-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sm0069g+aXHbna4FJkYLkVlGorjat6V2YswyhUGxF8qVmijno39r9Pk771K579Rs iIA1NWlolMalJ2T8XZM4zA== 0000928816-03-000660.txt : 20031029 0000928816-03-000660.hdr.sgml : 20031029 20031029163616 ACCESSION NUMBER: 0000928816-03-000660 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030930 ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20031029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN NATIONAL CORP CENTRAL INDEX KEY: 0000059558 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 351140070 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06028 FILM NUMBER: 03964137 BUSINESS ADDRESS: STREET 1: 1500 MARKET STREET STE 3900 STREET 2: CENTRE SQUARE WEST TOWER CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2194552000 MAIL ADDRESS: STREET 1: 1500 MARKET STREET STE 3900 STREET 2: CENTRE SQUARE TOWER CITY: PHILADELPHIA STATE: PA ZIP: 19102*2706 8-K 1 ln.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: September 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 September 30, 2003 Item 12. Results of Operations and Financial Condition See Item 9, Regulation FD Disclosure, above. Lincoln Financial Group Statistical Report Third Quarter 2003 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 9/30/03 ii NOTES Definitions and Presentation * Income from Operations 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, net of related deferred gain amortization, gains or on losses on sale of subsidiaries and certain other items. Income from Operations 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. * Operating revenue represents revenue excluding, as applicable, realized gains and losses on investments and derivatives, deferred gain amortization related to reserve changes on business sold through reinsurance, gains or losses on sale of subsidiaries, and certain other items. * 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 gain on 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 September 30, 2003 presentation. Accounting Changes * Effective January 1, 2003, LNC adopted the fair value recognition method of accounting for it 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 2000, 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 [Millions of Dollars, except Common Share Data] For the Quarter Ended September 30 For the Nine Months Ended September 30 ---------------------------------------- ---------------------------------------- 2003 2002 2003 2002 Amount Amount Change % Change Amount Amount Change % Change Net Income 133.3 (136.4) 269.7 197.7% 317.6 (2.2) 319.8 14,308.6% Less: Realized gains (losses) on investments 6.4 (23.6) 30.0 (53.0) (143.9) 90.9 Gains (losses) on derivatives 5.9 0.1 5.8 4.1 0.5 3.6 Amortization of deferred gain-reserve development (18.5) (176.4) 157.9 (18.7) (190.8) 172.1 Restructuring charges (12.9) 1.3 (14.3) (25.4) 0.3 (25.7) Loss on early retirement of subordinated debt (3.7) - (3.7) (3.7) - (3.7) ------- ------- ------- ------- ------- ------- ------- ------- Income from Operations 156.0 62.1 93.9 151.2% 414.1 331.6 82.5 24.9% ======= ======= ======= ======= ======= ======= ======= ======= Net Income - By Segment Lincoln Retirement 102.0 (7.0) 109.1 1,550.5% 190.6 48.7 141.9 291.3% Life Insurance 55.8 46.4 9.4 20.3% 169.9 146.6 23.3 15.9% Investment Management 6.3 (3.9) 10.2 264.5% 12.0 (2.5) 14.5 571.9% Lincoln UK 11.5 0.2 11.2 4,502.5% 30.7 19.8 11.0 55.7% Corporate & Other (42.4) (172.1) 129.8 (85.6) (214.8) 129.1 ------- ------- ------- ------- ------- ------- ------- ------- Total 133.3 (136.4) 269.7 197.7% 317.6 (2.2) 319.8 14,308.6% ======= ======= ======= ======= ======= ======= ======= ======= Income from Operations - By Segment Lincoln Retirement 94.3 21.8 72.6 333.6% 237.8 147.9 89.9 60.8% Life Insurance 58.7 62.7 (4.0) (6.4%) 191.2 205.9 (14.8) (7.2%) Investment Management 9.7 (3.0) 12.6 424.1% 15.5 (0.2) 15.7 6,982.2% Lincoln UK 11.3 (0.6) 11.9 1,963.8% 30.6 19.3 11.3 58.5% Corporate & Other (18.0) (18.8) 0.8 (61.0) (41.3) (19.7) ------- ------- ------- ------- ------- ------- ------- ------- Total 156.0 62.1 93.9 151.2% 414.1 331.6 82.5 24.9% ======= ======= ======= ======= ======= ======= ======= ======= Earnings per share (diluted) Net Income $0.74 ($0.74) $1.49 200.2% $1.77 ($0.01) $1.79 14,974.5% Less: Realized gains (losses) on investments $0.01 ($0.13) $0.15 ($0.32) ($0.77) $0.45 Gains (losses) on derivatives $0.03 $0.00 $0.03 $0.02 $0.00 $0.02 Amortization of deferred gain-reserve development ($0.10) ($0.96) $0.86 ($0.10) ($1.02) $0.92 Restructuring charges ($0.07) $0.01 ($0.08) ($0.14) $0.00 ($0.14) Loss on early retirement of subordinated debt ($0.02) $0.00 ($0.02) ($0.02) $0.00 ($0.02) ------- ------- ------- ------- ------- ------- ------- ------- Income from Operations $0.87 $0.34 $0.53 156.4% $2.31 $1.77 $0.54 30.4% ======= ======= ======= ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------- Revenue 1,268.8 1,163.4 105.4 9.1% 3,581.3 3,446.9 134.5 3.9% Less: Realized Gains (Losses) on Investments 9.8 (37.1) 46.8 126.4% (81.5) (222.0) 140.5 63.3% Gains (Losses) on Derivatives 9.1 0.3 8.9 6.3 0.8 5.5 Amortization of deferred gain-reserve development 3.7 (1.4) 5.1 3.3 (1.4) 4.7 ------- ------- ------- ------- ------- ------- ------- ------- Operating Revenue 1,246.2 1,201.6 44.6 3.7% 3,653.2 3,669.4 (16.2) (0.4%) ======= ======= ======= ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------- Revenue - By Segment Lincoln Retirement 536.3 440.7 95.6 21.7% 1,420.5 1,336.3 84.2 6.3% Life Insurance 468.9 441.6 27.3 6.2% 1,400.5 1,305.4 95.1 7.3% Investment Management 121.7 97.5 24.1 24.7% 340.2 310.9 29.2 9.4% Lincoln UK 67.3 91.8 (24.5) (26.7%) 196.3 225.4 (29.1) (12.9%) Corporate & Other 74.8 91.8 (17.1) (18.6%) 223.9 268.8 (44.9) (16.7%) ------- ------- ------- ------- ------- ------- ------- ------- Total 1,268.8 1,163.4 105.4 9.1% 3,581.3 3,446.9 134.5 3.9% ======= ======= ======= ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------- Operating Revenue- By Segment Lincoln Retirement 516.0 485.6 30.4 6.3% 1,478.5 1,487.9 (9.4) (0.6%) Life Insurance 470.8 466.8 4.1 0.9% 1,417.8 1,396.7 21.1 1.5% Investment Management 121.4 99.3 22.1 22.3% 340.3 314.9 25.4 8.1% Lincoln UK 67.0 90.6 (23.6) (26.0%) 196.1 224.8 (28.6) (12.7%) Corporate & Other 70.9 59.4 11.6 19.5% 220.5 245.2 (24.7) (10.1%) ------- ------- ------- ------- ------- ------- ------- ------- Total 1,246.2 1,201.6 44.6 3.7% 3,653.2 3,669.4 (16.2) (0.4%) ======= ======= ======= ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------- Operational Data by Segment (Billions, except where noted): Lincoln Retirement Gross Deposits 1.578 1.694 (0.116) (6.8%) 4.365 5.048 (0.682) (13.5%) Net Flows 0.277 0.068 0.209 307.6% 0.472 0.379 0.093 24.5% Account Values (Gross) 52.841 45.504 7.337 16.1% 52.841 45.503 7.338 16.1% Account Values (Net of Reinsurance) 50.576 43.591 6.986 16.0% 50.577 43.590 6.987 16.0% Life Insurance Segment First Year Premium- Retail (in millions) 207.974 173.986 33.989 19.5% 552.157 469.164 82.993 17.7% First Year Premium- COLI (in millions) 23.692 7.831 15.861 202.6% 96.049 61.335 34.714 56.6% First Year Premium- Total (in millions) 231.666 181.816 49.850 27.4% 648.206 530.499 117.707 22.2% In-force 