses) - derivatives* 27.3 28.3 25.0 28.8 S/Hs' equity-foreign currency 35.4 50.8 39.8 68.4 S/Hs' equity-minimum pension liability adj (35.2) (97.8) (97.2) (98.8) S/Hs' equity-other 4,591.8 4,612.9 4,610.5 4,699.8 Cumulative effect of accounting change -------- -------- -------- -------- Total Shareholders' Equity 5,436.8 5,347.5 5,450.0 5,815.9 -------- -------- -------- -------- Total Liabilities and Shareholders' Equity 90,483.9 93,184.6 92,497.6 99,532.8 ======== ======== ======== ======== Shareholders' Equity Per Share Book Value, Excluding AOCI $25.87 $25.97 $25.94 $26.41 Common shares outstanding 177.5 177.6 177.7 178.0 * 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 Lincoln Retirement Income Statements & Operational Data Unaudited [Millions of Dollars] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- Revenue Premiums 53.9 65.2 64.3 77.5 47.4 25.3 8.5 Surrender charges 33.5 37.9 41.8 31.2 31.2 15.1 15.4 Expense assessments 430.7 501.3 591.3 508.6 446.2 241.7 201.8 Other revenue and fees 1.7 14.5 11.0 16.7 3.3 4.5 (0.1) Net investment income 1,530.8 1,509.1 1,430.5 1,399.1 1,457.5 715.7 736.9 Realized gains (losses) on investments 17.5 (12.1) (5.2) (64.5) (196.6) (106.7) (75.8) Gains (losses) on derivatives 0.0 0.0 0.0 (0.3) (1.2) (0.0) (2.5) ------- ------- ------- ------- ------- ------- ------- Total Revenue 2,068.1 2,115.8 2,133.7 1,968.3 1,787.7 895.6 884.2 ------- ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 271.6 259.1 254.7 263.9 314.1 127.9 99.9 Interest credited to policy bal. 955.2 925.2 866.1 863.8 903.8 447.9 437.2 ------- ------- ------- ------- ------- ------- ------- Total insurance benefits 1,226.8 1,184.3 1,120.8 1,127.7 1,217.9 575.8 537.0 Underwriting, acquisition, insurance and other expenses Commissions 236.7 341.4 326.8 336.3 320.8 165.0 141.0 Other volume related expenses 33.1 42.8 52.0 49.7 64.6 26.9 28.6 Operating and administrative expenses 194.0 208.6 200.6 231.8 231.3 108.4 110.7 Restructuring charges 0.0 0.0 0.0 2.0 1.6 1.6 6.2 Taxes, licenses and fees 13.8 0.3 9.3 13.7 11.5 8.9 10.0 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Subtotal 477.6 593.2 588.8 633.6 629.8 310.7 296.4 Deferral of acquisition costs (240.9) (243.9) (122.6) (98.8) DAC amortization 125.5 157.7 80.9 59.4 ------- ------- ------- ------- ------- ------- ------- DAC deferral net of amortization 9.7 (47.7) (37.5) (115.4) (86.2) (41.6) (39.4) PVIF amortization 11.4 15.3 24.2 14.7 31.8 7.7 4.4 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 498.8 560.8 575.5 532.8 575.4 276.8 261.4 Goodwill amortization 2.2 2.0 (0.6) 1.2 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Total Benefits and Expenses 1,727.8 1,747.1 1,695.7 1,661.8 1,793.3 852.7 798.5 ------- ------- ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes ------- ------- ------- ------- ------- ------- ------- 340.3 368.7 438.0 306.5 (5.6) 42.9 85.7 ------- ------- ------- ------- ------- ------- ------- Federal income taxes 66.5 77.2 79.4 34.1 (59.3) (12.8) (2.9) Income Before Cumulative Effect of Accounting Changes ------- ------- ------- ------- ------- ------- ------- 273.8 291.5 358.6 272.4 53.7 55.7 88.6 ------- ------- ------- ------- ------- ------- ------- Cumulative effect of accounting changes 0.0 0.0 0.0 (7.3) 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Net Income 273.8 291.5 358.6 265.1 53.7 55.7 88.6 ======= ======= ======= ======= ======= ======= ======= Less: Realized gains (losses) on investments 11.4 (7.9) (3.4) (42.3) (127.8) (69.5) (49.3) Gains (losses) on derivatives 0.0 0.0 0.0 (0.2) (0.8) 0.1 (1.6) Restructuring charges 0.0 0.0 0.0 (1.3) (1.0) (1.0) (4.0) Cumulative effect of accounting changes 0.0 0.0 0.0 (7.3) 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Income from Operations 262.4 299.4 362.0 316.2 183.4 126.2 143.5 ======= ======= ======= ======= ======= ======= ======= Effective tax rate on Income from Operations 18.7% 21.4% 18.3% 15.3% 5.4% 16.6% 15.7% Revenue 2,068.1 2,115.8 2,133.7 1,968.3 1,787.7 895.6 884.2 Less: Realized gains (losses) on investments 17.5 (12.1) (5.2) (64.5) (196.6) (106.7) (75.8) Gains (losses) on derivatives 0.0 0.0 0.0 (0.3) (1.2) (0.0) (2.5) ------- ------- ------- ------- ------- ------- ------- Operating Revenue 2,050.6 2,128.0 2,138.9 2,033.1 1,985.5 1,002.3 962.5 ======= ======= ======= ======= ======= ======= ======= Average capital 1,592.6 1,562.0 1,601.8 1,829.3 2,337.5 2,219.1 2,394.3 Net Income return on average capital 17.2% 18.7% 22.4% 14.5% 2.3% 5.0% 7.4% Income from operations return on average capital 16.5% 19.2% 22.6% 17.3% 7.8% 11.4% 12.0% ------------------------------------------------------------------------------------------------------------------------------ Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 812.5 912.8 912.8 855.8 Deferral 240.9 243.9 122.6 98.8 Amortization (125.5) (157.7) (80.9) (59.4) ------- ------- ------- ------- Included in Total Benefits and Expenses 115.4 86.2 41.6 39.4 Adjustment related to realized (gains) losses on securities available-for-sale 68.2 73.0 46.6 29.8 Adjustment related to unrealized (gains) losses on securities available-for-sale (90.0) (201.4) (18.4) (271.8) Other* 6.7 (14.8) (14.8) -- ------- ------- ------- ------- Balance at end-of-period 912.8 855.8 967.8 653.1 ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 169.2 154.5 154.5 122.6 Amortization (14.7) (31.9) (7.7) (4.4) Other ------- ------- ------- ------- Balance at end-of-period 154.5 122.6 146.7 118.3 ======= ======= ======= ======= * Includes the transfer of the Legacy Life block of business to the Life Insurance segment in the first quarter of 2002. Note: 2001 and 2002 have been restated for the adoption of the fair value method of accounting for stock options under FAS 123.
PAGE 16 Lincoln Retirement Income Statements & Operational Data Unaudited [Millions of Dollars] For the Quarter Ended Jun Sep Dec Mar Jun 2001 2001 2001 2002 2002 ------ ------ ------ ------ ------ Revenue Premiums 32.5 13.2 12.7 12.2 13.1 Surrender charges 8.5 6.5 7.2 7.9 7.2 Expense assessments 130.3 124.9 119.7 121.0 120.7 Other revenue and fees 3.9 1.2 10.0 5.8 (1.3) Net investment income 347.0 353.7 349.1 356.6 359.1 Realized gains (losses) on investments (10.3) (20.8) (31.3) (50.5) (56.2) Gains (losses) on derivatives 0.2 (0.5) 0.2 0.0 (0.1) ------ ------ ------ ------ ------ Total Revenue 512.1 478.2 467.5 453.0 442.6 ------ ------ ------ ------ ------ Benefits and Expenses Benefits paid or provided: Benefits 72.6 66.3 55.3 55.4 72.5 Interest credited to policy balances 209.7 217.2 227.5 226.1 221.8 ------ ------ ------ ------ ------ Total insurance benefits 282.3 283.5 282.8 281.5 294.3 Underwriting, acquisition, insurance and other expenses: Commissions 85.8 81.1 96.7 82.4 82.5 Other volume related expenses 12.8 12.7 13.1 10.0 16.9 Operating and administrative expenses 54.0 56.9 68.0 54.6 53.8 Restructuring charges 1.0 0.0 0.0 0.0 1.6 Taxes, licenses and fees 2.7 2.2 4.5 4.7 4.2 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Subtotal 156.3 152.9 182.3 151.8 159.0 Deferral of acquisition costs (60.2) (58.7) (71.9) (61.7) (60.8) DAC amortization 28.3 35.6 20.9 32.7 48.3 ------ ------ ------ ------ ------ DAC deferral net of amortization (31.9) (23.0) (51.0) (29.1) (12.6) PVIF amortization 4.1 4.5 1.4 3.8 3.9 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 128.5 134.4 132.7 126.5 150.4 Goodwill amortization 0.3 0.3 0.3 0.0 0.0 ------ ------ ------ ------ ------ Total Benefits and Expenses 411.1 418.2 415.8 408.0 444.7 ------ ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 101.0 60.0 51.8 45.1 (2.2) Federal income taxes 18.4 2.5 (1.4) (1.5) (11.3) ------ ------ ------ ------ ------ Income Before Cumulative Effect of Accounting Changes 82.6 57.6 53.1 46.6 9.2 ------ ------ ------ ------ ------ Cumulative effect of accounting changes (3.7) 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Net Income 78.9 57.6 53.1 46.6 9.2 ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments (6.7) (13.5) (20.7) (32.8) (36.6) Gains (losses) on derivatives 0.1 (0.3) 0.1 0.0 0.1 Restructuring charges (0.6) 0.0 0.0 0.0 (1.0) Cumulative effect of accounting changes (3.7) 0.0 ------ ------ ------ ------ ------ Income from Operations 89.8 71.4 73.7 79.4 46.8 ====== ====== ====== ====== ====== Effective tax rate on Income from Operations 19.8% 12.2% 11.1% 16.9% 16.0% Revenue 512.1 478.2 467.5 453.0 442.6 Less: Realized gains (losses) on investments (10.3) (20.8) (31.3) (50.5) (56.2) Gains (losses) on derivatives 0.2 (0.5) 0.2 0.0 (0.1) ------ ------ ------ ------ ------ Operating Revenue 522.1 499.5 498.7 503.5 498.8 ====== ====== ====== ====== ====== Average capital 1,787.9 1,904.3 1,826.8 2,044.0 2,394.2 Net Income return on average capital 17.6% 12.1% 11.6% 9.1% 1.5% Income from operations return on average capital 20.1% 15.0% 16.1% 15.5% 7.8% -------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 762.6 831.3 781.2 912.8 1,031.0 Deferral 60.2 58.7 71.9 61.7 60.8 Amortization (28.3) (35.6) (20.9) (32.7) (48.3) ------ ------ ------ ------ ------ Included in Total Benefits and Expenses 31.9 23.0 51.0 29.1 12.6 Adjustment related to realized (gains) losses on securities available-for-sale 4.9 16.4 34.1 25.7 20.9 Adjustment related to unrealized (gains) losses on securities available-for-sale 31.9 (89.7) 46.5 78.2 (96.6) Other* (0.0) 0.3 (0.0) (14.8) ------ ------ ------ ------ ------ Balance at end-of-quarter 831.3 781.2 912.8 1,031.0 967.8 ====== ====== ====== ====== ====== Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 164.6 160.4 155.9 154.5 150.7 Amortization (4.1) (4.5) (1.4) (3.8) (3.9) Other ------ ------ ------ ------ ------ Balance at end-of-quarter 160.4 155.9 154.5 150.7 146.8 ====== ====== ====== ====== ====== For the Quarter Ended Sep Dec Mar Jun 2002 2002 2003 2003 ------ ------ ------ ------ Revenue Premiums 13.4 8.7 5.5 3.0 Surrender charges 8.7 7.4 6.9 8.5 Expense assessments 103.9 100.6 97.6 104.3 Other revenue and fees (4.0) 2.7 (1.4) 1.3 Net investment income 363.5 378.3 367.0 369.8 Realized gains (losses) on investments (43.8) (46.1) (76.8) 0.9 Gains (losses) on derivatives (1.1) (0.1) (1.0) (1.5) ------ ------ ------ ------ Total Revenue 440.7 451.4 397.8 486.4 ------ ------ ------ ------ Benefits and Expenses Benefits paid or provided: Benefits 107.8 78.4 65.0 34.8 Interest credited to policy balances 224.2 231.7 220.1 217.1 ------ ------ ------ ------ Total insurance benefits 332.0 310.1 285.1 251.9 Underwriting, acquisition, insurance and other expenses: Commissions 83.0 72.8 66.8 74.2 Other volume related expenses 19.6 18.1 14.0 14.7 Operating and administrative expenses 53.0 69.9 54.0 56.6 Restructuring charges 0.0 0.0 0.0 6.2 Taxes, licenses and fees 3.0 (0.5) 5.7 4.3 Par policyholder interests 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Subtotal 158.6 160.4 140.4 156.0 Deferral of acquisition costs (66.0) (55.3) (47.8) (51.0) DAC amortization 47.1 29.6 31.0 28.5 ------ ------ ------ ------ DAC deferral net of amortization (18.9) (25.7) (16.8) (22.6) PVIF amortization 4.1 20.0 2.3 2.1 Other intangibles amortization 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 143.8 154.8 125.9 135.5 Goodwill amortization 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Total Benefits and Expenses 475.8 464.8 411.0 387.4 ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes (35.1) (13.4) (13.3) 99.0 Federal income taxes (28.0) (18.4) (20.1) 17.3 ------ ------ ------ ------ Income Before Cumulative Effect of Accounting Changes (7.0) 5.0 6.9 81.7 ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Net Income (7.0) 5.0 6.9 81.7 ====== ====== ====== ====== Less: Realized gains (losses) on investments (28.0) (30.4) (50.3) 1.0 Gains (losses) on derivatives (0.8) (0.0) (0.2) (1.4) Restructuring charges 0.0 0.0 0.0 (4.0) Cumulative effect of accounting changes ------ ------ ------ ------ Income from Operations 21.8 35.4 57.4 86.1 ====== ====== ====== ====== Effective tax rate on Income from Operations (121.8%) (8.1%) 11.0% 18.6% Revenue 440.7 451.4 397.8 486.4 Less: Realized gains (losses) on investments (43.8) (46.1) (76.8) 0.9 Gains (losses) on derivatives (1.1) (0.1) (1.0) (1.5) ------ ------ ------ ------ Operating Revenue 485.6 497.6 475.5 487.0 ====== ====== ====== ====== Average capital 2,409.0 2,502.8 2,526.3 2,262.3 Net Income return on average capital (1.2%) 0.8% 1.1% 14.4% Income from operations return on average capital 3.6% 5.7% 9.1% 15.2% -------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 967.8 843.9 855.8 820.6 Deferral 66.0 55.3 47.8 51.0 Amortization (47.1) (29.6) (31.0) (28.5) ------ ------ ------ ------ Included in Total Benefits and Expenses 18.9 25.7 16.8 22.6 Adjustment related to realized (gains) losses on securities available-for-sale 10.3 16.1 21.8 7.9 Adjustment related to unrealized (gains) losses on securities available-for-sale (153.1) (29.9) (73.9) (197.9) Other* ------ ------ ------ ------ Balance at end-of-quarter 843.9 855.8 820.6 653.1 ====== ====== ====== ====== Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 146.8 142.7 122.7 120.4 Amortization (4.1) (20.0) (2.3) (2.1) Other ------ ------ ------ ------ Balance at end-of-quarter 142.7 122.7 120.4 118.3 ====== ====== ====== ====== * Includes the transfer of the Legacy Life block of business to the Life Insurance segment in the first quarter of 2002.