273.335 248.030 25.305 10.2% 273.335 248.030 25.305 10.2% Account Values 12.958 11.726 1.232 10.5% 12.958 11.726 1.232 10.5% Investment Management Segment Retail Deposits 1.494 1.465 0.029 2.0% 3.917 4.022 (0.105) (2.6%) Retail Net Flows 0.370 0.048 0.322 672.3% 0.686 0.304 0.383 126.1% Institutional In-flows 1.943 1.162 0.781 67.2% 3.881 3.871 0.011 0.3% Institutional Net Flows 0.799 0.348 0.451 129.6% 1.417 1.535 (0.117) (7.6%) Total Net Flows 1.169 0.396 0.773 195.2% 2.104 1.838 0.265 14.4% Assets Under Management- Retail and Inst'l 55.129 43.362 11.767 27.1% 55.129 43.362 11.767 27.1% Assets Under Management - Insurance Assets 42.984 40.416 2.569 6.4% 42.984 40.416 2.569 6.4% Assets Under Management - Total Segment 98.113 83.778 14.335 17.1% 98.113 83.778 14.335 17.1% Consolidated Consolidated Domestic Retail Deposits 3.370 3.206 0.165 5.1% 9.210 9.522 (0.313) (3.3%) Consolidated Domestic Retail Account Balances 83.788 71.594 12.194 17.0% 83.788 71.594 12.194 17.0% Total Retail Net Flows 0.965 0.545 0.419 76.8% 2.256 1.705 0.550 32.3% Total Net Flows 1.799 0.901 0.897 99.5% 3.687 3.244 0.443 13.7% Total Assets Under Management 130.840 110.682 20.159 18.2% 130.840 110.682 20.159 18.2%
PAGE 2 Financial Highlights Unaudited [Millions of Dollars, except Common Share Data] For the Quarter Ended September 30 For the Nine Months Ended September 30 ---------------------------------------- ---------------------------------------- 2003 2002 2003 2002 Amount Amount Change % Change Amount Amount Change % Change ------- ------- ------- ------- ------- ------- ------- ------- Balance Sheet Assets - End of Period 100,839.9 90,483.9 10,356.0 11.4% 100,839.9 90,483.9 10,356.0 11.4% Shareholders' Equity Beg of Period (including AOCI) 5,815.9 5,352.8 463.1 5,347.5 5,303.8 43.7 End of Period (including AOCI) 5,586.4 5,436.8 149.6 5,347.5 5,436.8 149.6 End of Period (excluding AOCI) 4,790.6 4,591.8 198.9 4,790.6 4,591.8 198.9 Average Equity (excluding AOCI) 4,784.5 4,944.0 (159.5) 4,712.8 5,096.5 (383.7) Return on Equity Net Income/Average Equity (excluding AOCI) 11.1% (11.0%) 22.2% 9.0% (0.1%) 9.0% Inc from Operations/Average Equity (excluding AOCI) 13.0% 5.0% 8.0% 11.7% 8.7% 3.0% Return on Capital Inc from Operations/Average Capital 10.6% 4.8% 5.9% 9.7% 7.5% 2.2% Common Stock Outstanding Average for the Period - Diluted 179.9 183.2 (3.4) (1.9%) 179.1 187.0 (7.9) (4.2%) End of Period - Assuming Conv of Pref. 178.3 177.5 0.8 0.5% 178.3 177.5 0.8 0.5% End of Period - Diluted 179.9 178.2 1.6 0.9% 179.9 178.2 1.6 0.9% Book Value (including AOCI) 31.34 30.64 0.70 2.3% 31.34 30.64 0.70 2.3% Book Value (excluding AOCI) 26.87 25.87 1.00 3.9% 26.87 25.87 1.00 3.9% Cash Returned to Shareholders Share Repurchase - dollar amount 0.0 247.8 (247.8) 0.0 474.5 (474.5) Dividends Declared to Shareholders 59.6 58.8 0.8 180.4 178.4 2.0 ------- ------- ------- ------- ------- ------- ------- ------- Total Cash Returned to Shareholders 59.6 306.6 (247.0) 180.4 652.9 (472.5) ======= ======= ======= ======= ======= ======= ======= ======= Share Repurchase - number of shares 0.000 7.203 (7.203) 0.000 12.088 (12.088) Dividend Declared on Common Stock - per share $0.335 $0.320 $0.015 4.7% $1.005 $0.960 $0.045 4.7% For the Quarter Ended September 30 For the Nine Months Ended September 30 ---------------------------------------- ---------------------------------------- 2003 2002 2003 2002 Amount Amount Amount Amount ------- ------- ------- ------- Comprehensive Income Net Income 133.3 (136.4) 317.6 (2.2) Foreign Currency Translation (1.3) 13.4 (16.2) 43.4 Net Unrealized Gains (Losses) on Securities (313.4) 491.9 51.2 621.9 Gains (Losses) on Derivatives (5.6) 4.7 (5.1) 5.8 Minimum Pension Liability Adjustment (0.2) 2.6 (1.1) 0.7 Comprehensive Income (187.0) 376.1 378.7 669.6
PAGE 3 Financial Highlights Unaudited [Amounts in Millions] For the Quarter Ended September 30 For the Nine Months Ended September 30 ---------------------------------------- ---------------------------------------- 2003 2002 2003 2002 Amount Amount Change % Change Amount Amount Change % Change ------- ------- ------- ------- ------- ------- ------- ------- Consolidated Condensed Statements of Income Revenue: Insurance Premiums and Fees 427.4 412.2 15.2 3.7% 1,244.3 1,280.5 (36.2) (2.8%) Investment Advisory Fees 53.2 42.9 10.3 24.1% 146.8 138.7 8.1 5.8% Net Investment Income 664.4 652.4 12.1 1.9% 1,979.3 1,964.6 14.7 0.8% Realized Gains (Losses) on Investments 9.8 (37.1) 46.8 (81.5) (222.0) 140.5 Gains (Losses) on Derivatives 9.1 0.3 8.9 6.3 0.8 5.5 Amortization of Deferred Gain on Indemnity Reinsurance 18.3 22.1 (3.8) (17.1%) 54.9 68.3 (13.4) (19.6%) Other 86.6 70.7 15.9 22.4% 231.3 216.0 15.2 7.1% ------- ------- ------- ------- ------- ------- ------- ------- Total Revenue 1,268.8 1,163.4 105.4 9.1% 3,581.3 3,446.9 134.5 3.9% ------- ------- ------- ------- ------- ------- ------- ------- Benefits and Expenses: Benefits 639.2 941.6 (302.4) (32.1%) 1,845.4 2,193.3 (347.9) (15.9%) Underwriting, Acquisition, Insurance and Other Expenses 451.0 462.5 (11.6) (2.5%) 1,334.1 1,351.8 (17.7) (1.3%) ------- ------- ------- ------- ------- ------- ------- ------- Total Benefits and Expenses 1,090.2 1,404.1 (314.0) (22.4%) 3,179.5 3,545.1 (365.6) (10.3%) ------- ------- ------- ------- ------- ------- ------- ------- Income before Federal Taxes 178.7 (240.7) 419.4 401.8 (98.3) 500.1 Federal Income Taxes 45.4 (104.3) 149.7 84.2 (96.0) 180.2 ------- ------- ------- ------- ------- ------- ------- ------- Net Income 133.3 (136.4) 269.7 197.7% 317.6 (2.2) 319.8 14,310.3% ======= ======= ======= ======= ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------------------------------------ Income before Tax By Segment Lincoln Retirement 135.9 (35.1) 171.0 221.7 7.9 213.8 Life Insurance 80.8 66.1 14.6 245.2 208.2 37.0 Investment Management 10.3 (5.4) 15.7 19.4 (2.9) 22.3 Lincoln UK 17.6 0.4 17.2 47.2 19.2 28.1 Corporate and Other (66.0) (266.8) 200.8 (131.7) (330.6) 198.9 ------- ------- ------- ------- ------- ------- ------- ------- Income before Tax 178.7 (240.7) 419.4 401.8 (98.3) 500.1 - ------------------------------------------------------------------------------------------------------------------------------ Pre-Tax Realized Gains (Losses) by Segment* Lincoln Retirement 20.3 (44.9) 65.2 (58.1) (151.6) 93.6 Life Insurance (1.9) (25.2) 23.2 (17.4) (91.3) 74.0 Investment Management 0.2 (1.8) 2.0 (0.1) (4.0) 3.8 Lincoln UK 0.3 1.2 (1.0) 0.2 0.7 (0.4) Corporate and Other 0.1 33.8 (33.7) 0.1 25.1 (24.9) ------- ------- ------- ------- ------- ------- ------- ------- Pre-Tax Realized Gains (Losses) on Investments and Derivatives 18.9 (36.8) 55.7 (75.2) (221.2) 146.0 After-Tax Realized Gains (Losses) by Segment* Lincoln Retirement 13.2 (28.8) 42.0 (37.7) (98.2) 60.4 Life Insurance (1.3) (16.3) 15.1 (11.3) (59.3) 48.0 Investment Management 0.1 (1.2) 1.3 (0.1) (2.6) 2.5 Lincoln UK 0.2 0.9 (0.7) 0.2 0.5 (0.3) Corporate and Other 0.1 22.0 (21.9) 0.1 16.3 (16.2) ------- ------- ------- ------- ------- ------- ------- ------- After-Tax Realized Gains (Losses) on Investments and Derivatives 12.3 (23.5) 35.8 (48.9) (143.4) 94.5 * Includes both realized gains (losses) on investments and gains (losses) on derivatives.