PAGE 17 Lincoln Retirement Annuity Account Value Roll Forward Unaudited [Billions of Dollars] YTD YTD Jun Jun 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- Fixed Annuities- Bal Beg-of-Year 17.214 18.111 18.210 16.615 18.004 18.004 20.087 Gross Deposits 1.452 2.563 2.074 3.342 3.672 1.759 1.555 Withdrawals (incl charges) & deaths (2.468) (2.521) (3.283) (2.448) (2.637) (1.281) (1.025) ------- ------- ------- ------- ------- ------- ------- Net flows (1.016) 0.042 (1.209) 0.894 1.035 0.478 0.530 Transfer from (to) var annuities (0.356) (0.783) (1.329) (0.428) 0.108 (0.264) (0.205) Interest credited 0.994 0.840 0.944 0.923 0.940 0.461 0.452 Acq of new business/companies 1.274 ------- ------- ------- ------- ------- ------- ------- Fixed Annuities-Gross 18.111 18.210 16.615 18.004 20.087 18.679 20.864 ------- ------- ------- ------- ------- ------- ------- Reinsurance Ceded (1.606) (1.419) (1.221) (1.514) (2.003) (1.770) (2.169) ------- ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal End -of-Year 16.505 16.791 15.394 16.491 18.085 16.910 18.696 ------- ------- ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits * 1.265 2.310 1.918 3.213 3.600 1.720 1.521 Variable Annuities-Bal Beg-of-Year 27.346 33.358 41.493 39.427 34.638 34.638 27.438 Gross Deposits 2.791 2.553 3.165 3.067 2.743 1.595 1.232 Withdrawals (incl charges) & deaths (3.019) (3.760) (4.830) (3.856) (3.325) (1.762) (1.567) ------- ------- ------- ------- ------- ------- ------- Net flows (0.228) (1.207) (1.665) (0.789) (0.582) (0.167) (0.335) Transfer from (to) fixed annuities 0.389 0.787 1.320 0.428 (0.122) 0.266 0.201 Invest inc & change in mkt value 5.414 8.555 (1.721) (4.428) (6.497) (3.531) 3.153 Acq(sale) of new business/companies 0.437 ------- ------- ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Year 33.358 41.493 39.427 34.638 27.438 31.206 30.457 ------- ------- ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits * 2.641 2.409 2.667 2.624 2.569 1.468 1.189 Total Annuities - Bal Beg-of-Year 44.560 51.469 59.703 56.042 52.642 52.642 47.525 Gross Deposits 4.244 5.116 5.239 6.409 6.415 3.354 2.787 Withdrawals (incl charges) & deaths (5.487) (6.281) (8.113) (6.304) (5.962) (3.043) (2.592) ------- ------- ------- ------- ------- ------- ------- Net flows (1.244) (1.165) (2.874) 0.105 0.453 0.311 0.195 Transfers 0.033 0.004 (0.009) (0.013) 0.002 (0.004) Interest credited & change in mkt value 6.408 9.395 (0.777) (3.505) (5.558) (3.070) 3.605 Acq of new business/companies 1.711 ------- ------- ------- ------- ------- ------- ------- Total Gross Annuities-Bal End-of-Year 51.469 59.703 56.042 52.642 47.525 49.886 51.320 ------- ------- ------- ------- ------- ------- ------- Reinsurance Ceded (1.606) (1.419) (1.221) (1.514) (2.003) (1.770) (2.169) Total Annuities (Net of Ceded) - Bal ------- ------- ------- ------- ------- ------- ------- End-of-Year 49.862 58.284 54.821 51.129 45.522 48.116 49.151 ======= ======= ======= ======= ======= ======= ======= Total Annuities Incremental Deposits * 3.906 4.719 4.585 5.837 6.169 3.189 2.710 ------- ------- ------- ------- ------- ------- ------- Var Ann Under Agree - Included above 0.649 0.719 0.941 1.077 1.186 1.175 1.637 ------- ------- ------- ------- ------- ------- ------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.709 0.459 1.712 1.844 0.935 0.724 Withdrawals (1.367) (2.271) (1.604) (1.473) (0.730) (0.443) ------- ------- ------- ------- ------- ------- Net Flows (0.658) (1.812) 0.108 0.371 0.205 0.281 ------- ------- ------- ------- ------- ------- Gross Fixed Account Values 10.475 10.048 11.001 Reinsurance Ceded (2.003) (1.770) (2.169) ------- ------- ------- Net Fixed Account Values 8.473 8.278 8.832 ------- ------- ------- Variable Annuities - including fixed portion of variable contracts Deposits 4.407 4.780 4.697 4.571 2.419 2.063 Withdrawals (4.915) (5.842) (4.700) (4.489) (2.313) (2.149) ------- ------- ------- ------- ------- ------- Net Flows (0.508) (1.062) (0.003) 0.082 0.106 (0.086) ------- ------- ------- ------- ------- ------- Variable Account Values 37.050 39.839 40.320 Fixed Portion of Variable Contracts Deposits 1.853 1.615 1.630 1.828 0.824 0.831 Withdrawals (1.154) (1.012) (0.844) (1.164) (0.551) (0.582) ------- ------- ------- ------- ------- ------- Net Flows 0.699 0.603 0.786 0.664 0.273 0.249 ------- ------- ------- ------- ------- ------- Fixed Portion of Variable Account Values 16.491 9.612 8.632 9.864 Average Daily Variable Account Values 35.932 41.776 35.573 30.826 33.921 28.051 ----------------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income 7.22% 7.38% 7.38% 6.98% 7.13% 6.55% Interest Credited 5.13% 5.24% 5.33% 4.87% 5.03% 4.36% ------- ------- ------- ------- ------- ------- Spread 2.09% 2.14% 2.05% 2.11% 2.10% 2.20% * 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 18 Lincoln Retirement Annuity Account Value Roll Forward Unaudited [Billions of Dollars] Sep Dec Mar Jun Sep Dec 2000 2000 2001 2001 2001 2001 ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal Beg-of-Quarter 17.199 16.929 16.615 16.598 16.696 17.317 Gross Deposits 0.513 0.482 0.560 0.668 0.896 1.218 Withdrawals (incl charges) & deaths (0.802) (0.810) (0.787) (0.574) (0.525) (0.562) ------- ------- ------- ------- ------- ------- Net flows (0.288) (0.328) (0.227) 0.094 0.372 0.656 Transfer from (to) var annuities (0.217) (0.216) (0.014) (0.222) 0.021 (0.213) Interest credited 0.235 0.230 0.225 0.226 0.228 0.244 Acq of new business/companies ------- ------- ------- ------- ------- ------- Fixed Annuities-Gross 16.929 16.615 16.598 16.696 17.317 18.004 Reinsurance Ceded (1.270) (1.221) (1.169) (1.146) (1.266) (1.514) ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal End-of-Quarter 15.660 15.394 15.430 15.551 16.051 16.491 ------- ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits* 0.464 0.447 0.536 0.611 0.873 1.193 Variable Annuities-Bal Beg-of-Quarter 43.097 42.743 39.427 34.733 36.961 30.506 Gross Deposits 0.729 0.846 0.887 0.703 0.684 0.793 Withdrawals (incl charges) & deaths (1.253) (1.199) (1.250) (0.993) (0.795) (0.818) ------- ------- ------- ------- ------- ------- Net flows (0.524) (0.353) (0.363) (0.290) (0.111) (0.025) Transfer from (to) fixed annuities 0.216 0.212 0.011 0.227 (0.023) 0.213 Invest inc & change in mkt value (0.046) (3.175) (4.342) 2.291 (6.321) 3.944 Acq (sale) of new business/companies ------- ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Quarter 42.743 39.427 34.733 36.961 30.506 34.638 ------- ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits 0.586 0.650 0.683 0.612 0.604 0.725 Total Annuities-Bal Beg-of-Quarter 60.296 59.673 56.042 51.331 53.657 47.823 Gross Deposits 1.242 1.328 1.447 1.371 1.580 2.011 Withdrawals (incl charges) & deaths (2.055) (2.009) (2.037) (1.567) (1.320) (1.380) ------- ------- ------- ------- ------- ------- Net flows (0.812) (0.681) (0.590) (0.196) 0.261 0.631 Transfers (0.001) (0.004) (0.003) 0.005 (0.002) Interest credited & change in mkt value 0.189 (2.945) (4.117) 2.517 (6.093) 4.188 Acq of new business/companies ------- ------- ------- ------- ------- ------- Total Gross Annuities-Bal End-of-Quarter 59.673 56.042 51.331 53.657 47.823 52.642 Reinsurance Ceded (1.270) (1.221) (1.169) (1.146) (1.266) (1.514) ------- ------- ------- ------- ------- ------- Total Annuities (Net of Ceded)- Bal End-of-Qtr 58.403 54.821 50.162 52.512 46.557 51.128 ======= ======= ======= ======= ======= ======= Total Annuities Incremental Deposits* 1.050 1.097 1.219 1.223 1.477 1.918 Var Ann Under Agree - Included above 0.962 0.941 0.904 0.975 0.907 1.077 * Incremental Deposits represent gross deposits reduced by transfers from other Lincoln Retirement products. -------------------------------------------------------------------------------------------------------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.114 0.085 0.160 0.329 0.489 0.734 Withdrawals (0.532) (0.570) (0.556) (0.356) (0.340) (0.352) Net Flows (0.417) (0.485) (0.396) (0.027) 0.149 0.382 ------- ------- ------- ------- ------- ------- Gross Fixed Account Values Reinsurance Ceded Net Fixed Account Values Variable Annuities - including fixed portion of variable contracts Deposits 1.128 1.243 1.287 1.042 1.091 1.277 Withdrawals (1.523) (1.439) (1.481) (1.211) (0.979) (1.028) ------- ------- ------- ------- ------- ------- Net Flows (0.395) (0.196) (0.194) (0.169) 0.112 0.249 ------- ------- ------- ------- ------- ------- Variable Account Values Fixed Portion of Variable Contracts Deposits 0.399 0.397 0.400 0.339 0.407 0.484 Withdrawals (0.270) (0.240) (0.231) (0.218) (0.184) (0.210) ------- ------- ------- ------- ------- ------- Net Flows 0.129 0.157 0.169 0.121 0.223 0.274 ------- ------- ------- ------- ------- ------- Fixed Portion of Variable Account Values Average Daily Variable Account Values 43.055 39.682 38.180 36.499 34.399 33.216 -------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income 7.40% 7.37% 7.50% 7.45% 7.33% 7.26% Interest Credited 5.12% 5.14% 5.40% 5.29% 5.34% 5.28% ------- ------- ------- ------- ------- ------- Spread 2.28% 2.23% 2.09% 2.16% 1.99% 1.98% Mar Jun Sep Dec Mar Jun 2002 2002 2002 2002 2003 2003 ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal Beg-of-Quarter 18.004 18.178 18.679 19.562 20.086 20.611 Gross Deposits 0.906 0.853 1.091 0.822 0.776 0.778 Withdrawals (incl charges) & deaths (0.730) (0.551) (0.825) (0.531) (0.524) (0.501) ------- ------- ------- ------- ------- ------- Net flows 0.176 0.302 0.265 0.291 0.253 0.277 Transfer from (to) var annuities (0.232) (0.032) 0.379 (0.007) 0.046 (0.250) Interest credited 0.230 0.231 0.238 0.240 0.226 0.226 Acq of new business/companies ------- ------- ------- ------- ------- ------- Fixed Annuities-Gross 18.178 18.679 19.562 20.086 20.611 20.863 Reinsurance Ceded (1.645) (1.770) (1.913) (2.003) (2.075) (2.169) ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal End-of-Quarter 16.534 16.910 17.650 18.085 18.537 18.696 ------- ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits* 0.881 0.839 1.072 0.808 0.753 0.768 Variable Annuities-Bal Beg-of-Quarter 34.638 35.150 31.206 25.942 27.438 26.474 Gross Deposits 0.808 0.787 0.603 0.545 0.648 0.584 Withdrawals (incl charges) & deaths (0.896) (0.866) (0.800) (0.763) (0.806) (0.762) ------- ------- ------- ------- ------- ------- Net flows (0.088) (0.079) (0.197) (0.217) (0.158) (0.178) Transfer from (to) fixed annuities 0.234 0.032 (0.388) 0.000 (0.048) 0.249 Invest inc & change in mkt value 0.366 (3.897) (4.679) 1.713 (0.759) 3.912 Acq (sale) of new business/companies ------- ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Quarter 35.150 31.206 25.942 27.438 26.474 30.457 ------- ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits 0.725 0.744 0.573 0.528 0.629 0.560 Total Annuities-Bal Beg-of-Quarter 52.642 53.328 49.885 45.504 47.524 47.085 Gross Deposits 1.714 1.640 1.694 1.368 1.424 1.363 Withdrawals (incl charges) & deaths (1.626) (1.417) (1.626) (1.294) (1.329) (1.263) ------- ------- ------- ------- ------- ------- Net flows 0.088 0.223 0.068 0.074 0.095 0.099 Transfers 0.002 0.000 (0.009) (0.006) (0.002) (0.002) Interest credited & change in mkt value 0.596 (3.666) (4.441) 1.953 (0.532) 4.137 Acq of new business/companies ------- ------- ------- ------- ------- ------- Total Gross Annuities-Bal End-of-Quarter 53.328 49.885 45.504 47.524 47.085 51.320 Reinsurance Ceded (1.645) (1.770) (1.913) (2.003) (2.075) (2.169) ------- ------- ------- ------- ------- ------- Total Annuities (Net of Ceded)- Bal End-of-Qtr 51.683 48.115 43.591 45.522 45.010 49.151 ======= ======= ======= ======= ======= ======= Total Annuities Incremental Deposits* 1.606 1.583 1.645 1.336 1.382 1.328 Var Ann Under Agree - Included above 1.207 1.175 1.083 1.186 1.355 1.637 * Incremental Deposits represent gross deposits reduced by transfers from other Lincoln Retirement products. ------------------------------------------------------------------------------------------------------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.505 0.430 0.559 0.351 0.368 0.356 Withdrawals (0.463) (0.267) (0.516) (0.228) (0.208) (0.235) Net Flows 0.042 0.163 0.042 0.123 0.160 0.121 ------- ------- ------- ------- ------- ------- Gross Fixed Account Values 9.761 10.048 10.219 10.475 10.759 11.001 Reinsurance Ceded (1.645) (1.770) (1.913) (2.003) (2.075) (2.169) ------- ------- ------- ------- ------- ------- Net Fixed Account Values 8.116 8.278 8.306 8.473 8.684 8.832 ------- ------- ------- ------- ------- ------- Variable Annuities - including fixed portion of variable contracts Deposits 1.209 1.210 1.135 1.017 1.056 1.007 Withdrawals (1.163) (1.150) (1.109) (1.066) (1.121) (1.028) ------- ------- ------- ------- ------- ------- Net Flows 0.046 0.060 0.026 (0.049) (0.065) (0.022) ------- ------- ------- ------- ------- ------- Variable Account Values 43.568 39.839 35.286 37.050 36.327 40.320 Fixed Portion of Variable Contracts Deposits 0.401 0.423 0.532 0.472 0.408 0.422 Withdrawals (0.267) (0.284) (0.309) (0.303) (0.316) (0.266) ------- ------- ------- ------- ------- ------- Net Flows 0.134 0.139 0.223 0.169 0.093 0.156 ------- ------- ------- ------- ------- ------- Fixed Portion of Variable Account Values 8.418 8.632 9.344 9.612 9.853 9.864 Average Daily Variable Account Values 34.341 33.502 28.023 27.431 26.907 29.195 ------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income 7.15% 7.11% 6.87% 6.89% 6.61% 6.49% Interest Credited 5.14% 4.92% 4.76% 4.72% 4.42% 4.29% ------- ------- ------- ------- ------- ------- Spread 2.01% 2.18% 2.11% 2.17% 2.19% 2.20% * Incremental Deposits represent gross deposits reduced by transfers from other Lincoln Retirement products. ** For the annuity products spread, the yield on earning assets.
PAGE 19 Life Insurance Segment Income Statements Unaudited [Millions of Dollars] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- Revenue Premiums 185.9 235.8 227.3 212.4 203.8 98.7 97.5 Surrender charges 52.1 66.3 66.4 66.1 54.1 25.2 23.8 Mortality assessments 350.1 444.6 465.2 499.4 501.5 247.8 258.1 Expense assessments 146.2 165.8 191.8 191.4 199.5 94.1 97.9 Other revenue and fees 2.6 9.8 14.2 17.9 23.7 12.4 13.1 Net investment income 642.6 840.1 871.5 910.2 899.1 451.7 456.6 Realized gains (losses) on investments (1.0) (2.2) (17.4) (57.6) (98.2) (66.8) (15.2) Gains (losses) on derivatives 0.0 0.0 0.0 0.7 1.5 0.6 (0.2) ------- ------- ------- ------- ------- ------- ------- Total Revenue 1,378.5 1,760.4 1,819.0 1,840.6 1,785.0 863.8 931.6 ------- ------- ------- ------- ------- ------- ------- Benefits and Expenses Benefits paid or provided: Benefits 371.3 430.4 411.5 418.6 427.4 207.7 214.3 Div accum & div to policyholders 70.7 81.5 80.8 78.5 76.0 36.0 32.0 Interest credited to policy bal. 393.1 493.8 525.4 569.9 598.6 295.2 299.9 ------- ------- ------- ------- ------- ------- ------- Total insurance benefits 835.1 1,005.8 1,017.8 1,067.0 1,101.9 538.8 546.2 Underwriting, acquisition, insurance and other expenses: Commissions 107.5 163.4 152.8 142.1 139.8 69.4 63.1 Other volume related expenses 122.7 185.6 200.9 176.4 190.4 86.3 97.4 Operating and administrative expenses 146.0 171.2 164.4 166.8 162.2 76.4 79.1 Restructuring Charges 30.8 0.0 0.0 5.4 0.0 0.0 12.8 Taxes, licenses and fees 29.7 51.8 48.5 49.2 53.2 28.5 28.2 Par policyholder interests (4.3) 3.3 1.1 0.0 0.0 0.0 0.0 Foreign exchange 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Subtotal 432.5 575.2 567.6 539.9 545.6 260.6 280.6 Deferral of acquisition costs 0.0 (324.8) (336.5) (156.5) (170.7) DAC amortization 0.0 95.0 105.8 45.7 76.5 ------- ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (159.3) (235.0) (286.5) (229.8) (230.7) (110.8) (94.3) PVIF amortization 51.9 58.8 103.7 75.9 73.9 33.1 34.6 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 325.0 399.1 384.8 385.9 388.8 182.8 220.9 Goodwill amortization 19.7 23.4 23.7 23.7 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Total Benefits and Expenses 1,179.8 1,428.2 1,426.3 1,476.6 1,490.8 721.7 767.2 ------- ------- ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 198.7 332.2 392.7 364.0 294.2 142.1 164.4 Federal income taxes 71.2 120.6 143.4 129.2 88.1 41.9 50.3 ------- ------- ------- ------- ------- ------- ------- Income Before Cumulative Effect of Accounting Changes 127.5 211.5 249.3 234.8 206.1 100.2 114.1 ------- ------- ------- ------- ------- ------- ------- Cumulative effect of accounting changes 0.0 0.0 0.0 (5.5) 0.0 ------- ------- ------- ------- ------- ------- ------- Net Income 127.5 211.5 249.3 229.3 206.1 100.2 114.1 ======= ======= ======= ======= ======= ======= ======= Less: Realized gains (losses) on investments (1.7) (0.5) (10.7) (38.5) (63.8) (43.4) (9.9) Gains (losses) on derivatives 0.0 0.0 0.0 1.6 1.0 0.3 (0.1) Restructuring charges (20.0) 0.0 0.0 (3.5) 0.0 0.0 (8.3) Cumulative effect of accounting changes 0.0 0.0 0.0 (5.5) 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Income from Operations 149.2 212.0 259.9 275.3 269.0 143.2 132.4 ======= ======= ======= ======= ======= ======= ======= Effective tax rate on Income from Operations 35.6% 36.6% 36.6% 35.4% 31.2% 31.2% 31.2% Revenue 1,378.5 1,760.4 1,819.0 1,840.6 1,785.0 863.8 931.6 Less: Realized gains (losses) on investments (1.0) (2.2) (17.4) (57.6) (98.2) (66.8) (15.2) Gains (losses) on derivatives 0.0 0.7 1.5 0.6 (0.2) ------- ------- ------- ------- ------- ------- ------- Operating Revenue 1,379.5 1,762.6 1,836.4 1,897.5 1,881.7 929.9 947.0 ======= ======= ======= ======= ======= ======= ======= Average capital 1,948.0 2,712.3 2,640.2 2,732.8 2,844.7 2,836.4 2,828.3 Net Income return on average capital 6.5% 7.8% 9.4% 8.4% 7.2% 7.1% 8.1% Income from operations return on average capital 7.7% 7.8% 9.8% 10.1% 9.5% 10.1% 9.4% ------------------------------------------------------------------------------------------------------------------------------ Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 1,079.3 1,265.6 1,265.6 1,424.4 Deferral 324.8 336.5 156.5 170.7 Amortization (95.0) (105.8) (45.7) (76.5) ------- ------- ------- ------- Included in Total Benefits and Expenses 229.8 230.7 110.8 94.3 Adjustment related to realized (gains) losses on securities available-for-sale 43.0 39.7 27.0 6.7 Adjustment related to unrealized (gains) losses on securities available-for-sale (89.0) (130.9) (17.9) (144.2) Other* 2.5 19.3 19.3 - ------- ------- ------- ------- Balance at end-of-period 1,265.6 1,424.4 1,404.9 1,381.2 ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 1,040.5 964.0 964.0 890.1 Amortization (75.9) (73.9) (33.1) (34.6) Other (0.7) (0.0) (0.1) - ------- ------- ------- ------- Balance at end-of-period 964.0 890.1 930.8 855.5 ======= ======= ======= ======= * Includes the transfer of the Legacy Life block of business from the Lincoln Retirement segment in the first quarter of 2002. Note: 2001 and 2002 have been restated for the adoption of the fair value method of accounting for stock options under FAS 123.
PAGE 20 Life Insurance Segment Income Statements Unaudited [Millions of Dollars] For the Quarter Ended Jun Sep Dec Mar Jun 2001 2001 2001 2002 2002 ------- ------- ------- ------- ------- Revenue Premiums 50.7 46.4 64.4 51.1 47.6 Surrender charges 13.5 15.6 19.9 11.7 13.5 Mortality assessments 124.8 124.7 125.5 123.9 123.9 Expense assessments 45.3 46.0 52.8 46.9 47.2 Other revenue and fees 3.8 3.0 6.0 5.7 6.7 Net investment income 227.4 233.2 226.6 226.0 225.7 Realized gains (losses) on investments (10.0) (8.2) (31.1) (41.4) (25.4) Gains (losses) on derivatives 0.2 (0.1) 0.6 0.0 0.6 ------- ------- ------- ------- ------- Total Revenue 455.7 460.6 464.7 423.9 439.8 ------- ------- ------- ------- ------- Benefits and Expenses Benefits paid or provided: Benefits 103.5 102.3 112.9 104.1 103.6 Div accum & div to policyholders 19.0 16.5 25.4 17.8 18.2 Interest credited to policy bal. 141.2 143.5 146.9 146.3 148.9 ------- ------- ------- ------- ------- Total insurance benefits 263.8 262.3 285.1 268.1 270.8 Underwriting, acquisition, insurance and other expenses: Commissions 31.1 32.5 45.1 34.6 34.8 Other volume related expenses 43.3 41.4 56.9 42.7 43.6 Operating and administrative expenses 42.1 43.1 39.8 38.2 38.2 Restructuring charges 3.1 0.0 2.3 0.0 0.0 Taxes, licenses and fees 12.3 12.0 12.5 13.2 15.3 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 Foreign exchange 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Subtotal 131.9 129.0 156.5 128.6 132.0 Deferral of acquisition costs (68.8) (85.3) (106.3) (74.3) (82.2) DAC amortization 15.8 29.7 30.2 22.1 23.6 ------- ------- ------- ------- ------- DAC deferral net of amortization (53.0) (55.5) (76.1) (52.3) (58.6) PVIF amortization 17.7 20.5 14.7 16.9 16.3 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 96.5 94.0 95.1 93.2 89.6 Goodwill amortization 5.9 5.9 5.9 0.0 0.0 ------- ------- ------- ------- ------- Total Benefits and Expenses 366.3 362.2 386.2 361.3 360.4 ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 89.4 98.4 78.4 62.6 79.4 Federal income taxes 31.5 34.7 27.5 19.1 22.7 ------- ------- ------- ------- ------- Income Before Cumulative Effect of Accounting Changes 57.9 63.8 50.9 43.5 56.7 ------- ------- ------- ------- ------- Cumulative effect of accounting changes (5.3) 0.0 (0.0) 0.0 0.0 ------- ------- ------- ------- ------- Net Income 52.6 63.8 50.9 43.5 56.7 ======= ======= ======= ======= ======= Less: Realized gains (losses) on investments (6.4) (5.3) (21.3) (26.9) (16.4) Gains (losses) on derivatives 0.1 (0.0) 1.5 0.0 0.3 Restructuring charges (2.0) 0.0 (1.5) 0.0 0.0 Cumulative effect of accounting changes (5.3) 0.0 (0.0) 0.0 0.0 ------- ------- ------- ------- ------- Income from Operations 66.2 69.1 72.3 70.4 72.8 ======= ======= ======= ======= ======= Effective tax rate on Income from Operations 35.3% 35.2% 35.0% 32.3% 30.1% Revenue 455.7 460.6 464.7 423.9 439.8 Less: Realized gains (losses) on investments (10.0) (8.2) (31.1) (41.4) (25.4) Gains (losses) on derivatives 0.2 (0.1) 0.6 0.0 0.6 ------- ------- ------- ------- ------- Operating Revenue 465.5 468.9 495.2 465.3 464.6 ======= ======= ======= ======= ======= Average capital 2,716.7 2,737.7 2,746.5 2,804.3 2,868.5 Net Income return on average capital 7.7% 9.3% 7.4% 6.2% 7.9% Income from operations return on average capital 9.7% 10.1% 10.5% 10.0% 10.2% -------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 1,064.1 1,151.1 1,156.0 1,265.6 1,385.3 Deferral 68.8 85.3 106.3 74.3 82.2 Amortization (15.8) (29.7) (30.2) (22.1) (23.6) ------- ------- ------- ------- ------- Included in Total Benefits and Expenses 53.0 55.5 76.1 52.3 58.6 Adjustment related to realized (gains) losses on securities available-for-sale 13.3 7.2 14.7 15.8 11.2 Adjustment related to unrealized (gains) losses on securities available-for-sale 20.7 (59.6) 18.5 34.0 (51.9) Other* 0.1 1.8 0.3 17.6 1.7 ------- ------- ------- ------- ------- Balance at end-of-quarter 1,151.1 1,156.0 1,265.6 1,385.3 1,404.9 ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 1,017.6 999.9 978.7 964.0 947.1 Amortization (17.7) (20.5) (14.7) (16.9) (16.3) Other (0.7) (0.1) ------- ------- ------- ------- ------- Balance at end-of-quarter 999.9 978.7 964.0 947.1 930.7 ======= ======= ======= ======= ======= For the Quarter Ended Sep Dec Mar Jun 2002 2002 2003 2003 ------- ------- ------- ------- Revenue Premiums 48.6 56.4 47.8 49.7 Surrender charges 13.4 15.5 11.4 12.4 Mortality assessments 126.3 127.3 129.7 128.4 Expense assessments 49.2 56.3 48.3 49.6 Other revenue and fees 5.1 6.2 5.8 7.3 Net investment income 224.1 223.3 227.6 229.0 Realized gains (losses) on investments (25.9) (5.5) (12.7) (2.6) Gains (losses) on derivatives 0.7 0.1 (0.5) 0.3 ------- ------- ------- ------- Total Revenue 441.6 479.6 457.5 474.0 ------- ------- ------- ------- Benefits and Expenses Benefits paid or provided: Benefits 105.2 114.6 103.8 110.5 Div accum & div to policyholders 17.2 22.8 14.4 17.6 Interest credited to policy bal. 152.6 150.7 150.1 149.8 ------- ------- ------- ------- Total insurance benefits 275.1 288.0 268.3 277.9 Underwriting, acquisition, insurance and other expenses: Commissions 31.8 38.6 32.4 30.7 Other volume related expenses 45.8 58.3 54.2 43.2 Operating and administrative expenses 41.1 44.7 40.6 38.5 Restructuring charges 0.0 0.0 5.5 7.3 Taxes, licenses and fees 13.2 11.5 14.4 13.8 Par policyholder interests 0.0 0.0 0.0 0.0 Foreign exchange 0.0 0.0 0.0 0.0 ------- ------- ------- ------- Subtotal 131.8 153.2 147.1 133.4 Deferral of acquisition costs (78.6) (101.4) (91.0) (79.7) DAC amortization 23.9 36.3 47.0 29.5 ------- ------- ------- ------- DAC deferral net of amortization (54.8) (65.1) (44.0) (50.2) PVIF amortization 23.3 17.4 17.4 17.2 Other intangibles amortization 0.0 0.0 0.0 0.0 ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 100.4 105.5 120.5 100.4 Goodwill amortization 0.0 0.0 0.0 0.0 ------- ------- ------- ------- Total Benefits and Expenses 375.5 393.6 388.8 378.3 ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 66.1 86.0 68.7 95.7 Federal income taxes 19.7 26.5 20.2 30.1 ------- ------- ------- ------- Income Before Cumulative Effect of Accounting Changes 46.4 59.5 48.5 65.6 ------- ------- ------- ------- Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 ------- ------- ------- ------- Net Income 46.4 59.5 48.5 65.6 ======= ======= ======= ======= Less: Realized gains (losses) on investments (16.9) (3.6) (8.1) (1.9) Gains (losses) on derivatives 0.6 0.1 (0.5) 0.4 Restructuring charges 0.0 0.0 (3.6) (4.7) Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 ------- ------- ------- ------- Income from Operations 62.7 63.1 60.7 71.8 ======= ======= ======= ======= Effective tax rate on Income from Operations 31.3% 31.0% 30.6% 31.8% Revenue 441.6 479.6 457.5 474.0 Less: Realized gains (losses) on investments (25.9) (5.5) (12.7) (2.6) Gains (losses) on derivatives 0.7 0.1 (0.5) 0.3 ------- ------- ------- ------- Operating Revenue 466.8 485.0 470.7 476.2 ======= ======= ======= ======= Average capital 2,856.0 2,849.9 2,863.9 2,792.7 Net Income return on average capital 6.5% 8.4% 6.8% 9.4% Income from operations return on average capital 8.8% 8.8% 8.5% 10.3% -------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 1,404.9 1,362.2 1,424.5 1,447.7 Deferral 78.6 101.4 91.0 79.7 Amortization (23.9) (36.3) (47.0) (29.5) ------- ------- ------- ------- Included in Total Benefits and Expenses 54.8 65.1 44.0 50.2 Adjustment related to realized (gains) losses on securities available-for-sale 11.7 1.0 7.0 (0.3) Adjustment related to unrealized (gains) losses on securities available-for-sale (109.3) (3.7) (27.9) (116.3) Other* ------- ------- ------- ------- Balance at end-of-quarter 1,362.2 1,424.5 1,447.7 1,381.3 ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 930.7 907.4 890.1 872.7 Amortization (23.3) (17.4) (17.4) (17.2) Other 0.1 ------- ------- ------- ------- Balance at end-of-quarter 907.4 890.1 872.7 855.5 ======= ======= ======= ======= * Includes the transfer of the Legacy Life block of business from the Lincoln Retirement segment in the first quarter of 2002.
PAGE 21 Life Insurance Segment Operational Data Unaudited [Millions of Dollars] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 233.0 342.9 289.3 292.7 495.3 185.3 273.4 Variable Universal Life 101.3 142.2 218.7 228.6 134.5 81.4 38.5 Whole Life 20.0 23.9 22.4 26.3 30.3 11.6 13.5 Term 48.0 45.9 41.9 30.8 32.3 16.8 18.8 ------- ------- ------- ------- ------- ------- ------- Total Retail 402.3 555.0 572.3 578.4 692.3 295.2 344.2 Corporate Owned Life Insurance (COLI) 4.0 14.7 87.0 47.3 88.1 53.5 72.4 ------- ------- ------- ------- ------- ------- ------- Total 406.3 569.7 659.3 625.6 780.4 348.7 416.5 ------- ------- ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 35.0 188.3 200.6 196.1 201.7 89.8 90.5 Lincoln Financial Distributors 356.3 367.9 444.7 413.0 556.3 252.5 278.2 Other* 15.0 13.5 14.0 16.6 22.4 6.4 47.8 ------- ------- ------- ------- ------- ------- ------- Total by Distribution 406.3 569.7 659.3 625.6 780.4 348.7 416.5 ======= ======= ======= ======= ======= ======= ======= Life Insurance In-Force (Billions) Universal Life & Other 105.837 109.288 115.872 121.168 126.016 123.674 127.276 Term Insurance 67.076 85.701 100.130 113.226 127.880 121.076 139.191 ------- ------- ------- ------- ------- ------- ------- Total Life Segment In-Force 172.914 194.988 216.002 234.394 253.896 244.750 266.467 ======= ======= ======= ======= ======= ======= ======= For the Quarter Ended Sep Dec Mar Jun Sep Dec Mar 2000 2000 2001 2001 2001 2001 2002 ------- ------- ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 72.4 80.9 57.7 70.0 67.4 97.5 86.4 Variable Universal Life 55.1 75.1 56.0 52.2 50.1 70.2 39.0 Whole Life 6.0 8.0 4.1 5.1 6.7 10.4 5.2 Term 9.1 7.6 6.5 7.2 8.1 9.1 8.7 ------- ------- ------- ------- ------- ------- ------- Total Retail 142.6 171.6 124.2 134.6 132.4 187.2 139.4 Corporate Owned Life Insurance (COLI) 5.8 49.0 7.1 21.0 5.1 14.2 6.9 ------- ------- ------- ------- ------- ------- ------- Total 148.4 220.7 131.3 155.6 137.4 201.3 146.3 ------- ------- ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 51.3 66.2 38.1 48.2 41.8 68.0 41.5 Lincoln Financial Distributors 92.9 150.6 89.1 104.0 90.4 129.5 100.9 Other* 4.2 3.9 4.2 3.4 5.2 3.8 3.8 ------- ------- ------- ------- ------- ------- ------- Total by Distribution 148.4 220.7 131.3 155.6 137.4 201.3 146.3 ======= ======= ======= ======= ======= ======= ======= Insurance In-Force (Billions) Universal Life & Other 112.884 115.872 116.747 118.007 119.029 121.168 122.316 Term Insurance 98.424 100.130 102.467 105.265 108.723 113.226 117.752 ------- ------- ------- ------- ------- ------- ------- Total Segment In-Force 211.308 216.002 219.214 223.272 227.751 234.394 240.068 ======= ======= ======= ======= ======= ======= ======= For the Quarter Ended Jun Sep Dec Mar Jun 2002 2002 2002 2003 2003 ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 98.9 132.9 177.1 130.8 142.7 Variable Universal Life 42.4 26.1 27.0 24.4 14.1 Whole Life 6.4 7.7 11.0 6.5 7.1 Term 8.1 7.3 8.1 9.1 9.6 ------- ------- ------- ------- ------- Total Retail 155.8 174.0 223.2 170.7 173.5 Corporate Owned Life Insurance (COLI) 46.6 7.8 26.8 10.6 61.8 ------- ------- ------- ------- ------- Total 202.4 181.8 249.9 181.3 235.3 ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 48.3 46.9 64.9 42.1 48.4 Lincoln Financial Distributors 151.6 132.7 171.1 131.6 146.6 Other* 2.6 2.2 13.9 7.5 40.2 ------- ------- ------- ------- ------- Total by Distribution 202.4 181.8 249.9 181.3 235.3 ======= ======= ======= ======= ======= Insurance In-Force (Billions) Universal Life & Other 123.674 124.085 126.016 126.414 127.276 Term Insurance 121.076 123.945 127.880 133.251 139.191 ------- ------- ------- ------- ------- Total Segment In-Force 244.750 248.030 253.896 259.666 266.467 ======= ======= ======= ======= ======= * Other consists of distribution arrangements with third-party intermediaries.