PAGE 4 Financial Highlights Unaudited [Millions of Dollars, except Common Share Data] As of ---------------------------------------------------------------- September December 2003 2002 Amount Amount Change % Change --------- --------- --------- --------- Consolidated Condensed Balance Sheets Assets: Investments: Securities Available for Sale: Fixed Maturities 35,383.9 32,767.5 2,616.5 8.0% Equities 243.0 337.2 (94.3) (28.0%) Mortgage Loans on Real Estate 4,151.5 4,205.5 (53.9) (1.3%) Real Estate 249.8 279.7 (29.9) (10.7%) Policy Loans 1,910.5 1,945.6 (35.2) (1.8%) Other Long-Term Investments 484.7 464.4 20.3 4.4% --------- --------- --------- --------- Total Investments 42,423.3 39,999.9 2,423.5 6.1% Other Assets: Assets Held in Separate Accounts 41,283.4 36,178.3 5,105.1 14.1% Other Assets 17,133.2 17,006.5 126.7 0.7% --------- --------- --------- --------- Total Assets 100,839.9 93,184.6 7,655.3 8.2% ========= ========= ========= ========= Liabilities and Shareholders' Equity Liabilities: Insurance and Investment Contract Liabilities 46,716.2 44,845.3 1,870.9 4.2% Liabilities Related to Separate Accounts 41,283.4 36,178.3 5,105.1 14.1% Other Liabilities 7,254.0 6,813.6 440.4 6.5% --------- --------- --------- --------- Total Liabilities 95,253.5 87,837.2 7,416.4 8.4% Shareholders' Equity: Net Unrealized Gains(Losses) on Securities and Derivatives 827.7 781.6 46.0 5.9% Minimum Pension Liability Adjustment (99.0) (97.8) (1.1) (1.1%) Foreign Currency Translation Adjustment 67.0 39.8 27.2 68.2% Other Shareholders' Equity 4,790.6 4,623.9 166.8 3.6% --------- --------- --------- --------- Total Shareholders' Equity 5,586.4 5,347.5 238.9 4.5% --------- --------- --------- --------- Total Liabilities and Shareholders' Equity 100,839.9 93,184.6 7,655.3 8.2% ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------ As of ---------------------------------------------------------------- September 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 454.8 627.3 (172.5) (27.5%) Amortization (232.0) (346.7) 114.7 33.1% --------- --------- --------- --------- Included in Total Benefits and Expenses 222.7 280.6 (57.9) (20.6%) Adjustment related to realized (gains) losses on securities available-for-sale (22.3) 115.0 (137.3) (119.4%) Adjustment related to unrealized (gains) losses on securities available-for-sale (271.2) (338.5) 67.3 19.9% Foreign currency translation adjustment 19.2 56.9 (37.7) (66.3%) Other - (28.4) 28.4 100.0% --------- --------- --------- --------- Balance at end-of-period 2,919.4 2,970.9 (55.6) (1.9%) ========= ========= ========= ========= Roll Forward of Present Value of In-Force Balance at beginning-of-year 1,250.1 1,362.5 (112.4) (8.2%) Amortization (65.8) (136.5) 70.6 51.8% Foreign currency translation adjustment 8.2 24.1 (15.9) (66.1%) --------- --------- --------- --------- Balance at end-of-period 1,192.5 1,250.1 (57.7) (4.6%) ========= ========= ========= =========
PAGE 5 Eleven-Year Summary Unaudited [Millions of Dollars except Common 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 53.7 265.1 354.7 291.5 273.8 263.3 Life Insurance 206.1 229.3 246.0 211.5 127.5 39.1 Investment Management (1.4) (9.0) 17.9 51.6 44.4 25.1 Lincoln UK 37.7 66.8 (15.1) (18.2) 71.7 (106.8) Corporate & Other (247.3) (6.6) (18.2) (76.1) (7.6) (198.4) ------- ------- ------- ------- ------- ------- Total Net Inc from Cont Oper 48.8 545.7 585.3 460.4 509.8 22.2 Discontinued Operations - - - - - 911.8 ------- ------- ------- ------- ------- ------- Total Net Income 48.8 545.7 585.3 460.4 509.8 934.0 ======= ======= ======= ======= ======= ======= Income from Operations Lincoln Retirement 183.4 316.2 358.1 299.4 262.4 223.0 Life Insurance 269.0 275.3 256.7 212.0 149.2 39.9 Investment Management 1.8 (6.1) 25.0 61.0 43.9 18.1 Lincoln UK 34.6 58.1 59.2 (13.9) 70.9 (108.3) Corporate & Other (57.2) 1.0 (16.0) (83.1) 4.0 (223.3) ------- ------- ------- ------- ------- ------- Total Income from Cont Oper 431.6 644.4 683.0 475.5 530.4 (50.6) Discontinued Operations - - - - - 110.1 ------- ------- ------- ------- ------- ------- Income from Operations 431.6 644.4 683.0 475.5 530.4 59.4 ======= ======= ======= ======= ======= ======= OTHER DATA Assets 93,184.6 98,041.6 99,870.6 103,095.7 93,836.3 77,174.7 Shareholders' Equity Including AOCI 5,347.5 5,303.8 4,980.6 4,263.9 5,387.9 4,982.9 Excluding AOCI 4,612.9 5,130.6 4,946.6 4,699.5 4,785.5 4,500.7 Average Equity (excluding AOCI) 4,983.3 5,057.1 4,831.4 4,786.2 4,636.3 4,172.7 Common Shares Outstanding (millions) End of Period - Diluted 178.5 189.3 193.2 197.0 203.4 204.7 Average for the Period - Diluted 184.6 191.5 193.0 200.4 203.3 208.0 Per Share Data (Diluted) Net Income from Continuing Operations $0.26 $2.85 $3.03 $2.30 $2.51 $0.11 Net Income $0.26 $2.85 $3.03 $2.30 $2.51 $4.49 Income (Loss) from Continuing Operations $2.34 $3.37 $3.54 $2.37 $2.61 ($0.24) Income from Operations* $2.34 $3.37 $3.54 $2.37 $2.61 $0.29 Shareholders' Equity Per Share Shareholders' Equity (Includes AOCI) $30.10 $28.32 $26.05 $21.76 $26.59 $24.63 Shareholders' Equity (Excludes accum AOCI) $25.97 $27.39 $25.88 $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% 12.1% 9.6% 11.0% 22.4% Inc from Operations/Average Equity 8.7% 12.7% 14.1% 9.9% 11.4% 1.4% Market Value of Common Stock High for the Year $53.65 $52.75 $56.38 $57.50 $49.44 $39.06 Low for the Year $25.15 $38.00 $22.63 $36.00 $33.50 $24.50 Close for the Year $31.58 $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: 2000, 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 Common Share Data] Sep Dec Mar Jun Sep Dec Mar Jun Sep For the Quarter Ended 2001 2001 2002 2002 2002 2002 2003 2003 2003 -------- -------- -------- -------- -------- -------- -------- -------- -------- Revenue Lincoln Retirement 478.2 467.5 453.0 442.6 440.7 451.4 397.8 486.4 536.3 Life Insurance 460.6 464.7 423.9 439.8 441.6 479.6 457.5 474.0 468.9 Investment Management 108.8 110.8 107.3 106.1 97.5 102.2 102.1 116.4 121.7 Lincoln UK 85.0 53.4 53.2 80.5 91.8 51.8 68.9 60.2 67.3 Corporate & Other 485.3 367.4 88.5 88.5 91.8 103.6 73.0 76.1 74.8 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Revenue 1,618.0 1,463.8 1,126.0 1,157.5 1,163.4 1,188.6 1,099.3 1,213.2 1,268.8 ======== ======== ======== ======== ======== ======== ======== ======== ======== Net Income Lincoln Retirement 57.6 53.1 46.6 9.2 (7.0) 5.0 6.9 81.7 102.0 Life Insurance 63.8 50.9 43.5 56.7 46.4 59.5 48.5 65.6 55.8 Investment Management (2.1) (2.4) 2.1 (0.8) (3.9) 1.1 1.0 4.6 6.3 Lincoln UK 13.5 22.0 10.3 9.3 0.2 17.9 6.8 12.4 11.5 Corporate & Other (24.6) 33.2 (16.8) (25.8) (172.1) (32.6) (21.7) (21.6) (42.4) -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Net Income 108.0 156.9 85.6 48.5 (136.4) 51.0 41.6 142.7 133.3 ======== ======== ======== ======== ======== ======== ======== ======== ======== Income from Operations Lincoln Retirement 71.4 73.7 79.4 46.8 21.8 35.4 57.4 86.1 94.3 Life Insurance 69.1 72.3 70.4 72.8 62.7 63.1 60.7 71.8 58.7 Investment Management (1.6) (1.3) 