PAGE 22 Life Insurance Segment Life Insurance Account Value Roll Forward Unaudited [Billions of Dollars] YTD YTD Jun Jun 1998 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ ------ Universal Life-Bal Beg-of-Year 2.558 6.259 6.650 6.976 7.508 7.508 8.211 Deposits 0.675 1.017 0.955 1.043 1.332 0.612 0.666 Withdrawals & deaths (0.701) (0.452) (0.426) (0.319) (0.426) (0.193) (0.208) ------ ------ ------ ------ ------ ------ ------ Net flows (0.026) 0.564 0.528 0.724 0.906 0.419 0.458 Policyholder assessments 0.000 (0.544) (0.584) (0.598) (0.648) (0.316) (0.339) Interest credited 0.350 0.370 0.382 0.405 0.428 0.210 0.213 Acq of new business/transfers between segments 3.378 0.000 0.000 0.000 0.018 0.018 0.000 ------ ------ ------ ------ ------ ------ ------ Universal Life-Bal End of Year (1) 6.259 6.650 6.976 7.508 8.211 7.838 8.542 ------ ------ ------ ------ ------ ------ ------ Variable Universal Life-Bal Beg-of-Year 0.480 1.200 1.605 1.808 1.746 1.746 1.690 Deposits 0.193 0.326 0.607 0.584 0.504 0.277 0.232 Withdrawals & deaths (0.100) (0.099) (0.132) (0.251) (0.193) (0.112) (0.087) ------ ------ ------ ------ ------ ------ ------ Net flows 0.093 0.228 0.475 0.332 0.311 0.164 0.146 Policyholder assessments 0.000 (0.084) (0.141) (0.170) (0.186) (0.093) (0.097) Invest inc & chg in mkt value 0.105 0.370 (0.130) (0.225) (0.313) (0.173) 0.191 Acq of new business/transfers between segments 0.522 (0.110) 0.000 0.000 0.132 0.132 0.000 ------ ------ ------ ------ ------ ------ ------ Variable Universal Life-Bal End-of-Year 1.200 1.605 1.808 1.746 1.690 1.776 1.930 ------ ------ ------ ------ ------ ------ ------ Interest Sensitive Whole Life- Bal Beg-of-Year 1.784 1.963 2.062 2.123 2.123 2.186 Deposits 0.340 0.355 0.322 0.307 0.301 0.129 0.114 Withdrawals & deaths (0.294) (0.162) (0.168) (0.200) (0.199) (0.091) (0.097) ------ ------ ------ ------ ------ ------ ------ Net flows 0.046 0.193 0.154 0.107 0.103 0.038 0.017 Policyholder assessments 0.000 (0.168) (0.168) (0.164) (0.167) (0.081) (0.074) Interest credited 0.096 0.109 0.113 0.118 0.127 0.065 0.062 Acq of new business/transfers between segments 1.642 0.045 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ ------ Int Sensitive Whole Life-Bal End-of-Year 1.784 1.963 2.062 2.123 2.186 2.145 2.191 ------ ------ ------ ------ ------ ------ ------ --------------------------------------------------------------------------------------------------------------------------- Total Segment- Life Insurance Account Values Bal Beg-of-Year 3.038 9.243 10.217 10.847 11.377 11.377 12.086 Deposits 1.207 1.698 1.884 1.934 2.138 1.018 1.012 Withdrawals & deaths (1.095) (0.713) (0.727) (0.771) (0.818) (0.396) (0.391) ------ ------ ------ ------ ------ ------ ------ Net flows 0.113 0.985 1.158 1.163 1.320 0.621 0.621 Policyholder assessments (0.795) (0.893) (0.931) (1.002) (0.490) (0.510) Invest inc & change in market value 0.551 0.849 0.364 0.299 0.241 0.101 0.466 Acq of new business/transfers between segments 5.542 (0.065) 0.150 0.150 ------ ------ ------ ------ ------ ------ ------ Total Segment-Bal End-of-Year 9.243 10.217 10.847 11.377 12.086 11.759 12.663 ====== ====== ====== ====== ====== ====== ====== (1) Includes fixed investment option of VUL products.
PAGE 23 Life Insurance Segment Life Insurance Account Value Roll Forward Unaudited [Billions of Dollars] Sep Dec Mar Jun Sep Dec 2000 2000 2001 2001 2001 2001 ------ ------ ------ ------ ------ ------ Universal Life-Bal Beg-of-Quarter 6.782 6.878 6.976 7.063 7.216 7.315 Deposits 0.227 0.265 0.227 0.270 0.233 0.314 Withdrawals & deaths (0.080) (0.114) (0.091) (0.071) (0.085) (0.073) ------ ------ ------ ------ ------ ------ Net flows 0.146 0.151 0.136 0.199 0.147 0.241 Policyholder assessments (0.146) (0.150) (0.147) (0.147) (0.150) (0.153) Interest credited 0.096 0.097 0.098 0.100 0.102 0.105 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) 6.878 6.976 7.063 7.216 7.315 7.508 ------ ------ ------ ------ ------ ------ Variable Universal Life-Bal Beg of Quarter 1.764 1.812 1.808 1.633 1.766 1.527 Deposits 0.123 0.245 0.136 0.138 0.124 0.186 Withdrawals & deaths (0.037) (0.048) (0.049) (0.060) (0.055) (0.088) ------ ------ ------ ------ ------ ------ Net flows 0.085 0.197 0.087 0.078 0.069 0.098 Policyholder assessments (0.036) (0.041) (0.041) (0.041) (0.042) (0.045) Invest inc & chg in mkt value (0.001) (0.160) (0.221) 0.096 (0.266) 0.166 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 1.812 1.808 1.633 1.766 1.527 1.746 ------ ------ ------ ------ ------ ------ Interest Sensitive Whole Life - Bal Beg-of-Quarter 1.993 2.026 2.062 2.068 2.084 2.096 Deposits 0.079 0.113 0.056 0.069 0.077 0.105 Withdrawals & deaths (0.033) (0.056) (0.041) (0.043) (0.054) (0.061) ------ ------ ------ ------ ------ ------ Net flows 0.045 0.057 0.014 0.027 0.022 0.044 Policyholder assessments (0.040) (0.050) (0.037) (0.040) (0.041) (0.047) Interest credited 0.027 0.029 0.028 0.030 0.030 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 2.026 2.062 2.068 2.084 2.096 2.123 ------ ------ ------ ------ ------ ------ -------------------------------------------------------------------------------------------------------------------- Total Segment- Life Insurance Account Values Bal Beg-of-Quarter 10.538 10.716 10.847 10.764 11.066 10.939 Deposits 0.428 0.622 0.418 0.477 0.434 0.605 Withdrawals & deaths (0.151) (0.218) (0.181) (0.173) (0.195) (0.222) ------ ------ ------ ------ ------ ------ Net flows 0.277 0.404 0.237 0.304 0.239 0.383 Policyholder assessments (0.221) (0.241) (0.225) (0.228) (0.232) (0.246) Invest inc & change in market value 0.123 (0.033) (0.094) 0.226 (0.134) 0.301 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 10.716 10.847 10.764 11.066 10.939 11.377 ====== ====== ====== ====== ====== ====== Life Insurance Segment (Continued) Life Insurance Account Value Roll Forward Unaudited [Billions of Dollars] Mar Jun Sep Dec Mar Jun 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ Universal Life-Bal Beg-of-Quarter 7.508 7.622 7.838 7.987 8.211 8.359 Deposits 0.248 0.364 0.310 0.410 0.316 0.350 Withdrawals & deaths (0.097) (0.096) (0.108) (0.125) (0.107) (0.101) ------ ------ ------ ------ ------ ------ Net flows 0.150 0.268 0.201 0.286 0.210 0.249 Policyholder assessments (0.158) (0.158) (0.162) (0.170) (0.168) (0.171) Interest credited 0.104 0.106 0.110 0.108 0.106 0.106 Acq of new business/transfers between segments 0.018 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Universal Life-Bal End-of-Quarter (1) 7.622 7.838 7.987 8.211 8.359 8.542 ------ ------ ------ ------ ------ ------ Variable Universal Life-Bal Beg of Quarter 1.746 1.919 1.776 1.575 1.690 1.689 Deposits 0.129 0.147 0.102 0.126 0.118 0.114 Withdrawals & deaths (0.055) (0.057) (0.034) (0.047) (0.036) (0.050) ------ ------ ------ ------ ------ ------ Net flows 0.074 0.090 0.068 0.079 0.082 0.064 Policyholder assessments (0.047) (0.046) (0.046) (0.047) (0.049) (0.048) Invest inc & chg in mkt value 0.013 (0.186) (0.224) 0.083 (0.034) 0.225 Acq of new business/transfers between segments 0.132 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Variable Universal Life -Bal End-of-Quarter 1.919 1.776 1.575 1.690 1.689 1.930 ------ ------ ------ ------ ------ ------ Interest Sensitive Whole Life - Bal Beg-of-Quarter 2.123 2.126 2.145 2.164 2.186 2.185 Deposits 0.063 0.066 0.073 0.100 0.051 0.062 Withdrawals & deaths (0.051) (0.039) (0.045) (0.063) (0.046) (0.050) ------ ------ ------ ------ ------ ------ Net flows 0.012 0.026 0.027 0.037 0.005 0.012 Policyholder assessments (0.042) (0.039) (0.040) (0.046) (0.036) (0.038) Interest credited 0.033 0.032 0.031 0.031 0.030 0.032 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 2.126 2.145 2.164 2.186 2.185 2.191 ------ ------ ------ ------ ------ ------ -------------------------------------------------------------------------------------------------------------------- Total Segment- Life Insurance Account Values Bal Beg-of-Quarter 11.377 11.667 11.759 11.726 12.086 12.233 Deposits 0.440 0.577 0.484 0.636 0.486 0.526 Withdrawals & deaths (0.204) (0.192) (0.187) (0.234) (0.190) (0.202) ------ ------ ------ ------ ------ ------ Net flows 0.236 0.385 0.297 0.402 0.296 0.324 Policyholder assessments (0.246) (0.244) (0.248) (0.263) (0.252) (0.257) Invest inc & change in market value 0.151 (0.049) (0.082) 0.222 0.103 0.363 Acq of new business/transfers between segments 0.150 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Total Segment -Bal End-of-Quarter 11.667 11.759 11.726 12.086 12.233 12.663 ====== ====== ====== ====== ====== ====== (1) Includes fixed investment option of VUL products.
PAGE 24 Investment Management Income Statements Unaudited [Millions of Dollars] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ ------ Revenue Investment advisory fees - External 249.0 248.6 231.6 197.2 183.3 95.8 93.5 Investment advisory fees - Insurance Assets 100.2 103.0 112.4 105.0 97.7 49.4 49.6 Other revenue and fees 92.5 106.6 115.9 99.2 87.0 45.0 51.5 Net investment income 67.0 56.9 57.7 53.6 50.5 25.5 24.2 Realized gains (losses) on investments 0.9 (0.1) (3.9) (3.7) (5.4) (2.2) (0.4) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Total Revenue 509.6 514.9 513.7 451.2 413.1 213.4 218.5 ------ ------ ------ ------ ------ ------ ------ Benefits and Expenses Underwriting, acquisition, insurance and other expenses: Operating and administrative expenses 384.7 369.6 398.8 410.2 393.2 198.0 199.6 Restructuring Charges 0.0 12.5 7.1 0.6 (0.4) 0.0 0.0 Taxes, licenses and fees 13.1 10.3 11.6 16.8 13.0 8.7 5.8 ------ ------ ------ ------ ------ ------ ------ Subtotal 397.8 392.4 417.5 427.5 405.8 206.8 205.4 Other intangibles amortization 18.8 17.7 16.3 10.8 8.2 4.2 4.0 ------ ------ ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 416.6 410.1 433.8 438.3 414.0 211.0 209.4 Goodwill amortization 16.3 16.2 16.2 16.2 0.0 0.0 0.0 Interest on notes payable 0.4 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Total Benefits and Expenses 433.3 426.3 450.0 454.6 414.0 211.0 209.4 ------ ------ ------ ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 76.3 88.6 63.7 (3.3) (0.9) 2.4 9.1 Federal income taxes 31.9 37.0 26.8 5.5 0.5 1.1 3.5 Income Before Cumulative Effect of ------ ------ ------ ------ ------ ------ ------ Accounting Changes 44.4 51.6 37.0 (8.9) (1.4) 1.3 5.6 ------ ------ ------ ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 (0.1) 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Net Income 44.4 51.6 37.0 (9.0) (1.4) 1.3 5.6 ====== ====== ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments 0.5 (0.1) (2.5) (2.4) (3.5) (1.4) (0.2) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Restructuring charges 0.0 (9.2) (4.6) (0.4) 0.3 0.0 0.0 Cumulative effect of accounting changes 0.0 0.0 0.0 (0.1) 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Income from Operations 43.9 61.0 44.1 (6.1) 1.8 2.7 5.8 ====== ====== ====== ====== ====== ====== ====== Net Income - before Goodwill Amortization 60.8 67.9 53.2 7.3 (1.4) 1.3 5.6 Net Income -before Goodwill & Intang. Amort. 73.1 79.4 63.8 14.3 3.9 4.1 8.2 Inc from Oper -before Goodwill Amortization 60.3 77.2 60.3 10.1 1.8 2.7 5.8 Income from Operations - before Goodwill & Intang. Amort 72.6 88.7 70.9 17.1 7.2 5.5 8.4 Revenue 509.6 514.9 513.7 451.2 413.1 213.4 218.5 Less: Realized gains (losses) on investments 0.9 (0.1) (3.9) (3.7) (5.4) (2.2) (0.4) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Operating Revenue 508.7 515.0 517.6 454.9 418.5 215.6 218.8 ====== ====== ====== ====== ====== ====== ====== Average Capital (Securities at Cost) 642.3 593.7 575.6 556.2 580.9 574.6 593.1 Net Income return on average capital 6.9% 8.7% 6.4% (1.6%) (0.2%) 0.5% 1.9% Inc. from oper. return on average capital 6.8% 10.3% 7.7% (1.1%) 0.3% 1.0% 2.0% Note: 2001 and 2002 have been restated for the adoption of the fair value method of accounting for stock options under FAS 123.
PAGE 25 Investment Management Income Statements Unaudited [Millions of Dollars] For the Quarter Ended Jun Sep Dec Mar Jun Sep Dec Mar Jun 2001 2001 2001 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue Investment advisory fees - External 51.1 46.2 49.3 48.0 47.8 42.9 44.7 44.2 49.4 Investment advisory fees - Insurance Assets 26.0 26.0 26.3 25.0 24.3 24.1 24.2 24.1 25.4 Other revenue and fees 25.7 23.9 23.4 23.0 22.0 19.9 22.1 22.0 29.5 Net investment income 13.0 13.6 12.8 12.8 12.7 12.4 12.7 12.1 12.1 Realized gains (losses) on investments (1.1) (0.8) (1.1) (1.5) (0.7) (1.8) (1.5) (0.4) 0.1 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Revenue 114.7 108.8 110.8 107.3 106.1 97.5 102.2 102.1 116.4 ------ ------ ------ ------ ------ ------ ------ ------ ------ Benefits and Expenses Underwriting, acquisition, insurance and other expenses: Operating and administrative expenses 104.7 99.0 101.3 97.2 100.8 99.4 95.8 95.2 104.4 Restructuring Charges 0.0 0.0 0.6 0.0 0.0 (0.4) 0.0 0.0 0.0 Taxes, licenses and fees 3.6 4.2 3.6 4.6 4.2 1.9 2.4 3.0 2.8 ------ ------ ------ ------ ------ ------ ------ ------ ------ Subtotal 108.3 103.2 105.5 101.8 105.0 100.9 98.2 98.2 107.2 Other intangibles amortization 2.3 2.3 2.3 2.2 2.0 2.0 2.0 2.0 2.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 110.6 105.5 107.8 103.9 107.0 102.9 100.2 100.2 109.2 Goodwill amortization 4.1 4.1 4.1 0.0 0.0 0.0 0.0 0.0 0.0 Interest on notes payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Benefits and Expenses 114.7 109.5 111.9 103.9 107.0 102.9 100.2 100.2 109.2 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 0.0 (0.7) (1.1) 3.4 (1.0) (5.4) 2.0 1.9 7.2 Federal income taxes 1.7 1.4 1.3 1.3 (0.2) (1.5) 0.9 0.8 2.6 Income Before Cumulative Effect of ------ ------ ------ ------ ------ ------ ------ ------ ------ Accounting Changes (1.7) (2.1) (2.4) 2.1 (0.8) (3.9) 1.1 1.0 4.6 ------ ------ ------ ------ ------ ------ ------ ------ ------ Cumulative effect of accounting changes (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income (1.8) (2.1) (2.4) 2.1 (0.8) (3.9) 1.1 1.0 4.6 ====== ====== ====== ====== ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments (0.7) (0.5) (0.7) (1.0) (0.4) (1.2) (0.9) (0.3) 0.0 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Restructuring charges 0.0 0.0 (0.4) 0.0 0.0 0.3 0.0 0.0 0.0 Cumulative effect of accounting changes (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from Operations (1.0) (1.6) (1.3) 3.1 (0.3) (3.0) 2.1 1.3 4.5 ====== ====== ====== ====== ====== ====== ====== ====== ====== Net Income - before Goodwill Amortization 2.3 1.9 1.7 2.1 (0.8) (3.9) 1.1 1.0 4.6 Net Income - before Goodwill & Intang. Amort 3.8 3.4 3.2 3.5 0.6 (2.6) 2.4 2.4 5.8 Inc from Oper -before Goodwill Amortization 3.1 2.5 2.8 3.1 (0.3) (3.0) 2.1 1.3 4.5 Inc from Oper - before Goodwill & Intang. Amort 4.6 3.9 4.2 4.5 1.0 (1.7) 3.4 2.6 5.8 Revenue 114.7 108.8 110.8 107.3 106.1 97.5 102.2 102.1 116.4 Less: Realized gains (losses) on investment (1.1) (0.8) (1.1) (1.5) (0.7) (1.8) (1.5) (0.4) 0.1 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating Revenue 115.8 109.7 111.8 108.9 106.7 99.3 103.6 102.5 116.3 ====== ====== ====== ====== ====== ====== ====== ====== ====== Average Capital (Securities at Cost) 555.5 556.3 554.5 562.3 586.9 586.0 588.5 597.6 588.6 Net Income return on average capital (1.3%) (1.1%) (0.9%) 2.2% (0.2%) (2.0%) 1.4% 0.9% 3.1% Income from operations return on average capital (0.7%) (1.2%) (0.9%) 2.2% (0.2%) (2.1%) 1.5% 1.0% 3.3%
PAGE 26 Investment Management Assets Under Management Roll Forward Unaudited [Billions of Dollars] YTD YTD Jun Jun 1998 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ ------ Retail Fixed - Bal Beg-of-Year 8.125 8.219 7.423 6.608 7.120 7.120 7.631 Fund Sales 1.166 0.991 0.769 0.876 1.218 0.564 0.893 Redemptions (1.234) (1.424) (1.401) (1.051) (1.182) (0.595) (0.645) Net Money Market (0.141) (0.111) (0.207) (0.046) (0.050) (0.005) (0.005) Transfers 0.132 0.177 (0.168) 0.405 0.206 (0.020) 0.007 ------ ------ ------ ------ ------ ------ ------ Net Flows(1) (0.077) (0.367) (1.007) 0.184 0.192 (0.056) 0.249 Market 0.170 (0.429) 0.099 0.328 0.320 0.105 0.311 Acquisitions/addition of Assets under Administration(1) 0.094 ------ ------ ------ ------ ------ ------ ------ Balance End-of-Year 8.219 7.423 6.608 7.120 7.631 7.169 8.191 ------ ------ ------ ------ ------ ------ ------ Retail Equity - Bal Beg-of-Year 17.754 22.081 23.384 21.523 17.987 17.987 14.917 Fund Sales 3.581 3.270 4.116 2.817 4.477 1.992 1.530 Redemptions (2.459) (4.972) (4.431) (2.838) (3.690) (1.672) (1.415) Net Money Market (0.001) (0.001) 0.001 Transfers 0.730 (0.144) (0.178) (0.538) (0.173) (0.008) (0.048) ------ ------ ------ ------ ------ ------ ------ Net Flows(1) 1.851 (1.847) (0.492) (0.560) 0.614 0.312 0.068 Market 2.476 3.150 (1.711) (2.976) (3.685) (1.689) 1.922 Acquisitions/addition of Assets under Administration(1) 0.342 ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 22.081 23.384 21.523 17.987 14.917 16.610 16.906 ------ ------ ------ ------ ------ ------ ------ Total Retail - Bal Beg-of-Year 25.879 30.300 30.807 28.130 25.107 25.107 22.547 Retail Sales-Annuities 2.240 1.561 1.782 1.701 2.751 1.190 1.016 Retail Sales-Mutual Funds 1.912 2.151 2.577 1.523 1.829 1.014 1.009 Retail Sales-Managed Acct. & Other 0.595 0.549 0.525 0.469 1.115 0.352 0.398 ------ ------ ------ ------ ------ ------ ------ Total Retail Sales 4.747 4.261 4.885 3.693 5.695 2.557 2.423 Redemptions (3.693) (6.396) (5.832) (3.889) (4.873) (2.267) (2.060) Net Money Market (0.142) (0.112) (0.206) (0.046) (0.050) (0.005) (0.005) Transfers 0.862 0.033 (0.346) (0.133) 0.033 (0.029) (0.041) ------ ------ ------ ------ ------ ------ ------ Net Flows(1) 1.774 (2.214) (1.500) (0.375) 0.806 0.256 0.316 Market 2.647 2.721 (1.612) (2.649) (3.364) (1.584) 2.232 Acquisitions/addition of Assets under Administration(1) 0.435 ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 30.300 30.807 28.130 25.107 22.547 23.778 25.097 ------ ------ ------ ------ ------ ------ ------ -------------------------------------------------------------------------------------------------------------- Institutional Fixed - Bal Beg-of-Year 5.708 6.955 6.936 6.111 5.490 5.490 7.237 Inflows 2.169 2.001 0.771 0.643 2.281 1.468 0.718 Withdrawals/Terminations (1.242) (1.700) (1.973) (1.229) (1.146) (0.400) (0.496) Transfers (0.074) (0.001) (0.005) 0.017 0.004 (0.000) 0.005 ------ ------ ------ ------ ------ ------ ------ Net Flows 0.853 0.300 (1.207) (0.569) 1.139 1.067 0.227 Market 0.394 (0.319) 0.382 (0.052) 0.607 0.287 0.290 Acquisitions ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 6.955 6.936 6.111 5.490 7.237 6.845 7.753 ------ ------ ------ ------ ------ ------ ------ Institutional Equity - Bal Beg-of-Year 24.871 24.235 23.631 19.112 17.814 17.814 16.711 Inflows 3.840 5.249 2.730 3.183 2.913 1.241 1.221 Withdrawals/Terminations (7.441) (7.800) (7.209) (2.879) (1.991) (1.147) (0.839) Transfers 0.047 0.012 (0.008) 0.035 0.045 0.025 0.010 ------ ------ ------ ------ ------ ------ ------ Net Flows (3.555) (2.539) (4.486) 0.338 0.967 0.119 0.392 Market 2.919 1.935 (0.033) (1.636) (2.070) 0.185 2.504 Acquisitions ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 24.235 23.631 19.112 17.814 16.711 18.118 19.607 ------ ------ ------ ------ ------ ------ ------ Total Institutional - Bal Beg-of-Year 30.579 31.191 30.568 25.223 23.304 23.304 23.948 Inflows 6.009 7.250 3.501 3.826 5.194 2.709 1.939 Withdrawals/Terminations (8.683) (9.500) (9.182) (4.109) (3.137) (1.547) (1.335) Transfers (0.027) 0.011 (0.013) 0.052 0.050 0.025 0.015 ------ ------ ------ ------ ------ ------ ------ Net Flows (2.702) (2.239) (5.693) (0.231) 2.106 1.187 0.618 Market 3.313 1.616 0.349 (1.688) (1.463) 0.472 2.794 Acquisitions ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 31.191 30.568 25.223 23.304 23.948 24.963 27.360 ------ ------ ------ ------ ------ ------ ------ Total Retail/Institutional - At End-of-Year ------ ------ ------ ------ ------ ------ ------ 61.490 61.375 53.354 48.411 46.495 48.741 52.457 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Insurance Assets - At End-of-Year 39.432 35.934 35.686 38.119 41.104 38.476 43.857 ------ ------ ------ ------ ------ ------ ------ Total Assets Under Management At End-of-Year 100.922 97.309 89.040 86.530 87.599 87.217 96.314 ====== ====== ====== ====== ====== ====== ====== (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. Net Flows from Assets Under Administration are: 0.018 0.081 0.263 0.151 0.126
PAGE 27 Investment Management Assets Under Management Roll Forward Unaudited [Billions of Dollars] Sep Dec Mar Jun Sep Dec 2000 2000 2001 2001 2001 2001 ------ ------ ------ ------ ------ ------ Retail Fixed - Bal-Beg-of-Qtr 6.763 6.631 6.606 6.749 6.768 7.207 Fund Sales 0.223 0.212 0.248 0.203 0.207 0.218 Redemptions (0.328) (0.277) (0.261) (0.285) (0.262) (0.242) Net Money Market (0.031) (0.051) 0.010 (0.030) 0.005 (0.031) Transfers (0.031) 0.010 0.047 (0.002) 0.388 (0.027) ------ ------ ------ ------ ------ ------ Net Flows(1) (0.167) (0.106) 0.043 (0.114) 0.338 (0.083) Market 0.035 0.081 0.100 0.133 0.101 (0.002) Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 6.631 6.606 6.749 6.768 7.207 7.122 ------ ------ ------ ------ ------ ------ Retail Equity - Bal-Beg-of-Qtr 23.496 24.047 21.524 18.254 19.755 15.872 Fund Sales 0.927 1.071 0.917 0.681 0.638 0.580 Redemptions (1.040) (0.837) (0.911) (0.666) (0.653) (0.607) Net Money Market 0.001 0.000 0.000 0.000 0.000 0.000 Transfers (0.036) (0.069) (0.070) (0.047) (0.441) 0.019 ------ ------ ------ ------ ------ ------ Net Flows(1) (0.148) 0.165 (0.064) (0.032) (0.456) (0.008) Market 0.699 (2.689) (3.205) 1.532 (3.427) 2.125 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 24.047 21.524 18.254 19.755 15.872 17.989 ------ ------ ------ ------ ------ ------ Total Retail - Bal-Beg-of-Qtr 30.260 30.679 28.130 25.003 26.523 23.079 Retail Sales-Annuities 0.456 0.589 0.540 0.403 0.434 0.323 Retail Sales-Mutual Funds 0.554 0.563 0.483 0.355 0.336 0.348 Retail Sales-Managed Acct. & Other 0.140 0.131 0.142 0.127 0.074 0.127 ------ ------ ------ ------ ------ ------ Total Retail Sales 1.150 1.283 1.165 0.885 0.845 0.798 Redemptions (1.368) (1.114) (1.173) (0.951) (0.915) (0.850) Net Money Market (0.030) (0.051) 0.010 (0.030) 0.005 (0.031) Transfers (0.067) (0.059) (0.023) (0.049) (0.053) (0.009) ------ ------ ------ ------ ------ ------ Net Flows(1) (0.315) 0.059 (0.021) (0.146) (0.118) (0.091) Market 0.734 (2.608) (3.105) 1.665 (3.326) 2.123 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 30.679 28.130 25.003 26.523 23.079 25.111 ------ ------ ------ ------ ------ ------ ------------------------------------------------------------------------------------------------ Institutional Fixed - Bal-Beg-of-Qtr 6.485 6.276 6.112 5.891 5.809 5.639 Inflows 0.308 0.135 0.310 0.233 0.020 0.080 Withdrawals/Terminations (0.532) (0.568) (0.432) (0.112) (0.493) (0.192) Transfers 0.000 0.001 0.003 0.010 0.001 0.002 ------ ------ ------ ------ ------ ------ Net Flows (0.224) (0.433) (0.119) 0.131 (0.472) (0.109) Market 0.015 0.269 (0.102) (0.213) 0.302 (0.041) ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 6.276 6.112 5.891 5.809 5.639 5.489 ------ ------ ------ ------ ------ ------ Institutional Equity - Bal-Beg-of-Qtr 20.241 19.044 19.113 17.312 18.405 16.240 Inflows 0.407 0.750 0.881 0.823 0.863 0.615 Withdrawals/Terminations (1.154) (1.368) (1.199) (0.501) (0.555) (0.624) Transfers (0.013) 0.007 0.018 (0.008) 0.009 0.016 ------ ------ ------ ------ ------ ------ Net Flows (0.760) (0.611) (0.299) 0.313 0.317 0.007 Market (0.438) 0.680 (1.502) 0.779 (2.482) 1.567 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 19.044 19.113 17.312 18.405 16.240 17.814 ------ ------ ------ ------ ------ ------ Total Institutional - Bal-Beg-of-Qtr 26.726 25.320 25.225 23.203 24.214 21.879 Inflows 0.715 0.885 1.192 1.056 0.883 0.696 Withdrawals/Terminations (1.686) (1.936) (1.631) (0.613) (1.048) (0.816) Transfers (0.012) 0.008 0.022 0.002 0.010 0.018 ------ ------ ------ ------ ------ ------ Net Flows (0.983) (1.043) (0.417) 0.445 (0.155) (0.103) Market (0.423) 0.949 (1.605) 0.566 (2.180) 1.526 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 25.320 25.225 23.203 24.214 21.879 23.303 ------ ------ ------ ------ ------ ------ Total Retail/Inst - At ------ ------ ------ ------ ------ ------ End-of-Qtr 55.998 53.355 48.207 50.737 44.958 48.413 ------ ------ ------ ------ ------ ------ Insurance Assets-End-of-Qtr 34.981 35.686 36.324 36.018 37.337 38.119 ------ ------ ------ ------ ------ ------ Total Assets Under Management At End-of-Qtr 90.979 89.041 84.531 86.755 82.295 86.532 ====== ====== ====== ====== ====== ====== (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: 0.011 0.001 0.027 0.013 0.007 0.034 Investment Management (continued) Assets Under Management Roll Forward Unaudited [Billions of Dollars] Mar Jun Sep Dec Mar Jun 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ Retail Fixed - Bal-Beg-of-Qtr 7.122 7.090 7.169 7.516 7.633 7.909 Fund Sales 0.292 0.272 0.325 0.328 0.424 0.469 Redemptions (0.289) (0.306) (0.277) (0.311) (0.327) (0.318) Net Money Market (0.003) (0.002) (0.009) (0.035) 0.001 (0.006) Transfers (0.041) 0.021 0.134 0.092 0.062 (0.055) ------ ------ ------ ------ ------ ------ Net Flows(1) (0.041) (0.015) 0.174 0.074 0.159 0.090 Market 0.009 0.094 0.174 0.043 0.117 0.191 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 7.090 7.169 7.516 7.633 7.909 8.190 ------ ------ ------ ------ ------ ------ Retail Equity - Bal-Beg-of-Qtr 17.989 18.254 16.611 13.703 14.914 14.284 Fund Sales 0.908 1.084 1.140 1.345 0.717 0.813 Redemptions (0.791) (0.881) (1.137) (0.881) (0.803) (0.612) Net Money Market 0.000 0.000 0.000 0.000 0.000 0.000 Transfers 0.014 (0.022) (0.128) (0.036) (0.059) 0.011 ------ ------ ------ ------ ------ ------ Net Flows(1) 0.130 0.182 (0.126) 0.428 (0.145) 0.213 Market 0.134 (1.825) (2.782) 0.784 (0.486) 2.411 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 18.254 16.611 13.703 14.914 14.284 16.907 ------ ------ ------ ------ ------ ------ Total Retail - Bal-Beg-of-Qtr 25.111 25.343 23.779 21.219 22.547 22.192 Retail Sales-Annuities 0.589 0.601 0.756 0.806 0.488 0.528 Retail Sales-Mutual Funds 0.452 0.562 0.416 0.399 0.450 0.558 Retail Sales-Managed Acct. & Other 0.159 0.194 0.293 0.469 0.202 0.196 ------ ------ ------ ------ ------ ------ Total Retail Sales 1.200 1.356 1.465 1.673 1.141 1.282 Redemptions (1.081) (1.186) (1.414) (1.192) (1.130) (0.930) Net Money Market (0.003) (0.002) (0.009) (0.035) 0.001 (0.006) Transfers (0.027) (0.001) 0.006 0.056 0.003 (0.044) ------ ------ ------ ------ ------ ------ Net Flows(1) 0.089 0.167 0.048 0.502 0.014 0.302 Market 0.143 (1.731) (2.608) 0.826 (0.369) 2.602 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 25.343 23.779 21.219 22.547 22.192 25.097 ------ ------ ------ ------ ------ ------ ----------------------------------------------------------------------------------------------- Institutional Fixed - Bal-Beg-of-Qtr 5.489 6.018 6.844 7.208 7.238 7.606 Inflows 0.804 0.663 0.530 0.283 0.592 0.126 Withdrawals/Terminations (0.239) (0.161) (0.308) (0.438) (0.308) (0.188) Transfers (0.001) 0.000 0.007 (0.002) 0.002 0.003 ------ ------ ------ ------ ------ ------ Net Flows 0.565 0.503 0.229 (0.157) 0.286 (0.059) Market (0.036) 0.324 0.134 0.187 0.083 0.206 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 6.018 6.844 7.208 7.238 7.606 7.753 ------ ------ ------ ------ ------ ------ Institutional Equity - Bal-Beg-of-Qtr 17.814 18.642 18.118 14.935 16.709 15.918 Inflows 0.672 0.569 0.631 1.040 0.494 0.727 Withdrawals/Terminations (0.512) (0.635) (0.523) (0.322) (0.459) (0.381) Transfers 0.006 0.018 0.011 0.010 0.008 0.002 ------ ------ ------ ------ ------ ------ Net Flows 0.167 (0.047) 0.119 0.728 0.044 0.348 Market 0.661 (0.476) (3.302) 1.046 (0.835) 3.341 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 18.642 18.118 14.935 16.709 15.918 19.608 ------ ------ ------ ------ ------ ------ Total Institutional - Bal-Beg-of-Qtr 23.303 24.659 24.962 22.142 23.947 23.525 Inflows 1.476 1.232 1.162 1.323 1.086 0.853 Withdrawals/Terminations (0.751) (0.796) (0.831) (0.760) (0.767) (0.568) Transfers 0.006 0.019 0.017 0.008 0.010 0.005 ------ ------ ------ ------ ------ ------ Net Flows 0.731 0.455 0.348 0.572 0.330 0.289 Market 0.625 (0.152) (3.168) 1.233 (0.752) 3.547 ------ ------ ------ ------ ------ ------ Balance at End-of-Qtr 24.659 24.962 22.142 23.947 23.525 27.360 ------ ------ ------ ------ ------ ------ Total Retail/Inst - At ------ ------ ------ ------ ------ ------ End-of-Qtr 50.003 48.741 43.361 46.494 45.717 52.457 ------ ------ ------ ------ ------ ------ Insurance Assets-End-of-Qtr 37.171 38.476 40.416 41.104 42.130 43.857 ------ ------ ------ ------ ------ ------ Total Assets Under Management At End-of-Qtr 87.173 87.217 83.777 87.598 87.847 96.314 ====== ====== ====== ====== ====== ====== (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: 0.090 0.061 0.045 0.068 0.068 0.059
PAGE 28 Lincoln UK Income Statements Unaudited [Millions of Dollars] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ ------ Revenue Premiums 156.6 145.1 148.4 46.1 50.6 24.1 26.5 Mortality assessments 29.3 27.1 31.4 33.9 32.4 14.8 18.3 Expense assessments 153.6 182.3 178.1 134.8 105.3 53.1 46.1 Other revenue and fees 11.2 13.8 2.6 (1.4) 24.9 12.3 6.4 Net investment income 87.9 75.3 70.3 64.8 62.1 29.9 31.9 Realized gains (losses) on investments 1.1 3.0 3.2 12.4 1.9 (0.6) 0.0 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Total Revenue 439.7 446.6 433.8 290.7 277.2 133.6 129.1 ------ ------ ------ ------ ------ ------ ------ Benefits and Expenses Benefits paid or provided: Benefits 151.0 306.2 178.5 83.4 84.2 37.3 42.5 Underwriting, acquisition, insurance and other expenses: Commissions 52.6 54.5 37.7 10.8 6.1 3.2 1.9 Operating and administrative expenses 125.8 153.0 140.5 82.5 77.0 36.2 38.8 Restructuring Charges 0.0 10.0 99.4 0.0 (1.7) 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Subtotal 178.5 217.4 277.6 93.2 81.4 39.5 40.7 Deferral of acquisition costs (4.2) (3.4) (1.9) (1.7) DAC amortization 35.9 50.0 27.6 20.5 ------ ------ ------ ------ ------ ------ ------ DAC deferral net of amortization (16.0) (12.4) (7.2) 31.7 46.5 25.7 18.9 PVIF amortization 13.2 28.4 4.7 22.5 30.8 12.4 (2.7) Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 175.6 233.5 275.0 147.4 158.7 77.5 56.9 Goodwill amortization 6.3 7.0 4.0 0.6 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Total Benefits and Expenses 332.9 546.7 457.6 231.5 242.9 114.9 99.4 ------ ------ ------ ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 106.9 (100.1) (23.8) 59.2 34.3 18.8 29.6 Federal income taxes 35.2 (81.8) (10.5) (7.6) (3.4) (0.7) 10.4 ------ ------ ------ ------ ------ ------ ------ Income Before Cumulative Effect of 71.7 (18.2) (13.2) 66.8 37.7 19.5 19.3 Accounting Changes ------ ------ ------ ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Net Income 71.7 (18.2) (13.2) 66.8 37.7 19.5 19.3 ====== ====== ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments 0.8 2.1 2.3 8.7 1.3 (0.4) (0.0) Restructuring charges 0.0 (6.5) (76.5) 0.0 1.7 0.0 0.0 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Income from Operations 70.9 (13.9) 61.0 58.1 34.6 19.9 19.3 ====== ====== ====== ====== ====== ====== ====== Effective tax rate on Income from Operations 32.9% 85.1% 15.7% (24.2%) (12.8%) (2.9%) 35.0% Revenue 439.7 446.6 433.8 290.7 277.2 133.6 129.1 Less: Realized gains (losses) on investments 1.1 3.0 3.2 12.4 1.9 (0.6) 0.0 Gains(losses) on derivatives ------ ------ ------ ------ ------ ------ ------ Operating Revenue 438.6 443.6 430.6 278.2 275.4 134.2 129.1 ====== ====== ====== ====== ====== ====== ====== Average capital 472.5 520.4 493.9 593.7 549.8 564.9 516.8 Net Income return on average capital 15.2% (3.5%) (2.7%) 11.3% 6.9% 6.9% 7.5% Income from operations return on average capital 15.0% (2.7%) 12.4% 9.8% 6.3% 7.0% 7.5% -------------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 635.0 587.3 587.3 597.6 Deferral 4.2 3.4 1.9 1.7 Amortization (35.9) (50.0) (27.6) (20.5) ------ ------ ------ ------ Included in Total Benefits and Expenses (31.7) (46.5) (25.7) (18.8) Foreign currency translation adjustment (16.0) 56.8 29.4 16.4 Other 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Balance at end-of-year 587.3 597.6 591.0 595.1 ====== ====== ====== ====== Roll Forward of Present Value of In-Force Balance at beginning-of-year 273.6 244.0 244.0 237.3 Amortization (22.5) (30.8) (12.4) 2.7 Foreign currency translation adjustment (7.0) 24.1 12.3 6.9 Other ------ ------ ------ ------ Balance at end-of-year 244.0 237.3 243.9 247.0 ====== ====== ====== ====== Note: 2001 and 2002 have been restated for the adoption of the fair value method of accounting for stock options under FAS 123.