3.1 (0.3) (3.0) 2.1 1.3 4.5 9.7 Lincoln UK 9.6 19.0 13.8 6.1 (0.6) 15.3 6.8 12.4 11.3 Corporate & Other (16.3) 23.0 (13.6) (8.9) (18.8) (15.9) (21.5) (21.5) (18.0) -------- -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations 132.2 186.7 153.1 116.4 62.1 100.0 104.8 153.3 156.0 ======== ======== ======== ======== ======== ======== ======== ======== ======== OTHER DATA Assets 90,242.4 98,041.6 97,888.5 95,114.2 90,483.9 93,184.6 92,497.6 99,532.8 100,839.9 Shareholders' Equity Beg of Period (including AOCI) 5,088.9 5,405.0 5,303.8 5,173.2 5,352.8 5,436.8 5,347.5 5,450.0 5,815.9 End of Period (including AOCI) 5,405.0 5,303.8 5,173.2 5,352.8 5,436.8 5,347.5 5,450.0 5,815.9 5,586.4 End of Period (excluding AOCI) 5,129.8 5,130.6 5,174.7 5,020.3 4,591.8 4,612.9 4,610.5 4,699.8 4,790.6 Average Equity (excluding AOCI) 5,124.8 5,179.0 5,179.8 5,165.8 4,944.0 4,643.6 4,682.0 4,672.0 4,784.5 Common Shares Outstanding Average for the Period - Diluted 192.8 190.9 190.0 188.5 183.2 178.4 178.3 179.2 179.9 End of Period - Diluted 191.2 189.3 190.2 186.1 178.2 178.5 178.4 179.5 179.9 Per Share Data (Diluted) Net Income $0.56 $0.82 $0.45 $0.26 ($0.74) $0.29 $0.23 $0.80 $0.74 Income from Operations $0.69 $0.98 $0.81 $0.62 $0.34 $0.56 $0.59 $0.86 $0.87 Shareholders' Equity Shareholders' Equity (including AOCI) 28.48 28.32 27.53 29.01 30.64 30.10 30.66 32.68 31.34 Shareholders' Equity (excluding AOCI) 27.03 27.39 27.54 27.21 25.87 25.97 25.94 26.41 26.87 Dividends Declared (Common Stock) 0.305 0.320 0.320 0.320 0.320 0.335 0.335 0.335 0.335 Return on Equity Net Income/Average Equity 8.4% 12.1% 6.6% 3.8% (11.0%) 4.4% 3.6% 12.2% 11.1% Inc from Operations/ Average Equity 10.3% 14.4% 11.8% 9.0% 5.0% 8.6% 8.9% 13.1% 13.0% Market Value of Common Stock Highest Price $52.750 $49.450 $53.650 $52.540 $42.080 $35.950 $35.700 $37.500 $38.640 Lowest Price $41.000 $40.000 $47.200 $40.750 $29.120 $25.150 $24.730 $27.870 $34.630 Closing Price $46.630 $48.570 $50.730 $42.000 $30.550 $31.580 $28.000 $35.630 $35.380
PAGE 7 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Investment For the Quarter Ended September 30 Lincoln Retirement Life Insurance Management Lincoln UK ------------------- ------------------- ------------------- ------------------- Sep Sep Sep Sep Sep Sep Sep Sep 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Revenue Life and annuity premiums 7.8 13.4 45.2 48.6 16.1 11.7 Surrender charges 7.4 8.7 13.7 13.4 0.0 Mortality assessments 130.2 126.3 8.7 8.7 Expense assessments 115.2 103.9 48.9 49.2 0.0 23.2 29.4 Health premiums 0.0 0.0 0.3 0.6 Investment advisory fees 78.7 67.0 Other revenue and fees 8.3 (4.0) 6.4 5.1 29.5 19.9 2.6 24.5 Net investment income 377.4 363.5 226.4 224.1 13.2 12.4 16.0 15.6 Realized gains (losses) on investments 18.6 (43.8) (1.7) (25.9) 0.2 (1.8) 0.3 1.2 Gains (losses) on derivatives 1.7 (1.1) (0.3) 0.7 -------- -------- -------- -------- -------- -------- -------- -------- Total Revenue 536.3 440.7 468.9 441.6 121.7 97.5 67.3 91.8 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 44.6 107.8 118.5 105.2 21.4 19.0 Div accum & div to policyholders 15.9 17.2 Interest credited to policy bal. 216.5 224.2 150.7 152.6 (0.0) Health policy benefits 0.0 0.0 1.3 4.8 -------- -------- -------- -------- -------- -------- -------- -------- Total insurance benefits 261.1 332.0 285.1 275.1 (0.0) 22.7 23.8 Underwriting, acquisition, insurance and other expenses: Commissions 80.7 83.0 34.4 31.8 (0.0) 1.0 1.6 Other volume related expenses 16.1 19.6 48.3 45.8 0.0 Operating and administrative expenses 57.0 53.0 41.7 41.1 101.6 99.4 19.6 20.2 Restructuring charges 8.4 2.5 5.3 (0.4) Taxes, licenses and fees 3.7 3.0 16.1 13.2 2.4 1.9 Par policyholder interests Foreign exchange -------- -------- -------- -------- -------- -------- -------- -------- Subtotal 166.0 158.6 143.0 131.8 109.3 100.9 20.6 21.8 Deferral of acquisition costs (63.6) (66.0) (88.0) (78.6) (0.2) (0.9) DAC amortization 33.6 47.1 21.1 23.9 7.3 33.8 -------- -------- -------- -------- -------- -------- -------- -------- DAC deferral net of amortization (30.0) (18.9) (66.9) (54.8) 7.1 33.0 PVIF amortization 3.3 4.1 26.9 23.3 (0.7) 12.8 Other intangibles amortization 2.0 2.0 Total underwriting, acquisition, insurance and other expenses 139.3 143.8 103.0 100.4 111.3 102.9 27.0 67.6 Goodwill amortization Interest 0.0 -------- -------- -------- -------- -------- -------- -------- -------- Benefits and Expenses 400.3 475.8 388.1 375.5 111.3 102.9 49.6 91.4 -------- -------- -------- -------- -------- -------- -------- -------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 135.9 (35.1) 80.8 66.1 10.3 (5.4) 17.6 0.4 Federal income taxes 33.9 (28.0) 24.9 19.7 4.0 (1.5) 6.1 0.2 Income Before Cumulative Effect of -------- -------- -------- -------- -------- -------- -------- -------- Accounting Changes 102.0 (7.0) 55.8 46.4 6.3 (3.9) 11.5 0.2 -------- -------- -------- -------- -------- -------- -------- -------- Cumulative effect of accounting changes -------- -------- -------- -------- -------- -------- -------- -------- Net Income 102.0 (7.0) 55.8 46.4 6.3 (3.9) 11.5 0.2 ======== ======== ======== ======== ======== ======== ======== ======== Less: Restructuring charges (5.5) (1.6) (3.5) 0.3 Realized gains (losses) on investments 12.1 (28.0) (1.1) (16.9) 0.1 (1.2) 0.2 0.9 Gains (losses) on derivatives 1.1 (0.8) (0.2) 0.6 Reserve development on business sold through reinsurance/Amortization of gain Gain on sale of subsidiaries Cumulative effect of accounting changes Loss on early retirement of subordinated debt -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations 94.3 21.8 58.7 62.7 9.7 (3.0) 11.3 (0.6) ======== ======== ======== ======== ======== ======== ======== ========
PAGE 7A Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Corporate and Consolidating For the Quarter Ended September 30 Other Operations Adjustments Consolidated ----------------- ------------------ ------------------- Sep Sep Sep Sep Sep Sep 2003 2002 2003 2002 2003 2002 ----- ------ ------ ------ ------ ------ Revenue Life and annuity premiums (2.1) 69.1 71.6 Surrender charges 0.5 0.7 21.5 22.8 Mortality assessments (1.0) (0.9) 137.9 134.1 Expense assessments 1.0 0.9 10.2 9.8 198.5 193.2 Health premiums (0.0) (10.2) 0.4 (9.6) Investment advisory fees (25.5) (24.1) 53.2 42.9 Amortization of deferred gain 18.3 22.1 18.3 22.1 Amortization of deferred gain-reserve development 3.7 (1.4) 3.7 (1.4) Other revenue and fees 110.0 94.4 (74.0) (67.9) 82.9 72.1 Net investment income 32.3 38.4 (0.8) (1.6) 664.4 652.4 Earnings in Unconsolidated Affiliates Realized gains (losses) on investments (7.6) 33.2 9.8 (37.1) Gains (losses) on derivatives 7.7 0.6 9.1 0.3 ----- ------ ------ ------ ------- ------- Total Revenue 164.4 174.9 (89.6) (83.1) 1,268.8 1,163.4 ----- ------ ------ ------ ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 42.7 (2.4) 227.1 229.7 Div accum & div to policyholders 0.0 0.0 15.9 17.2 Interest credited to policy bal. 31.8 32.6 6.6 7.9 405.6 417.4 