PAGE 29 Lincoln UK Income Statements Unaudited [Millions of Dollars] For the Quarter Ended Jun Sep Dec Mar Jun Sep Dec Mar Jun 2001 2001 2001 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue Premiums 9.6 11.8 11.9 12.1 12.1 12.4 14.2 12.7 13.8 Mortality assessments 8.9 8.5 7.1 6.5 8.3 8.7 8.9 9.1 9.2 Expense assessments 31.4 35.5 24.1 25.3 27.8 29.4 22.8 21.6 24.5 Other revenue and fees (5.4) 8.8 (9.2) (0.2) 12.5 24.5 (11.9) 10.3 (3.9) Net investment income 16.9 14.8 15.2 14.7 15.3 15.6 16.6 15.2 16.7 Realized gains (losses) on investments 2.0 5.5 4.3 (5.1) 4.5 1.2 1.2 (0.0) 0.0 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Revenue 63.4 85.0 53.4 53.2 80.5 91.8 51.8 68.9 60.2 ------ ------ ------ ------ ------ ------ ------ ------ ------ Benefits and Expenses Benefits paid or provided: Benefits 17.9 20.7 20.8 18.3 19.0 23.8 23.1 18.2 24.3 Underwriting, acquisition, insurance and other expenses: Commissions 3.3 2.6 1.9 1.3 1.9 1.6 1.3 1.1 0.8 Operating and administrative expenses 18.2 20.3 24.7 17.3 18.9 20.2 20.6 18.3 20.5 Restructuring Charges 0.0 0.0 0.0 0.0 0.0 0.0 (1.7) 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Subtotal 21.5 22.9 26.6 18.6 20.9 21.8 20.2 19.4 21.3 Deferral of acquisition costs (1.1) (1.3) (0.9) (0.9) (1.0) (0.9) (0.6) (0.8) (0.8) DAC amortization 2.6 18.7 (3.8) 6.7 20.9 33.8 (11.5) 18.6 1.9 ------ ------ ------ ------ ------ ------ ------ ------ ------ DAC deferral net of amortization 1.5 17.4 (4.8) 5.8 19.9 33.0 (12.1) 17.7 1.2 PVIF amortization 1.8 9.4 5.6 0.7 11.7 12.8 5.5 3.0 (5.7) Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 24.8 49.6 27.4 25.0 52.5 67.6 13.6 40.1 16.8 Goodwill amortization 0.2 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Benefits and Expenses 42.9 70.5 48.4 43.3 71.5 91.4 36.7 58.3 41.1 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 20.6 14.5 5.1 9.8 9.0 0.4 15.1 10.6 19.1 Federal income taxes 3.5 1.0 (16.9) (0.5) (0.3) 0.2 (2.8) 3.8 6.6 Income Before Cumulative ------ ------ ------ ------ ------ ------ ------ ------ ------ Effect of Accounting Changes 17.1 13.5 22.0 10.3 9.3 0.2 17.9 6.8 12.4 ------ ------ ------ ------ ------ ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income 17.1 13.5 22.0 10.3 9.3 0.2 17.9 6.8 12.4 ====== ====== ====== ====== ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments 1.4 3.9 3.0 (3.6) 3.2 0.9 0.8 (0.0) 0.0 Restructuring charges 0.0 0.0 0.0 0.0 0.0 0.0 1.7 0.0 0.0 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from Operations 15.7 9.6 19.0 13.8 6.1 (0.6) 15.3 6.8 12.4 ====== ====== ====== ====== ====== ====== ====== ====== ====== Effective tax rate on Income from Operations 15.5% (6.8%) (2417.1%) 7.2% (37.0%) 25.4% (26.1%) 35.5% 34.7% Revenue 63.4 85.0 53.4 53.2 80.5 91.8 51.8 68.9 60.2 Less: Realized gains (losses) on investments 2.0 5.5 4.3 (5.1) 4.5 1.2 1.2 (0.0) 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating Revenue 61.4 79.5 49.1 58.3 75.9 90.6 50.6 68.9 60.2 ====== ====== ====== ====== ====== ====== ====== ====== ====== Average capital 593.8 607.2 596.2 585.1 544.8 525.3 543.9 539.2 494.4 Net Income return on average capital 11.5% 8.9% 14.8% 7.0% 6.8% 0.2% 13.2% 5.1% 10.1% Income from operations return on average capital 10.6% 6.3% 12.7% 9.5% 4.5% (0.5%) 11.3% 5.1% 10.1% ------------------------------------------------------------------------------------------------------------------ Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 585.1 583.4 589.7 587.3 569.4 591.0 571.8 597.6 569.1 Deferral 1.1 1.3 0.9 0.9 1.0 0.9 0.6 0.8 0.8 Amortization (2.6) (18.7) 3.8 (6.7) (20.9) (33.8) 11.5 (18.6) (1.9) ------ ------ ------ ------ ------ ------ ------ ------ ------ Included in Total Benefits and Expenses (1.5) (17.4) 4.8 (5.8) (19.9) (33.0) 12.1 (17.7) (1.1) Foreign currency translation adjustment (0.2) 23.8 (7.2) (12.2) 41.6 13.8 13.7 (10.8) 27.2 Other ------ ------ ------ ------ ------ ------ ------ ------ ------ Balance at end-of-year 583.4 589.7 587.3 569.4 591.0 571.8 597.6 569.1 595.1 ====== ====== ====== ====== ====== ====== ====== ====== ====== Roll Forward of Present Value of In-Force Balance at beginning-of-year 253.8 251.9 252.8 244.0 238.3 243.9 236.8 237.4 230.1 Amortization (1.8) (9.4) (5.6) (0.7) (11.7) (12.8) (5.5) (3.0) 5.7 Foreign currency translation adjustment (0.1) 10.3 (3.2) (5.1) 17.4 5.7 6.1 (4.3) 11.2 Other ------ ------ ------ ------ ------ ------ ------ ------ ------ Balance at end-of-year 251.9 252.8 244.0 238.3 243.9 236.8 237.4 230.1 247.0 ====== ====== ====== ====== ====== ====== ====== ====== ======
PAGE 30 Lincoln UK Operational Data Unaudited [Millions of Dollars] For the Quarter Ended Sep Dec Mar Jun Sep Dec 2000 2000 2001 2001 2001 2001 ------ ------ ------ ------ ------ ------ Unit Linked Assets Balance-Beg-of-Quarter (Billions) 6.726 6.499 6.441 5.677 5.768 5.218 Deposits 0.145 0.116 0.132 0.111 0.128 0.111 Withdrawals (incl. chgs) & Deaths (0.159) (0.153) (0.147) (0.131) (0.136) (0.115) ------ ------ ------ ------ ------ ------ Net Flows (0.014) (0.037) (0.015) (0.020) (0.009) (0.004) Inv Inc & Chg in Mkt Val (0.025) (0.100) (0.421) 0.115 (0.768) 0.457 Acq of new business/companies Foreign currency adjustment (0.189) 0.078 (0.328) (0.004) 0.226 (0.063) ------ ------ ------ ------ ------ ------ Unit Linked Assets - End-of-Quarter 6.499 6.441 5.677 5.768 5.218 5.607 ====== ====== ====== ====== ====== ====== Individual Life In-force (Billions) 24.535 24.290 21.894 21.519 21.299 20.878 Exchange Rate - Dollars to Pounds For-the-Quarter 1.482 1.454 1.455 1.421 1.442 1.448 End-of-Quarter 1.475 1.493 1.416 1.415 1.474 1.456 Lincoln UK Operational Data (continued) 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 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 18.896 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 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ Unit Linked Assets Balance-Beg-of-Quarter (Billions) 5.607 5.618 5.520 4.825 5.079 4.748 Deposits 0.114 0.115 0.119 0.104 0.094 0.090 Withdrawals (incl. chgs) & Deaths (0.127) (0.137) (0.126) (0.129) (0.153) (0.137) ------ ------ ------ ------ ------ ------ Net Flows (0.013) (0.022) (0.006) (0.025) (0.059) (0.047) Inv Inc & Chg in Mkt Val 0.141 (0.479) (0.812) 0.146 (0.184) 0.549 Acq of new business/companies Foreign currency adjustment (0.117) 0.403 0.123 0.133 (0.087) 0.218 ------ ------ ------ ------ ------ ------ Unit Linked Assets - End-of-Quarter 5.618 5.520 4.825 5.079 4.748 5.468 ====== ====== ====== ====== ====== ====== Individual Life In-force (Billions) 20.010 20.401 19.815 18.896 18.512 19.138 Exchange Rate - Dollars to Pounds For-the-Quarter 1.423 1.464 1.555 1.570 1.605 1.618 End-of-Quarter 1.426 1.532 1.569 1.610 1.580 1.656
PAGE 31 Other Operations Unaudited [Millions of Dollars] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ ------ Revenue 1691.1 1966.0 1946.9 1827.3 372.4 177.0 149.2 Less: Realized gains (losses) on investments 0.5 14.4 (5.0) 8.2 25.6 (8.7) 0.2 Gains (losses) on derivatives 0.0 0.0 0.0 (9.7) 0.9 (0.0) (0.2) Amortization of deferred gain-reserve development 0.0 0.0 0.0 0.0 (0.8) 0.0 (0.4) Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 12.8 (8.3) 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Operating Revenue 1690.6 1951.6 1951.9 1815.9 355.0 185.8 149.6 ====== ====== ====== ====== ====== ====== ====== Operating Revenue by Source: Lincoln Financial Advisors 286.4 317.0 377.5 360.7 318.0 154.0 144.7 Lincoln Financial Distributors 33.5 107.5 119.9 113.4 127.3 58.7 64.8 ------ ------ ------ ------ ------ ------ ------ Total Distribution 319.9 424.4 497.4 474.0 445.4 212.7 209.5 Reinsurance 1581.2 1824.1 1770.6 1699.4 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 0.0 20.4 75.2 46.2 36.6 Other [Including Consolidating Adjustments] (210.5) (296.9) (316.0) (377.9) (165.6) (73.2) (96.5) ------ ------ ------ ------ ------ ------ ------ Total Operating Revenue 1690.6 1951.6 1951.9 1815.9 355.0 185.8 149.6 ====== ====== ====== ====== ====== ====== ====== ----------------------------------------------------------------------------------------------------------------------------- Income (Loss) Net Loss (7.6) (76.1) (10.2) (6.6) (247.3) (42.6) (43.3) Less: Realized gains (losses) on investments 2.7 10.2 (3.2) 5.9 16.7 (5.7) 0.1 Gains (losses) on derivatives 0.0 0.0 0.0 (6.3) 0.6 (0.0) (0.1) Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 15.0 (9.4) 0.0 0.0 Reserve increase on business sold through reinsurance 0.0 0.0 0.0 0.0 (199.1) (14.4) (0.2) Restructuring charges (14.3) (3.2) 1.0 (19.5) 1.1 0.0 0.0 Cumulative effect of accounting changes 0.0 0.0 0.0 (2.7) 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Operating Income (Loss) 4.0 (83.1) (8.0) 1.0 (57.2) (22.5) (43.0) ====== ====== ====== ====== ====== ====== ====== Income (Loss) from Operations by Source: Lincoln Financial Advisors (23.7) (20.8) (11.7) (20.1) (31.4) (18.8) (17.8) Lincoln Financial Distributors (8.2) (14.0) (18.5) (33.2) (35.2) (14.2) (18.8) ------ ------ ------ ------ ------ ------ ------ Total Distribution (31.9) (34.8) (30.2) (53.3) (66.6) (32.9) (36.6) Reinsurance 104.9 40.1 122.5 128.8 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 0.0 12.9 48.9 30.0 23.8 LNC Financing (51.5) (83.5) (84.9) (77.9) (43.0) (18.4) (29.7) Other Corporate (17.5) (5.0) (15.4) (9.5) 3.5 (1.1) (0.5) ------ ------ ------ ------ ------ ------ ------ Income (Loss) from Operations 4.0 (83.1) (8.0) 1.0 (57.2) (22.5) (43.0) ====== ====== ====== ====== ====== ====== ====== ----------------------------------------------------------------------------------------------------------------------------- Jun Sep Dec Mar Jun Sep Dec Mar Jun For the Quarter Ended 2001 2001 2001 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue 447.6 485.3 367.4 88.5 88.5 91.8 103.6 73.0 76.1 Less: Realized gains (losses) on investments 1.4 (12.8) 29.5 (4.9) (3.8) 33.2 1.2 0.4 (0.2) Gains (losses) on derivatives (0.1) (0.0) (9.7) 0.1 (0.1) 0.6 0.3 (0.4) 0.2 Amort. of deferred gain-reserve development 0.0 0.0 0.0 0.0 0.0 (1.4) 0.5 (0.2) (0.2) Gain on sale of reinsurance subsidiaries 0.0 0.0 12.8 0.0 0.0 0.0 (8.3) 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating Revenue 446.2 498.2 334.7 93.3 92.4 59.4 109.8 73.3 76.3 ====== ====== ====== ====== ====== ====== ====== ====== ====== Operating Revenue by Source: Lincoln Financial Advisors 83.8 78.9 116.7 75.9 78.1 74.4 89.6 69.4 75.3 Lincoln Financial Distributors 20.7 32.0 35.0 29.4 29.3 31.8 36.9 35.4 29.4 Total Distribution 104.5 111.0 151.7 105.3 107.4 106.2 126.5 104.8 104.6 Reinsurance 451.4 467.4 265.6 0.0 0.0 0.0 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 20.4 24.1 22.1 22.1 6.9 18.4 18.2 Other [Including Consolidating Adjustments] (109.6) (80.2) (102.9) (36.0) (37.1) (68.9) (23.6) (49.9) (46.6) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Operating Revenue 446.2 498.2 334.7 93.3 92.4 59.4 109.8 73.3 76.3 ====== ====== ====== ====== ====== ====== ====== ====== ====== ----------------------------------------------------------------------------------------------------------------------------- Income (Loss) Net Income (Loss) (15.7) (24.6) 33.2 (16.8) (25.8) (172.1) (32.6) (21.7) (21.6) Less: Realized gains (losses) on investments 1.0 (8.3) 19.7 (3.3) (2.4) 21.6 0.8 0.5 (0.4) Gains (losses) on derivatives (0.1) (0.0) (6.3) 0.1 (0.1) 0.4 0.2 (0.5) 0.4 Gain on sale of reinsurance subsidiaries 0.0 0.0 15.0 0.0 0.0 0.0 (9.4) 0.0 0.0 Reserve develpoment on business sold through reinsurance 0.0 0.0 0.0 0.0 (14.4) (176.4) (8.2) (0.1) (0.1) Restructuring charges (1.2) 0.0 (18.3) 0.0 0.0 1.1 0.0 0.0 0.0 Cumulative effect of accounting changes (2.2) 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income (Loss) from Operations (13.1) (16.3) 23.0 (13.6) (8.9) (18.8) (15.9) (21.5) (21.5) ====== ====== ====== ====== ====== ====== ====== ====== ====== Income from Operations by Source: Lincoln Financial Advisors (13.4) (5.3) 6.4 (10.1) (8.7) (8.9) (3.7) (10.4) (7.4) Lincoln Financial Distributors (12.1) (8.4) (5.1) (6.6) (7.6) (13.1) (8.0) (8.1) (10.7) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distribution (25.5) (13.7) 1.3 (16.6) (16.3) (22.0) (11.7) (18.4) (18.1) Reinsurance 34.1 17.2 30.7 0.0 0.0 0.0 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 12.9 15.7 14.4 14.4 4.5 11.9 11.9 LNC Financing (22.0) (19.5) (14.7) (8.2) (10.2) (11.0) (13.5) (15.3) (14.4) Other Corporate 0.2 (0.3) (7.1) (4.4) 3.2 (0.2) 4.9 0.3 (0.8) ------ ------ ------ ------ ------ ------ ------ ------ ------ Income(Loss) from Operations (13.1) (16.3) 23.0 (13.6) (8.9) (18.8) (15.9) (21.5) (21.5) ====== ====== ====== ====== ====== ====== ====== ====== ====== * 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 32 Consolidated Domestic Retail Deposits/Account Balances Unaudited [Billions of Dollars] 1998 ------ Deposits - For the Year Lincoln Retirement - Fixed Annuities 1.452 Lincoln Retirement - Variable Annuities 2.791 Lincoln Retirement - Life Insurance 0.000 Life Insurance Segment - Life Insurance 1.207 Inv Mgmt - Annuities 2.240 Inv Mgmt - Mutual Funds(1) 1.912 Inv Mgmt - Wrap Fee & Other 0.595 Consolidating Adjustments (1.041) ------ Gross Deposits 9.157 ====== Account Balances - End of Year Lincoln Retirement - Fixed Annuities 16.505 Lincoln Retirement - Variable Annuities 33.358 Lincoln Retirement - Life Insurance Life Insurance Segment - Life Insurance 9.243 Inv Mgmt - Annuities 14.257 Inv Mgmt - Mutual Funds(1) 13.528 Inv Mgmt - Wrap Fee & Other 2.512 Consolidating Adjustments (8.891) ------ Account Balances 80.512 ====== Sep Dec Mar Jun Sep Dec 2000 2000 2001 2001 2001 2001 ------ ------ ------ ------ ------ ------ Deposits - For the Quarter Lincoln Retirement - Fixed Annuities 0.513 0.482 0.560 0.668 0.896 1.218 Lincoln Retirement - Variable Annuities 0.729 0.846 0.887 0.703 0.684 0.793 Lincoln Retirement - Life Insurance 0.004 0.004 0.003 0.004 0.003 0.002 Life Insurance Segment - Life Insurance 0.428 0.622 0.418 0.477 0.434 0.605 Inv Mgmt - Annuities 0.456 0.589 0.540 0.403 0.434 0.323 Inv Mgmt - Mutual Funds(1) 0.554 0.563 0.483 0.355 0.336 0.348 Inv Mgmt - Managed Acct. & Other 0.140 0.131 0.142 0.127 0.074 0.127 Consolidating Adjustments (0.134) (0.240) (0.146) (0.110) (0.193) (0.159) ------ ------ ------ ------ ------ ------ Gross Deposits 2.690 2.996 2.886 2.627 2.669 3.258 ------ ------ ------ ------ ------ ------ Account Balances - End of Quarter Lincoln Retirement - Fixed Annuities 15.660 15.394 15.430 15.551 16.051 16.491 Lincoln Retirement - Variable Annuities 42.743 39.427 34.733 36.961 30.506 34.638 Lincoln Retirement - Life Insurance 0.166 0.160 0.147 0.157 0.134 0.149 Life Insurance Segment - Life Insurance 10.716 10.847 10.764 11.066 10.939 11.377 Inv Mgmt - Annuities 14.853 13.527 11.822 12.532 10.714 11.835 Inv Mgmt - Mutual Funds(1) 14.571 13.261 11.530 12.215 10.726 11.552 Inv Mgmt - Managed Acct. & Other 1.256 1.342 1.653 1.774 1.635 1.719 Consolidating Adjustments (8.658) (7.757) (6.601) (7.092) (6.002) (6.676) ------ ------ ------ ------ ------ ------ Account Balances 91.307 86.201 79.479 83.164 74.704 81.086 ------ ------ ------ ------ ------ ------ Total Domestic Net Flows Unaudited [Billions of Dollars] For the Year 1998 ------ Lincoln Retirement (1.244) Life Insurance Segment 0.113 Investment Management Segment- Retail(1) 1.772 Consolidating Adjustments (0.158) ------ Total Retail Net Flows 0.483 ------ Investment Management Segment- Institutional (2.702) Consolidating Adjustments ------ Total Net Flows (2.219) ====== Sep Dec Mar Jun Sep Dec For the Quarter 2000 2000 2001 2001 2001 2001 ------ ------ ------ ------ ------ ------ Lincoln Retirement (0.812) (0.681) (0.590) (0.196) 0.261 0.631 Life Insurance Segment 0.277 0.404 0.237 0.304 0.239 0.383 Investment Management Segment- Retail(1) (0.315) 0.059 (0.021) (0.146) (0.118) (0.091) Consolidating Adjustments 0.263 0.092 0.163 0.042 (0.002) (0.169) ------ ------ ------ ------ ------ ------ Total Retail Net Flows (0.587) (0.126) (0.211) 0.004 0.380 0.754 ------ ------ ------ ------ ------ ------ Investment Management Segment- Instit. (0.983) (1.043) (0.417) 0.445 (0.155) (0.103) Consolidating Adjustments 0.002 (0.013) (0.020) 0.018 (0.030) 0.016 ------ ------ ------ ------ ------ ------ Total Net Flows (1.569) (1.182) (0.648) 0.467 0.195 0.667 ====== ====== ====== ====== ====== ====== Consolidated Domestic Retail Deposits/Account Balances (continued) Unaudited [Billions of Dollars] Jun Jun YTD YTD 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ Deposits - For the Year Lincoln Retirement - Fixed Annuities 2.563 2.074 3.342 3.672 1.759 1.555 Lincoln Retirement - Variable Annuities 2.553 3.165 3.067 2.743 1.595 1.232 Lincoln Retirement - Life Insurance 0.017 0.014 0.012 Life Insurance Segment - Life Insurance 1.698 1.884 1.934 2.138 1.018 1.012 Inv Mgmt - Annuities 1.561 1.782 1.701 2.751 1.190 1.016 Inv Mgmt - Mutual Funds(1) 2.151 2.577 1.523 1.829 1.014 1.009 Inv Mgmt - Wrap Fee & Other 0.549 0.525 0.469 1.115 0.352 0.398 Consolidating Adjustments (0.499) (0.765) (0.608) (1.576) (0.614) (0.382) ------ ------ ------ ------ ------ ------ Gross Deposits 10.593 11.256 11.439 12.671 6.315 5.839 ====== ====== ====== ====== ====== ====== Account Balances - End of Year Lincoln Retirement - Fixed Annuities 16.791 15.394 16.491 18.085 Lincoln Retirement - Variable Annuities 41.493 39.427 34.638 27.438 Lincoln Retirement - Life Insurance 0.155 0.160 0.149 Life Insurance Segment - Life Insurance 10.217 10.847 11.377 12.086 Inv Mgmt - Annuities 15.557 13.527 11.835 9.981 Inv Mgmt - Mutual Funds(1) 13.632 13.261 11.552 10.297 Inv Mgmt - Wrap Fee & Other 1.618 1.342 1.719 2.270 Consolidating Adjustments (9.175) (7.757) (6.676) (5.123) ------ ------ ------ ------ Account Balances 90.288 86.201 81.086 75.034 ====== ====== ====== ====== Mar Jun Sep Dec Mar Jun 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ Deposits - For the Quarter Lincoln Retirement - Fixed Annuities 0.906 0.853 1.091 0.822 0.776 0.778 Lincoln Retirement - Variable Annuities 0.808 0.787 0.603 0.545 0.648 0.584 Lincoln Retirement - Life Insurance Life Insurance Segment - Life Insurance 0.440 0.577 0.484 0.636 0.486 0.526 Inv Mgmt - Annuities 0.589 0.601 0.756 0.806 0.488 0.528 Inv Mgmt - Mutual Funds(1) 0.452 0.562 0.416 0.399 0.450 0.558 Inv Mgmt - Managed Acct. & Other 0.159 0.194 0.293 0.469 0.202 0.196 Consolidating Adjustments (0.280) (0.333) (0.437) (0.525) (0.171) (0.211) ------ ------ ------ ------ ------ ------ Gross Deposits 3.074 3.240 3.206 3.151 2.880 2.960 ------ ------ ------ ------ ------ ------ Account Balances - End of Quarter Lincoln Retirement - Fixed Annuities 16.534 16.910 17.650 18.085 18.537 18.696 Lincoln Retirement - Variable Annuities 35.150 31.206 25.942 27.438 26.474 30.457 Lincoln Retirement - Life Insurance Life Insurance Segment - Life Insurance 11.667 11.759 11.726 12.086 12.233 12.663 Inv Mgmt - Annuities 11.920 10.896 9.327 9.981 9.660 11.002 Inv Mgmt - Mutual Funds(1) 11.597 11.033 10.069 10.297 10.241 11.357 Inv Mgmt - Managed Acct. & Other 1.821 1.847 1.820 2.270 2.292 2.737 Consolidating Adjustments (6.640) (6.000) (4.940) (5.123) (4.891) (5.628) ------ ------ ------ ------ ------ ------ Account Balances 82.049 77.651 71.594 75.034 74.546 81.284 ------ ------ ------ ------ ------ ------ Total Domestic Net Flows (continued) Unaudited [Billions of Dollars] YTD YTD Jun Jun For the Year 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ Lincoln Retirement (1.165) (2.874) 0.105 0.453 0.311 0.195 Life Insurance Segment 0.985 1.158 1.163 1.320 0.621 0.621 Investment Management Segment- Retail(1) (2.209) (1.499) (0.375) 0.806 0.256 0.316 Consolidating Adjustments 1.276 1.022 0.035 (0.082) (0.028) 0.159 ------ ------ ------ ------ ------ ------ Total Retail Net Flows (1.114) (2.194) 0.927 2.496 1.160 1.291 ------ ------ ------ ------ ------ ------ Investment Management Segment- Institutional (2.240) (5.694) (0.231) 2.106 1.187 0.618 Consolidating Adjustments 0.035 (0.015) 0.005 (0.004) (0.021) ------ ------ ------ ------ ------ ------ Total Net Flows (3.354) (7.854) 0.681 4.608 2.342 1.889 ====== ====== ====== ====== ====== ====== Mar Jun Sep Dec Mar Jun For the Quarter 2002 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ ------ Lincoln Retirement 0.088 0.223 0.068 0.074 0.095 0.099 Life Insurance Segment 0.236 0.385 0.297 0.402 0.296 0.324 Investment Management Segment- Retail(1) 0.089 0.167 0.048 0.502 0.014 0.302 Consolidating Adjustments 0.009 (0.038) 0.133 (0.187) 0.162 (0.003) ------ ------ ------ ------ ------ ------ Total Retail Net Flows 0.423 0.737 0.545 0.791 0.568 0.723 ------ ------ ------ ------ ------ ------ Investment Management Segment- Instit. 0.731 0.455 0.348 0.572 0.330 0.289 Consolidating Adjustments 0.022 (0.026) 0.008 0.001 (0.030) 0.009 ------ ------ ------ ------ ------ ------ Total Net Flows 1.176 1.166 0.901 1.364 0.868 1.021 ====== ====== ====== ====== ====== ====== 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 26 and 27.
PAGE 33 Consolidated Investment Data - Assets Managed Unaudited [Billions of Dollars] Sep Dec Mar Jun Sep Dec For the Quarter Ended 2000 2000 2001 2001 2001 2001 ------- ------- ------- ------- ------- ------- Assets Managed by Source LNC's Investments and Cash: Fixed maturity securities 27.264 27.450 27.811 27.874 28.932 28.346 Equity securities 0.570 0.550 0.560 0.534 0.478 0.470 Other investments 7.471 7.369 7.374 7.388 7.379 7.297 ------- ------- ------- ------- ------- ------- Total LNC Investments(1) 35.305 35.369 35.744 35.796 36.788 36.113 Separate accounts 54.411 50.580 44.506 47.140 39.480 44.833 Cash and invested cash 1.436 1.927 2.015 1.502 1.996 3.095 ------- ------- ------- ------- ------- ------- Total LNC 91.152 87.876 82.266 84.438 78.264 84.042 ------- ------- ------- ------- ------- ------- Non-affiliate assets managed 43.287 41.861 38.416 40.109 35.889 38.421 ------- ------- ------- ------- ------- ------- Total Assets Managed 134.439 129.737 120.682 124.547 114.153 122.463 ======= ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 55.998 53.355 48.207 50.737 44.958 48.413 (See page 27 for additional detail) DLIA-Corp 34.981 35.686 36.324 36.018 37.337 38.119 (Assets managed internally-see page 27) Lincoln (UK) 7.838 7.873 7.012 7.027 6.474 6.847 Policy Loans (within business units) 1.936 1.961 1.947 1.947 1.943 1.940 Non-LNC Affiliates 33.687 30.862 27.192 28.817 23.441 27.144 ------- ------- ------- ------- ------- ------- Total Assets Managed 134.439 129.737 120.682 124.547 114.153 122.463 ======= ======= ======= ======= ======= ======= Consolidated Investment Data - Assets Managed (continued) Unaudited [Billions of Dollars] For the Year Ended 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 6.895 ------- ------- ------- ------- ------- Total LNC Investments(1) 37.929 35.578 35.369 36.113 40.000 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 77.869 ------- ------- ------- ------- ------- Non-affiliate assets managed 50.061 49.314 41.861 38.421 38.052 ------- ------- ------- ------- ------- Total Assets Managed 133.833 140.443 129.737 122.463 115.921 ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 61.490 61.375 53.354 48.411 46.495 (See page 27 for additional detail) DLIA-Corp 39.432 35.934 35.686 38.119 41.104 (Assets managed internally-see page 27) 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 23.497 32.653 30.863 27.146 20.026 ------- ------- ------- ------- ------- Total Assets Managed 133.833 140.443 129.737 122.463 15.921 ======= ======= ======= ======= ======= Mar Jun Sep Dec Mar Jun For the Quarter Ended 2002 2002 2002 2002 2003 2003 ------- ------- ------- ------- ------- ------- Assets Managed by Source LNC's Investments and Cash: Fixed maturity securities 28.841 29.725 32.037 32.767 33.887 35.355 Equity securities 0.439 0.419 0.397 0.337 0.249 0.257 Other investments 7.084 7.016 6.928 6.895 6.872 6.980 ------- ------- ------- ------- ------- ------- Total LNC Investments(1) 36.363 37.160 39.363 40.000 41.008 42.592 Separate accounts 44.917 40.580 34.069 36.178 34.775 39.943 Cash and invested cash 1.700 2.265 1.600 1.691 1.635 1.946 ------- ------- ------- ------- ------- ------- Total LNC 82.979 80.005 75.031 77.869 77.419 84.480 ------- ------- ------- ------- ------- ------- Non-affiliate assets managed 39.853 39.531 35.650 38.052 37.501 42.917 ------- ------- ------- ------- ------- ------- Total Assets Managed 122.832 119.536 110.682 115.921 114.920 127.397 ======= ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 50.003 48.741 43.361 46.494 45.717 52.457 (See page 27 for additional detail) DLIA-Corp 37.171 38.476 40.416 41.104 42.130 43.857 (Assets managed internally-see page 27) Lincoln (UK) 6.772 6.753 6.068 6.351 5.962 6.726 Policy Loans (within business units) 1.918 1.906 1.899 1.946 1.929 1.920 Non-LNC Affiliates 26.969 23.660 18.938 20.027 19.182 22.438 ------- ------- ------- ------- ------- ------- Total Assets Managed 122.832 119.536 110.682 115.921 114.920 127.397 ======= ======= ======= ======= ======= ======= (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. See details on pages 26 and 27.