Health policy benefits (42.8) 2.6 (41.5) 7.3 Reserve developments on Reins. business sold 32.1 270.0 32.1 270.0 ----- ------ ------ ------ ------- ------- Total insurance benefits 63.8 302.8 6.6 7.9 639.2 941.6 Underwriting, acquisition, insurance and other expenses: Commissions 20.0 2.4 7.8 5.8 144.1 124.6 Other volume related expenses 55.7 44.7 (29.5) (46.2) 90.5 63.9 Operating and administrative expenses 55.6 61.6 (65.7) (47.2) 209.8 228.1 Restructuring charges 3.6 (1.7) 19.8 (2.1) Loss on early retirement of subordinated debt 5.6 5.6 Taxes, licenses and fees 4.2 6.0 26.4 24.1 Par policyholder interests Foreign exchange 0.4 0.4 ----- ------ ------ ------ ------- ------- Subtotal 144.7 113.5 (87.4) (87.6) 496.2 439.1 Deferral of acquisition costs (13.9) (9.9) (165.7) (155.5) DAC amortization 0.1 0.1 5.9 8.1 67.9 113.0 ----- ------ ------ ------ ------- ------- DAC deferral net of amortization 0.1 0.1 (8.0) (1.9) (97.8) (42.5) PVIF amortization 29.6 40.2 Other intangibles amortization 2.0 2.0 Total underwriting, acquisition, insurance and other expenses 144.8 113.6 (95.4) (89.4) 430.0 438.8 Goodwill amortization Interest 21.8 25.3 (0.8) (1.6) 21.0 23.7 ----- ------ ------ ------ ------- ------- Total Benefits and Expenses 230.4 441.7 (89.6) (83.1) 1,090.2 1,404.1 ----- ------ ------ ------ ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes (66.0) (266.8) (0.0) 0.0 178.7 (240.7) Federal income taxes (23.6) (94.7) 45.4 (104.3) Income Before Cumulative Effect of ----- ------ ------ ------ ------ ------ Accounting Changes (42.4) (172.1) (0.0) 0.0 133.3 (136.4) ----- ------ ------ ------ ------ ------ Cumulative effect of accounting changes ----- ------ ------ ------ ------ ------ Net Income (42.4) (172.1) (0.0) 0.0 133.3 (136.4) ===== ====== ====== ====== ====== ====== Less: Restructuring charges (2.4) 1.1 (12.9) 1.3 Realized gains (losses) on investments (4.9) 21.6 6.4 (23.6) Gains (losses) on derivatives 5.0 0.4 5.9 0.1 Reserve development on business sold through reinsurance/Amortization of deferred gain (18.5) (176.4) (18.5) (176.4) Gain on sale of subsidiaries Cumulative effect of accounting changes Loss on early retirement of subordinated debt (3.7) (3.7) ----- ------ ------ ------ ------ ------ Income from Operations (18.0) (18.8) (0.0) 0.0 156.0 62.1 ===== ====== ====== ====== ====== ======
PAGE 8 Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Investment For the Nine Months Ended September 30 Lincoln Retirement Life Insurance Management Lincoln UK ------------------- ------------------- ------------------- ------------------- Sep Sep Sep Sep Sep Sep Sep Sep 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Revenue Life and annuity premiums 16.3 38.7 142.6 147.2 41.4 34.5 Surrender charges 22.7 23.8 37.5 38.6 0.0 Mortality assessments 388.2 374.2 27.0 23.5 Expense assessments 317.1 345.7 146.8 143.2 0.0 69.2 82.4 Health premiums 0.1 0.1 1.5 2.0 Investment advisory fees 221.8 212.1 Other revenue and fees 8.2 0.6 19.5 17.5 81.1 64.9 9.0 36.8 Net investment income 1114.2 1079.1 683.0 675.8 37.4 37.9 47.9 45.5 Realized gains (losses) on investments (57.3) (150.5) (16.9) (92.7) (0.1) (4.0) 0.2 0.7 Gains (losses) on derivatives (0.8) (1.2) (0.4) 1.4 -------- -------- -------- -------- -------- -------- -------- -------- Total Revenue 1420.5 1336.3 1400.5 1305.4 340.2 310.9 196.3 225.4 -------- -------- -------- -------- -------- -------- -------- -------- Operating Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 144.5 235.8 332.8 312.9 59.0 49.6 Div accum & div to policyholders 47.8 53.2 Interest credited to policy bal. 653.6 672.1 450.7 447.8 (0.0) Health policy benefits 0.0 0.0 6.2 11.6 -------- -------- -------- -------- -------- -------- -------- -------- Total insurance benefits 798.1 907.8 831.3 813.9 (0.0) 65.2 61.1 Underwriting, acquisition, insurance and other expenses: Commissions 221.7 248.0 97.5 101.2 (0.0) 2.9 4.8 Other volume related expenses 44.7 46.5 145.7 132.0 0.0 Operating and administrative expenses 167.7 161.4 120.8 117.5 301.3 297.4 58.3 56.4 Restructuring charges 14.6 1.6 15.3 5.3 (0.4) Taxes, licenses and fees 13.7 11.9 44.3 41.7 8.2 10.6 Par policyholder interests Foreign exchange -------- -------- -------- -------- -------- -------- -------- -------- Subtotal 462.4 469.4 423.6 392.4 314.8 307.6 61.3 61.2 Deferral of acquisition costs (162.5) (188.6) (258.7) (235.1) (1.9) (2.8) DAC amortization 93.0 128.0 97.5 69.5 27.9 61.4 -------- -------- -------- -------- -------- -------- -------- -------- DAC deferral net of amortization (69.4) (60.6) (161.2) (165.6) 26.0 58.6 PVIF amortization 7.7 11.8 61.5 56.5 (3.4) 25.2 Other intangibles amortization 6.0 6.2 -------- -------- -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 400.7 420.6 324.0 283.3 320.7 313.9 83.9 145.1 -------- -------- -------- -------- -------- -------- -------- -------- Benefits and Expenses 1198.8 1328.4 1155.3 1097.2 320.7 313.9 149.1 206.2 -------- -------- -------- -------- -------- -------- -------- -------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 221.7 7.9 245.2 208.2 19.4 (2.9) 47.2 19.2 Federal income taxes 31.1 (40.9) 75.3 61.6 7.5 (0.4) 16.5 (0.6) -------- -------- -------- -------- -------- -------- -------- -------- Income Before Cumulative Effect of Accounting Changes 190.6 48.7 169.9 146.6 12.0 (2.5) 30.7 19.8 Cumulative effect of accounting changes -------- -------- -------- -------- -------- -------- -------- -------- Net Income 190.6 48.7 169.9 146.6 12.0 (2.5) 30.7 19.8 ======== ======== ======== ======== ======== ======== ======== ======== Less: Restructuring charges (9.5) (1.0) (10.0) (3.5) 0.3 Realized gains (losses) on investments (37.2) (97.4) (11.0) (60.2) (0.1) (2.6) 0.2 0.5 Gains (losses) on derivatives (0.5) (0.8) (0.3) 0.9 Reserve development on business sold through reinsurance/Amortization of deferred gain Gain on sale of subsidiaries Cumulative effect of accounting changes Loss on early retirement of subordinated debt -------- -------- -------- -------- -------- -------- -------- -------- Income from Operations 237.8 147.9 191.2 205.9 15.5 (0.2) 30.6 19.3 ======== ======== ======== ======== ======== ======== ======== ========
PAGE 8A Reconciliation of Business Segments to Consolidated Income Statement Unaudited [Amounts in Millions] Corporate and Consolidating For the Nine Months Ended September 30 Other Operations Adjustments Consolidated ------------------- ------------------- ------------------- Sep Sep Sep Sep Sep Sep 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- Revenue Life and annuity premiums (5.5) 200.3 214.9 Surrender charges 1.5 1.8 61.8 64.3 Mortality assessments (2.9) (2.7) 412.4 395.0 Expense assessments 2.9 2.7 30.4 31.1 566.4 605.1 Health premiums 1.8 (0.9) 3.4 1.2 Investment advisory fees (75.0) (73.5) 146.8 138.7 Amortization of deferred gain 54.9 68.3 54.9 68.3 Amortization of deferred gain-reserve development 3.3 (1.4) 3.3 (1.4) Other revenue and fees 320.9 297.2 (210.7) (199.0) 227.9 218.0 Net investment income 99.6 130.9 (2.9) (4.7) 1,979.3 1,964.6 Earnings in Unconsolidated Affiliates (0.6) (0.6) Realized gains (losses) on investments (7.4) 24.5 (81.5) (222.0) Gains (losses) on derivatives 7.5 0.6 6.3 0.8 -------- -------- -------- -------- -------- -------- Total Revenue 480.6 513.0 (256.7) (244.2) 3,581.3 3,446.9 -------- -------- -------- -------- -------- -------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 33.0 (0.9) 569.3 597.3 Div accum & div to policyholders 0.0 0.0 47.8 53.2 Interest credited to policy bal. 97.2 62.1 19.8 24.0 1221.2 1206.0 Health policy benefits (31.3) 33.0 (25.0) 44.6 Reserve developments on Reins. business sold 32.1 292.2 32.1 292.2 -------- -------- -------- -------- -------- -------- Total insurance benefits 131.0 386.4 19.8 24.0 1,845.4 2,193.3 Underwriting, acquisition, insurance and other expenses: Commissions 58.0 44.0 22.5 19.4 402.7 417.4 Other volume related expenses 153.9 142.4 (116.7) (136.8) 227.5 184.1 Operating and administrative expenses 175.9 174.9 (160.9) (139.3) 663.0 668.3 Restructuring charges 3.6 (1.7) 38.8 (0.5) Loss on early retirement of subordinated debt 5.6 5.6 Taxes, licenses and fees 14.0 20.0 80.2 84.2 Par policyholder interests Foreign exchange (0.0) 1.0 (0.0) 1.0 -------- -------- -------- -------- -------- -------- Subtotal 410.9 380.5 (255.2) (256.6) 1417.7 1354.5 Deferral of acquisition costs (1.4) (31.8) (31.5) (454.8) (459.5) DAC amortization 0.2 0.3 13.4 24.6 232.0 283.9 -------- -------- -------- -------- -------- -------- DAC deferral net of amortization 0.2 (1.1) (18.4) (6.9) (222.7) (175.5) PVIF amortization 65.8 93.5 Other intangibles amortization 6.0 6.2 Total underwriting, acquisition, insurance and other expenses 411.1 379.4 (273.6) (263.6) 1266.8 1278.6 Interest 70.2 77.8 (2.9) (4.7) 67.3 73.1 -------- -------- -------- -------- -------- -------- Total Benefits and Expenses 612.3 843.6 (256.7) (244.2) 3,179.5 3,545.1 -------- -------- -------- -------- -------- -------- Income from Before Federal Income Tax and Cumulative Effect of Accounting Changes (131.7) (330.6) 0.0 0.0 401.8 (98.3) Federal income taxes (46.1) (115.8) (0.0) 84.2 (96.0) Income Before Cumulative Effect of -------- -------- -------- -------- -------- -------- Accounting Changes (85.6) (214.8) 0.0 0.0 317.6 (2.2) -------- -------- -------- -------- -------- -------- Cumulative effect of accounting changes -------- -------- -------- -------- -------- -------- Net Income (85.6) (214.8) 0.0 0.0 317.6 (2.2) ======== ======== ======== ======== ======== ======== Less: Restructuring charges (2.4) 1.1 (25.3) 0.3 Realized gains (losses) on investments (4.8) 15.9 0.0 (53.0) (143.9) Gains (losses) on derivatives 4.9 0.4 4.1 0.5 Reserve development on business sold through reinsurance/Amortization of deferred gain (18.7) (190.8) (18.7) (190.8) Gain on sale of subsidiaries Cumulative effect of accounting changes Loss on early retirement of subordinated debt (3.7) (3.7) -------- -------- -------- -------- -------- -------- Income from Operations (61.0) (41.3) 0.0 0.0 414.1 331.6 ======== ======== ======== ======== ======== ========
PAGE 9 Statement of Consolidated Income Unaudited [Millions of Dollars] YTD YTD Sep Sep For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- Revenue Life and annuity premiums 985.6 1183.0 1403.3 1363.4 295.6 214.9 200.3 Surrender charges 91.5 110.2 114.7 101.5 87.8 64.3 61.8 Mortality assessments 380.1 496.4 496.5 533.3 530.3 395.0 412.4 Expense assessments 773.8 896.0 1013.1 880.1 792.7 605.1 566.4 Health premiums 635.1 698.5 409.8 340.6 20.3 1.2 3.4 Investment advisory fees 227.1 223.8 213.1 197.2 183.3 138.7 146.8 Amortization of deferred gain 20.4 75.2 68.3 54.9 Amortization of deferred gain-reserve development (0.8) (1.4) 3.3 Other revenue and fees 261.0 344.5 441.1 328.7 299.5 218.0 227.9 Net investment income 2,710.6 2,842.5 2,784.1 2,708.7 2,631.9 1,964.6 1,979.3 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) (222.0) (81.5) Gains (losses) on derivatives (9.3) 1.2 0.8 6.3 ------- ------- ------- ------- ------- ------- ------- Total Revenue 6,087.1 6,803.7 6,847.1 6,378.0 4,635.5 3,446.9 3,581.3 ------- ------- ------- ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 1,237.7 1,546.6 1,546.4 1,517.9 811.3 597.3 569.3 Div accum & div to policyholders 78.0 88.4 87.6 83.7 76.0 53.2 47.8 Interest credited to policy bal. 1,446.2 1,510.4 1,474.2 1,506.0 1,617.1 1,206.0 1,221.2 Health policy benefits 566.9 659.7 449.0 302.1 49.7 44.6 (25.0) Reserve developments on Reins. business sold 305.4 292.2 32.1 ------- ------- ------- ------- ------- ------- ------- Total insurance benefits 3,328.9 3,805.0 3,557.2 3,409.7 2,859.5 2,193.3 1,845.4 Underwriting, acquisition, insurance and other expenses: Commissions 740.1 961.0 919.1 860.3 579.4 417.4 402.7 Other volume related expenses 150.7 197.1 253.8 184.8 256.8 184.1 227.5 Operating and administrative expenses 997.9 1165.3 1208.4 1114.5 928.0 668.3 663.0 Restructuring charges 52.8 27.4 104.9 38.0 (2.2) (0.5) 38.8 Loss on early retirement of subordinated debt 5.6 Taxes, licenses and fees 73.1 77.9 107.5 122.9 106.8 84.2 80.2 Par policyholder interests (4.3) 3.3 1.1 Foreign exchange (1.5) 1.9 (2.9) (1.4) 0.3 1.0 (0.0) ------- ------- ------- ------- ------- ------- ------- Subtotal 2,008.8 2,433.8 2,592.0 2,319.1 1,869.0 1,354.5 1,417.7 Deferral of acquisition costs (714.1) (627.3) (459.5) (454.8) DAC amortization 367.8 346.7 283.9 232.0 ------- ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (208.2) (314.6) (427.5) (346.3) (280.6) (175.5) (222.7) PVIF amortization 77.1 102.5 132.6 113.1 136.5 93.5 65.8 Other intangibles amortization 18.8 18.0 17.7 12.1 8.2 6.2 6.0 ------- ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 1,896.5 2,239.7 2,314.9 2,098.0 1,733.2 1,278.6 1,266.8 Goodwill amortization 44.5 49.2 45.1 43.4 Interest 117.1 133.7 139.5 121.0 96.6 73.1 67.3 ------- ------- ------- ------- ------- ------- ------- Total Benefits and Expenses 5,386.9 6,227.6 6,056.7 5,672.1 4,689.3 3,545.1 3,179.5 ------- ------- ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 700.2 576.1 790.5 705.9 (53.8) (98.3) 401.8 Federal income taxes 190.4 115.7 205.2 144.7 (102.6) (96.0) 84.2 Income Before Cumulative Effect of ------- ------- ------- ------- ------- ------- ------- Accounting Changes 509.8 460.4 585.3 561.2 48.8 (2.2) 317.6 ------- ------- ------- ------- ------- ------- ------- Cumulative effect of accounting changes (15.6) ------- ------- ------- ------- ------- ------- ------- Net Income 509.8 460.4 585.3 545.7 48.8 (2.2) 317.6 ======= ======= ======= ======= ======= ======= ======= Less: Restructuring charges (34.3) (18.9) (80.2) (24.7) 2.0 0.3 (25.3) Realized gains (losses) on investments 13.7 3.8 (17.5) (68.7) (177.2) (143.9) (53.0) Gains (losses) on derivatives (4.9) 0.8 0.5 4.1 Reserve development on business sold through reinsurance/ Amortization of deferred gain (199.1) (190.8) (18.7) Gain on sale of subsidiaries 15.0 (9.4) Cumulative Effect of Accounting Changes (15.6) Loss