PAGE 34 Consolidated Investment Data Unaudited [Millions of Dollars except as noted] YTD YTD Jun Jun For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 -------- -------- -------- -------- -------- -------- -------- Net Investment Income Fixed Maturity Securities 2,065.8 2,232.9 2,148.7 2,121.0 2,117.0 1,046.3 1,089.1 Equity Securities 22.8 20.1 19.5 17.6 15.4 7.6 5.7 Mortgage loans on real estate 383.6 369.2 373.8 374.5 356.8 179.7 165.8 Real estate 86.8 64.1 51.8 49.5 47.4 24.2 20.7 Policy loans 99.5 116.5 125.0 125.3 134.5 61.3 61.5 Invested cash 156.8 110.3 87.2 68.4 37.6 21.5 2.8 Other investments 88.4 51.8 66.8 69.4 16.3 17.6 18.9 -------- -------- -------- -------- -------- -------- -------- Investment revenue 2,903.7 2,964.8 2,872.8 2,825.9 2,725.0 1,358.2 1,364.5 Investment expense (193.1) (122.4) (88.7) (117.1) (93.1) (46.0) (49.6) -------- -------- -------- -------- -------- -------- -------- Net Investment Income 2,710.6 2,842.5 2,784.1 2,708.7 2,631.9 1,312.2 1,314.9 -------- -------- -------- -------- -------- -------- -------- Gross-up of Tax Exempt Income 11.6 8.1 7.8 7.2 7.5 3.5 3.6 -------- -------- -------- -------- -------- -------- -------- Adjusted Net Invest Income 2,722.3 2,850.5 2,791.9 2,715.9 2,639.4 1,315.7 1,318.4 ======== ======== ======== ======== ======== ======== ======== Mean Invested Assets (Amortized Cost) 36,573.8 39,027.5 37,471.3 37,616.9 38,828.5 38,202.7 40,654.6 Ratio of Adjusted Net Invest Inc Over Mean Invested Assets 7.44% 7.30% 7.45% 7.22% 6.80% 6.89% 6.49% Investment Gains (Losses) Realized Gains (Losses) on Investments 13.7 3.8 (17.5) (68.7) (177.2) (120.3) (59.4) Gains(Losses) on Derivatives 0.0 0.0 0.0 (4.9) 0.8 0.4 (1.8) Incr (Decr) in Unreal Gains on Sec Avail-for-Sale (after DAC/Tax) 116.4 (1,018.1) 477.7 183.7 557.6 130.0 364.5 Incr (Decr) on Derivatives* 21.4 24.4 18.7 0.4 Securities Available-for-Sale [Billions of Dollars] Fixed Maturity Sec (Fair Value) 30.233 27.689 27.450 28.346 32.767 29.725 35.355 Fixed Maturity Sec (Amortized Cost 28.640 28.357 27.373 27.956 31.103 28.335 32.257 Equity Securities (Fair Value) 0.543 0.604 0.550 0.470 0.337 0.419 0.257 Equity Securities (Amortized Cost) 0.000 0.000 0.000 0.000 0.334 0.255 0.244 % of Fixed Maturity Securities (Based on Fair Value) Treasuries and AAA 25.6% 22.8% 22.1% 17.2% 20.1% 18.2% 19.5% AA or better 32.6% 29.8% 29.2% 23.6% 25.8% 25.0% 25.1% BB or less 7.0% 8.0% 6.7% 8.3% 6.6% 6.4% 6.6% -------------------------------------------------------------------------------------------------------------------------- Jun Sep Dec Mar Jun Sep Dec Mar Jun For the Quarter Ended 2001 2001 2001 2002 2002 2002 2002 2003 2003 -------- -------- -------- -------- -------- -------- -------- -------- -------- Net Investment Income Fixed Maturity Securities 527.0 536.9 530.1 522.5 523.8 533.6 537.0 542.3 546.8 Equity Securities 7.8 3.7 5.1 3.4 4.3 2.7 5.1 2.8 2.9 Mortgage loans on real estate 92.4 94.2 92.4 89.5 90.2 90.8 86.4 81.6 84.3 Real estate 13.1 12.7 10.9 12.3 11.9 10.0 13.2 10.7 10.0 Policy loans 31.4 31.0 31.6 30.2 31.1 31.1 42.0 30.9 30.6 Invested cash 19.8 14.8 11.3 12.4 9.1 7.9 8.2 4.5 (1.7) Other investments 18.2 28.2 3.5 7.8 9.8 (1.2) (0.1) 8.2 10.7 -------- -------- -------- -------- -------- -------- -------- -------- -------- Investment revenue 709.7 721.4 684.8 678.1 680.2 675.0 691.7 681.0 683.5 Investment expense (29.0) (28.2) (31.8) (23.3) (22.8) (22.7) (24.4) (26.3) (23.3) -------- -------- -------- -------- -------- -------- -------- -------- -------- Net Investment Income 680.7 693.3 653.1 654.8 657.4 652.4 667.3 654.6 660.2 -------- -------- -------- -------- -------- -------- -------- -------- -------- Gross-up of Tax Exempt Income 3.0 1.5 2.1 1.5 2.0 1.5 2.6 1.7 1.8 -------- -------- -------- -------- -------- -------- -------- -------- -------- Adjusted Net Invest Income 683.8 694.8 655.2 656.3 659.4 653.9 669.9 656.4 662.0 ======== ======== ======== ======== ======== ======== ======== ======== ======== Mean Invested Assets (Amortized Cost) 37,094.5 37,685.8 38,449.3 38,169.9 38,235.5 39,175.8 39,733.1 40,342.2 40,966.9 Ratio of Adjusted Net Invest Inc Over Mean Invested Assets 7.37% 7.37% 6.82% 6.88% 6.90% 6.68% 6.74% 6.51% 6.46% Investment Gains (Losses) Realized Gains (Losses) on Investments (11.5) (23.8) (20.0) (67.6) (52.7) (23.6) (33.3) (58.2) (1.1) Gains (Losses) on Derivatives 0.2 (0.4) (4.6) 0.1 0.3 0.2 0.2 (1.2) (0.6) Incr (Decr) in Unreal Gains on Sec Avail-for-Sale (after DAC/Tax) (114.2) 171.8 (52.2) (163.9) 293.8 491.9 (64.3) 118.7 245.9 Incr (Decr) on Derivatives* 3.7 (6.7) 1.2 1.2 0.0 4.6 1.0 (3.4) 3.8 Securities Available-for-Sale [Billions of Dollars] Fixed Maturity Sec (Fair Value) 27.874 28.932 28.346 28.841 29.725 32.037 32.767 33.887 35.355 Fixed Maturity Sec (Amortized Cost) 27.681 28.253 27.956 27.801 28.335 30.431 31.103 31.905 32.222 Equity Securities (Fair Value) 0.534 0.478 0.470 0.439 0.419 0.397 0.337 0.249 0.257 Equity Securities (Amortized Cost) 0.477 0.453 0.444 0.253 0.255 0.389 0.334 0.247 0.244 % of Fixed Maturity Securities (Based on Fair Value) Treasuries and AAA 19.3% 17.9% 17.2% 17.8% 18.2% 20.0% 20.1% 20.3% 19.5% AA or better 26.0% 24.3% 23.6% 24.7% 25.0% 26.7% 25.8% 25.8% 25.1% BB or less 7.8% 7.2% 8.3% 7.5% 6.4% 6.6% 6.6% 6.6% 6.6%
PAGE 35 Common Stock / Debt Information Unaudited [Dollars per Share, except Percentages] For the Year Ended December 31 1992 1993 1994 1995 1996 1997 ------ ------ ------ ------ ------ ------ Common Stock [1] Highest Price 19.032 24.125 22.188 26.875 28.500 39.063 Lowest Price 12.625 17.344 17.313 17.313 20.375 24.500 Closing Price 18.500 21.750 17.500 26.875 26.250 39.063 Dividend Payout Ratio [2] 38.9% 52.6% 51.0% 39.7% 38.2% 22.8% Yield [3] 4.1% 3.8% 4.9% 3.4% 3.7% 2.7% Preferred Stock Dividend (Millions) 17.246 17.212 17.119 8.644 0.112 0.106 Debt: (End of Period) Senior Debt Ratings A.M. Best Fitch AA AA- AA- AA- AA- AA- Moody's A2 A2 A1 A2 A2 A2 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 AAA AAA AAA AA+ AA+ AA+ Lincoln Life - Moody's A1 A1 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+ First Penn - Moody's A1 First Penn - Standard & Poors* AA- AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A+ A+ LLA of New York - Fitch* AA+ LLA of New York - Moody's A1 A1 LLA of New York - Standard & Poors* AA- AA- Ratios Debt to Total Capitalization [4] 25.7% 21.1% 19.9% 22.8% 18.8% 17.0% Debt to Equity [4] 34.7% 26.7% 24.9% 29.5% 23.1% 20.5% ----------------------------------------------------------------------------------------------------------- Sep Dec Mar Jun Sep Dec Mar For the Quarter Ended 2000 2000 2001 2001 2001 2001 2002 ------ ------ ------ ------ ------ ------ ------ Common Stock: Highest Price 56.375 50.938 48.250 52.300 52.750 49.450 53.650 Lowest Price 35.625 40.875 38.000 41.280 41.000 40.000 47.200 Closing Price 48.125 47.313 42.470 51.750 46.630 48.570 50.730 Yield [3] 2.4% 2.6% 2.9% 2.4% 2.6% 2.6% 2.5% Preferred Stock Dividend 0.021 0.013 0.019 0.018 0.017 0.017 0.016 (Millions) Debt: (End of Period) Senior Debt Ratings A.M. Best a a a a a a a Fitch A+ A+ A+ A+ A+ A+ A+ Moody's A2 A3 A3 A3 A3 A3 A3 Standard and Poors A- A- A- A- A- A- A- Claims Paying Ratings: Lincoln Life - A.M. Best A A A A A A A Lincoln Life - Fitch AA+ AA AA AA AA AA AA Lincoln Life - Moody's Aa3 Aa3 Aa3 Aa3 Aa3 Aa3 Aa3 Lincoln Life - Standard & Poors AA- AA- AA- AA- AA- AA- AA- First Penn - A.M. Best* A A A A A A A First Penn - Fitch AA+ AA AA AA AA AA AA First Penn - Moody's A1 A1 A1 A1 A1 A1 A1 First Penn - Standard & Poors* AA- AA- AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A A A A A A A LLA of New York - Fitch* AA+ AA AA AA AA AA AA LLA of New York - Moody's A1 A1 A1 A1 A1 A1 A1 LLA of New York - Standard & Poors* AA- AA- AA- AA- AA- AA- AA- Ratios Debt to Total Capitalization [4] 21.2% 20.8% 22.2% 21.2% 21.1% 21.4% 22.7% Debt to Equity [4] 27.1% 26.4% 28.4% 26.7% 26.6% 27.0% 29.1% Common Stock / Debt Information (continued) Unaudited [Dollars per Share, except Percentages] For the Year Ended December 31 1998 1999 2000 2001 2002 ------ ------ ------ ------ ------ Common Stock [1] Highest Price 49.438 57.500 56.375 52.750 53.650 Lowest Price 33.500 36.000 22.625 38.000 25.150 Closing Price 40.907 40.000 47.313 48.570 31.580 Dividend Payout Ratio [2] 43.9% 50.5% 38.3% 44.9% 273.5% Yield [3] 2.7% 2.9% 2.6% 2.6% 4.2% Preferred Stock Dividend (Millions) 0.100 0.089 0.078 0.071 0.061 Debt: (End of Period) Senior Debt Ratings A.M. Best a a a Fitch A+ A+ A+ A+ A Moody's A2 A2 A3 A3 A3 Standard and Poors A- A- A- A- A- Claims Paying Ratings: Lincoln Life - A.M. Best A A A A A+ Lincoln Life - Fitch AA+ AA+ AA AA AA Lincoln Life - Moody's Aa3 Aa3 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 AA+ AA+ AA AA AA First Penn - Moody's A1 A1 A1 A1 A1 First Penn - Standard & Poors* AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A A A A A+ LLA of New York - Fitch* AA+ AA+ AA AA AA LLA of New York - Moody's A1 A1 A1 A1 A1 LLA of New York - Standard & Poors* AA- AA- AA- AA- AA- Ratios Debt to Total Capitalization [4] 21.2% 23.2% 20.8% 21.4% 23.1% Debt to Equity [4] 26.9% 30.3% 26.4% 27.0% 30.5% ------------------------------------------------------------------------------------- Jun Sep Dec Mar Jun For the Quarter Ended 2002 2002 2002 2003 2003 ------ ------ ------ ------ ------ Common Stock: Highest Price 52.540 42.080 35.950 35.700 37.500 Lowest Price 40.750 29.120 25.150 24.730 27.870 Closing Price 42.000 30.550 31.580 28.000 35.630 Yield [3] 3.0% 4.2% 4.2% 4.8% 3.8% Preferred Stock Dividend 0.015 0.015 0.015 0.014 0.016 (Millions) Debt: (End of Period) Senior Debt Ratings A.M. Best a a a a a Fitch A+ A A A A Moody's A3 A3 A3 A3 A3 Standard and Poors A- A- A- A- A- Claims Paying Ratings: Lincoln Life - A.M. Best A+ A+ A+ A+ A+ Lincoln Life - Fitch AA AA AA AA AA Lincoln Life - Moody's Aa3 Aa3 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 AA AA AA AA AA First Penn - Moody's A1 A1 A1 A1 A1 First Penn - Standard & Poors* AA- AA- AA- AA- AA- LLA of New York - A.M. Best* A+ A+ A+ A+ A+ LLA of New York - Fitch* AA AA AA AA AA LLA of New York - Moody's A1 A1 A1 A1 A1 LLA of New York - Standard & Poors* AA- AA- AA- AA- AA- Ratios Debt to Total Capitalization [4] 22.6% 23.1% 23.2% 23.1% 22.3% Debt to Equity [4] 29.0% 29.9% 30.5% 30.0% 28.7% * Rating based on affiliation with Lincoln Life [1] Stock prices 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.
PAGE 36 Retroactive Adoption of FAS 123 Unaudited (Millions of Dollars) Mar Jun Sep Dec Mar Jun Sep Dec 2001 2001 2001 2001 2002 2002 2002 2002 2001 2002 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income Lincoln Retirement : Net Income - As previously reported 76.6 79.9 58.6 54.2 47.6 10.2 (6.0) 6.0 269.3 57.8 Change in Operating & Administrative Expense (1.6) (1.6) (1.6) (1.6) (1.5) (1.6) (1.6) (1.6) (6.4) (6.3) Federal Income Tax (0.5) (0.6) (0.6) (0.5) (0.5) (0.6) (0.6) (0.6) (2.2) (2.3) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (1.1) (1.0) (1.0) (1.1) (1.0) (1.0) (1.0) (1.0) (4.2) (4.0) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 75.5 78.9 57.6 53.1 46.6 9.2 (7.0) 5.0 265.1 53.8 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Life Insurance: Net Income - As previously reported 62.9 53.5 64.7 51.9 44.2 57.4 47.1 60.2 233.0 208.9 Change in Operating & Administrative Expense (1.4) (1.4) (1.4) (1.4) (1.1) (1.1) (1.1) (1.1) (5.6) (4.4) Federal Income Tax (0.5) (0.5) (0.5) (0.5) (0.4) (0.4) (0.4) (0.4) (2.0) (1.6) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (0.9) (0.9) (0.9) (0.9) (0.7) (0.7) (0.7) (0.7) (3.6) (2.8) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 62.0 52.6 63.8 51.0 43.5 56.7 46.4 59.5 229.4 206.1 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Investment Management: Net Income - As previously reported 2.0 2.9 2.9 4.0 7.0 6.2 3.1 9.3 11.8 25.6 Change in Operating & Administrative Expense (6.2) (6.2) (6.8) (8.7) (6.5) (9.5) (9.6) (11.5) (27.9) (37.1) Federal Income Tax (1.6) (1.6) (1.7) (2.3) (1.6) (2.5) (2.6) (3.3) (7.2) (10.0) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (4.6) (4.6) (5.1) (6.4) (4.9) (7.0) (7.0) (8.2) (20.7) (27.1) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated (2.6) (1.7) (2.2) (2.4) 2.1 (0.8) (3.9) 1.1 (8.9) (1.5) ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Lincoln UK: Net Income - As previously reported 14.8 17.6 14.0 22.5 10.8 9.8 0.8 18.5 68.9 39.9 Change in Operating & Administrative Expense (0.6) (0.6) (0.6) (0.6) (0.5) (0.6) (0.6) (0.6) (2.4) (2.3) Federal Income Tax (0.1) 0.0 (0.1) (0.1) 0.0 0.0 0.0 0.0 (0.3) 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (0.5) (0.6) (0.5) (0.5) (0.5) (0.6) (0.6) (0.6) (2.1) (2.3) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 14.3 17.0 13.5 22.0 10.3 9.2 0.2 17.9 66.8 37.6 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Other Operations: Net Income - As previously reported 3.9 12.2) (21.1) 36.6 (15.1) (24.2) (170.5) (30.8) 7.2 (240.6) Change in Operating & Administrative Expense (5.4) (5.3) (5.3) (5.3) (2.6) (2.4) (2.4) (2.4) (21.3) (9.8) Federal Income Tax (1.9) (1.9) (1.7) (1.8) (0.9) (0.8) (0.8) (0.8) (7.3) (3.3) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (3.5) (3.4) (3.6) (3.5) (1.7) (1.6) (1.6) (1.6) (14.0) (6.5) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 0.4 15.6) (24.7) 33.1 (16.8) (25.8) (172.1) (32.4) (6.8) (247.1) ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Consolidated: Net Income - As previously reported 160.2 41.7 119.1 169.2 94.5 59.4 (125.5) 63.2 590.2 91.6 Change in Operating & Administrative Expense (15.2) 15.1) (15.7) (17.6) (12.2) (15.2) (15.3) (17.2) (63.6) (59.9) Federal Income Tax (4.6) (4.6) (4.6) (5.2) (3.4) (4.3) (4.4) (5.1) (19.0) (17.2) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (10.6) 10.5) (11.1) (12.4) (8.8) (10.9) (10.9) (12.1) (44.6) (42.7) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 149.6 31.2 108.0 156.8 85.7 48.5 (136.4) 51.1 545.6 48.9 ====== ====== ====== ====== ====== ====== ====== ====== ====== ======