on early retirement of subordinated debt (3.7) ------- ------- ------- ------- ------- ------- ------- Income from Operations 530.4 475.5 683.0 644.4 431.6 331.6 414.1 ======= ======= ======= ======= ======= ======= ======= Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 3,070.5 2,885.3 2,885.3 2,970.9 Deferral 714.1 627.3 459.5 454.8 Amortization (367.8) (346.7) (283.9) (232.0) ------- ------- ------- ------- Included in Total Benefits and Expenses 346.3 280.6 175.5 222.7 Adjustment related to realized (gains) losses on securities available-for-sale 112.9 115.0 97.3 (22.3) Adjustment related to unrealized (gains) losses on securities available-for-sale (187.2) (338.5) (304.3) (271.2) Foreign currency translation adjustment (16.0) 56.9 43.2 19.2 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 2,868.7 2,919.4 ======= ======= ======= ======= 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) (93.5) (65.8) Foreign currency translation adjustment (7.0) 24.1 18.0 8.2 Other (0.7) (0.0) (0.1) 0.0 ------- ------- ------- ------- Balance at end-of-year 1,362.5 1,250.1 1,286.9 1,192.5 ======= ======= ======= ======= Note: 2000, 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 Sep Dec Mar Jun Sep 2001 2001 2002 2002 2002 ------- ------- ------- ------- ------- Revenue Life and annuity premiums 336.8 270.7 74.7 68.7 71.6 Surrender charges 23.2 27.7 20.2 21.3 22.8 Mortality assessments 133.3 132.6 130.4 130.5 134.1 Expense assessments 217.4 205.9 203.9 208.0 193.2 Health premiums 103.9 36.1 2.4 8.3 (9.6) Investment advisory fees 47.2 50.9 48.0 47.8 42.9 Amortization of deferred gain 20.4 24.2 22.0 22.1 Amortization of deferred gain-reserve development (1.4) Other revenue and fees 100.2 87.9 70.8 75.1 72.1 Net investment income 693.3 653.1 654.8 657.4 652.4 Earnings in Unconsolidated Affiliates 0.4 4.3 (0.6) Realized gains (losses) on investments (37.1) (16.8) (103.5) (81.5) (37.1) Gains (losses) on derivatives (0.5) (8.9) 0.1 0.4 0.3 ------- ------- ------- ------- ------- Total Revenue 1,618.0 1,463.8 1,126.0 1,157.5 1,163.4 ------- ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 422.6 302.8 176.1 191.5 229.7 Div accum & div to policyholders 18.0 26.6 17.8 18.2 17.2 Interest credited to policy bal. 378.7 390.6 406.2 382.5 417.4 Health policy benefits 83.8 25.0 3.3 33.9 7.3 Reserve developments on Reins. business sold 22.2 270.0 ------- ------- ------- ------- ------- Total insurance benefits 903.1 744.9 603.4 648.3 941.6 Underwriting, acquisition, insurance and other expenses: Commissions 207.9 217.9 144.2 148.6 124.6 Other volume related expenses 53.1 29.1 54.7 65.5 63.9 Operating and administrative expenses 279.7 314.9 220.7 219.4 228.1 Restructuring charges (0.0) 31.0 1.6 (2.1) Loss on early retirement of subordinated debt Taxes, licenses and fees 30.0 28.4 36.6 23.5 24.1 Par policyholder interests Foreign exchange (2.5) 1.1 0.0 0.6 0.4 ------- ------- ------- ------- ------- Subtotal 568.3 622.4 456.2 459.2 439.1 Deferral of acquisition costs (183.4) (194.5) (147.9) (156.1) (155.5) DAC amortization 118.0 56.8 70.4 100.5 113.0 ------- ------- ------- ------- ------- DAC deferral net of amortization (65.4) (137.7) (77.5) (55.5) (42.5) PVIF amortization 34.4 21.8 21.3 31.9 40.2 Other intangibles amortization 2.6 2.5 2.2 2.0 2.0 ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 539.9 509.0 402.2 437.6 438.8 Goodwill amortization 10.9 10.7 Interest 29.6 25.0 24.8 24.6 23.7 Total Benefits and Expenses 1,483.5 1,289.7 1,030.4 1,110.5 1,404.1 ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 134.5 174.2 95.5 46.9 (240.7) Federal income taxes 26.4 17.3 9.9 (1.6) (104.3) Income Before Cumulative Effect of ------- ------- ------- ------- ------- Accounting Changes 108.0 156.9 85.6 48.5 (136.4) ------- ------- ------- ------- ------- Cumulative effect of accounting changes (0.0) ------- ------- ------- ------- ------- Net Income 108.0 156.9 85.6 48.5 (136.4) ------- ------- ------- ------- ------- Less: Restructuring charges 0.0 (20.2) (1.0) 1.3 Realized gains (losses) on investments (23.8) (20.0) (67.6) (52.7) (23.6) Gains (losses) on derivatives (0.4) (4.6) 0.1 0.3 0.1 Reserve increase on business sold through reinsurance (14.4) (176.4) Gain on sale of subsidiaries 15.0 Cumulative Effect of Accounting Changes (0.0) Loss on early retirement of subordinated debt ------- ------- ------- ------- ------- Income from Operations 132.2 186.7 153.1 116.4 62.1 ======= ======= ======= ======= ======= Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 3,129.1 3,087.2 2,885.3 3,114.9 3,056.6 Deferral 183.4 194.5 147.9 156.1 155.5 Amortization (118.0) (56.8) (70.4) (100.5) (113.0) ------- ------- ------- ------- ------- Included in Total Benefits and Expenses 65.4 137.7 77.5 55.5 42.5 Adjustment related to realized (gains) losses on securities available-for-sale 23.9 49.5 41.9 32.5 22.9 Adjustment related to unrealized (gains) losses on securities available-for-sale (157.0) 68.1 114.9 (152.1) (267.1) Foreign currency translation adjustment 23.8 (7.2) (12.2) 41.7 13.8 Disposition of business (425.9) Other 2.1 (24.2) 7.5 (35.7) (0.0) ------- ------- ------- ------- ------- Balance at end-of-period 3,087.2 2,885.3 3,114.9 3,056.6 2,868.7 ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 1,412.3 1,387.4 1,362.5 1,336.1 1,321.4 Amortization (34.4) (21.8) (21.3) (31.9) (40.2) Foreign currency translation adjustment 10.3 (3.2) (5.1) 17.4 5.7 Other (0.7) (0.1) ------- ------- ------- ------- ------- Balance at end-of-period 1,387.4 1,362.5 1,336.1 1,321.4 1,286.9 ======= ======= ======= ======= ======= For the Quarter Ended Dec Mar Jun Sep 2002 2003 2003 2003 ------- ------- ------- ------- Revenue Life and annuity premiums 80.7 65.3 65.9 69.1 Surrender charges 23.5 18.9 21.3 21.5 Mortality assessments 135.3 138.9 135.6 137.9 Expense assessments 187.6 177.1 190.9 198.5 Health premiums 19.1 3.0 0.1 0.4 Investment advisory fees 44.7 44.2 49.4 53.2 Amortization of deferred gain 6.9 18.4 18.2 18.3 Amortization of deferred gain-reserve development 0.5 (0.2) (0.2) 3.7 Other revenue and fees 81.5 70.6 74.5 82.9 Net investment income 667.3 654.6 660.2 664.4 Earnings in Unconsolidated Affiliates Realized gains (losses) on investments (58.9) (89.6) (1.7) 9.8 Gains (losses) on derivatives 0.3 (1.9) (1.0) 9.1 ------- ------- ------- ------- Total Revenue 1,188.6 1,099.3 1,213.2 1,268.8 ------- ------- ------- ------- Benefits and Expenses Ins. benefits paid or provided: Life and annuity policy benefits 214.0 187.1 155.1 227.1 Div accum & div to policyholders 22.8 14.4 17.6 15.9 Interest credited to policy bal. 411.1 409.3 406.3 405.6 Health policy benefits 5.1 2.3 14.2 (41.5) Reserve developments on Reins. business sold 13.2 32.1 ------- ------- ------- ------- Total insurance benefits 666.2 613.0 593.2 639.2 Underwriting, acquisition, insurance and other expenses: Commissions 162.0 125.7 132.9 144.1 Other volume related expenses 72.6 71.5 65.4 90.5 Operating and administrative expenses 259.7 217.8 235.5 209.8 Restructuring charges (1.7) 5.5 13.5 19.8 Loss on early retirement of subordinated debt 5.6 Taxes, licenses and fees 22.6 30.6 23.1 26.4 Par policyholder interests Foreign exchange (0.6) (0.0) ------- ------- ------- ------- Subtotal 514.6 451.2 470.3 496.2 Deferral of acquisition costs (167.8) (148.5) (140.6) (165.7) DAC amortization 62.8 100.1 64.0 67.9 ------- ------- ------- ------- DAC deferral net of amortization (105.0) (48.4) (76.5) (97.8) PVIF amortization 43.0 22.7 13.6 29.6 Other intangibles amortization 2.0 2.0 2.0 2.0 ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 454.5 427.5 409.3 430.0 Goodwill amortization Interest 23.5 23.3 23.0 21.0 ------- ------- ------- ------- Total Benefits and Expenses 1,144.2 1,063.9 1,025.5 1,090.2 ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 44.4 35.4 187.7 178.7 Federal income taxes (6.6) (6.1) 45.0 45.4 ------- ------- ------- ------- Income Before Cumulative Effect of Accounting Changes 51.0 41.6 142.7 133.3 ------- ------- ------- ------- Cumulative effect of accounting changes ------- ------- ------- ------- Net Income 51.0 41.6 142.7 133.3 ------- ------- ------- ------- Less: Restructuring charges 1.7 (3.6) (8.8) (12.9) Realized gains (losses) on investments (33.3) (58.2) (1.1) 6.4 Gains (losses) on derivatives 0.2 (1.2) (0.6) 5.9 Reserve increase on business sold through reinsurance (8.2) (0.1) (0.1) (18.5) Gain on sale of subsidiaries (9.4) Cumulative Effect of Accounting Changes Loss on early retirement of subordinated debt (3.7) ------- ------- ------- ------- Income from Operations 100.0 104.8 153.3 156.0 ======= ======= ======= ======= Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 2,868.7 2,970.9 2,919.0 2,697.1 Deferral 167.8 148.5 140.6 165.7 Amortization (62.8) (100.1) (64.0) (67.9) ------- ------- ------- ------- Included in Total Benefits and Expenses 105.0 48.4 76.5 97.8 Adjustment related to realized (gains) losses on securities available-for-sale 17.8 30.0 8.3 (60.6) Adjustment related to unrealized (gains) losses on securities available-for-sale (34.2) (119.4) (334.0) 182.2 Foreign currency translation adjustment 13.7 (10.9) 27.2 2.8 Disposition of business Other ------- ------- ------- ------- Balance at end-of-period 2,970.9 2,919.0 2,697.1 2,919.4 ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 1,286.9 1,250.1 1,223.1 1,220.8 Amortization (43.0) (22.7) (13.6) (29.6) Foreign currency translation adjustment 6.1 (4.3) 11.2 1.3 Other 0.1 ------- ------- ------- ------- Balance at end-of-period 1,250.1 1,223.1 1,220.8 1,192.5 ======= ======= ======= =======
PAGE 11 Reconciliation of Business Segments to Consolidated Balance Sheets Unaudited [Millions of Dollars] Investment Lincoln Retirement Life Insurance Management Lincoln UK ------------------- ------------------- ------------------- ------------------- ASSETS Sep Dec Sep Dec Sep Dec Sep Dec 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Investments Corporate bonds 14,239.2 12,928.9 8,397.4 7,879.1 527.3 494.5 642.6 621.0 U.S. government bonds 53.8 41.1 70.2 87.0 0.1 0.1 20.1 Foreign government bonds 337.0 259.2 170.7 136.5 3.8 1.5 333.0 307.5 Asset/Mortgage backed securities 3,190.5 3,243.5 1,194.3 937.0 59.2 47.2 State and municipal bonds 90.8 67.8 44.7 30.4 1.2 Preferred stocks-redeemable 34.8 55.6 23.6 12.5 8.9 Common stocks - 0.1 0.0 1.5 55.8 128.9 Preferred stocks-equity 34.1 33.6 2.8 2.7 Mortgage loans 2,148.7 2,210.3 1,579.5 1,572.6 75.4 81.2 0.3 0.3 Real estate 0.2 0.2 Policy loans 448.4 469.5 1,455.2 1,468.2 6.9 7.9 Other long-term investments 34.4 27.9 14.7 23.7 2.2 -------- -------- -------- -------- -------- -------- -------- -------- Total Investments 20,611.7 19,337.5 12,950.3 12,148.5 669.7 636.1 1,061.1 1,066.0 -------- -------- -------- -------- -------- -------- -------- -------- Allocated investments 3,625.1 3,757.4 1,232.7 1,250.7 95.3 100.0 Notes receivable from LNC 367.3 358.8 237.2 207.7 35.5 51.7 Invest in unconsol affiliates Cash and invested cash (64.0) (76.7) (50.0) (22.7) 80.3 52.9 134.3 206.7 Property and equipment 6.8 1.5 2.0 7.7 40.6 44.7 18.3 19.0 Premium and fees receivable 2.8 0.7 20.9 32.0 45.4 37.0 Accrued investment income 250.6 256.7 192.3 171.7 9.5 9.0 26.8 22.2 Assets held in separate accounts 30,479.1 26,934.1 1,601.5 1,310.4 5,692.1 5,077.9 Federal income tax recoverable Amount recoverable from reinsurers 1,289.5 1,169.7 991.6 920.5 Deferred acquisition costs 761.3 855.8 1,483.4 1,424.5 590.9 597.6 Other intangible assets 35.9 41.8 Present value of in-force 115.0 122.7 828.5 890.1 249.0 237.4 Goodwill 64.1 64.1 855.1 855.1 300.7 300.7 13.8 13.3 Other 127.6 114.1 408.1 395.6 212.1 187.4 80.0 87.0 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets 57,636.8 52,896.4 20,753.5 19,591.6 1,525.1 1,461.4 7,866.3 7,327.1 ======== ======== ======== ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------- Corporate and Consolidating Other Operations Adjustments Consolidated ------------------- ------------------- ------------------- ------------------- ASSETS Sep Dec Sep Dec Sep Dec 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Investments Corporate bonds 4,479.7 4,011.1 28,286.3 25,934.7 U.S. government bonds 378.3 385.4 522.5 513.6 Foreign government bonds 508.5 405.6 1,352.9 1,110.2 Asset/Mortgage backed securities 548.7 787.8 4,992.7 5,015.5 State and municipal bonds 27.2 16.2 164.0 114.4 Preferred stocks-redeemable 7.2 2.1 65.6 79.0 Common stocks 76.0 97.4 131.8 228.0 Preferred stocks-equity 74.3 72.9 111.2 109.2 Mortgage loans 347.7 341.0 4,151.5 4,205.5 Real estate 249.5 279.5 249.8 279.7 Policy loans 1,910.5 1,945.6 Other long-term investments 433.4 412.8 (0.0) (0.0) 484.7 464.4 -------- -------- -------- -------- -------- -------- -------- -------- Total Investments 7,130.5 6,811.9 (0.0) (0.0) 42,423.3 39,999.9 -------- -------- -------- -------- -------- -------- -------- -------- Allocated investments 20.1 (468.2) (4,983.2) (4,639.9) 0.0 (0.0) Notes receivable from LNC (640.0) (617.6) (0.0) (0.5) 0.0 0.0 Invest in unconsol affiliates Cash and invested cash 1,860.1 1,530.4 1,960.6 1,690.5 Property and equipment 169.6 169.3 237.3 242.1 Premium and fees receivable 237.4 143.2 306.5 212.9 Accrued investment income 81.1 77.0 560.2 536.7 Assets held in separate accounts 3,510.8 2,856.0 41,283.4 36,178.3 Federal income tax recoverable 317.7 317.7 Amount recoverable from reinsurers 5,508.4 5,450.1 (251.7) (260.3) 7,537.9 7,280.0 Deferred acquisition costs 1.9 2.2 81.9 90.8 2,915.4 2,970.9 Other intangible assets 35.9 41.8 Present value of in-force 1,192.5 1,250.1 Goodwill (0.0) (0.0) 1,233.7 1,233.2 Other 655.1 853.2 (333.7) (407.0) 1,149.3 1,230.3 -------- -------- -------- -------- -------- -------- -------- -------- Total Assets 15,034.2 13,951.4 (1,975.9) (2,043.4) 100,839.9 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 Sep Dec Sep Dec Sep Dec Sep Dec 2003 2002 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 2,684.2 2,718.5 14,377.1 13,780.9 1,311.4 1,336.2 Health reserves 0.3 0.3 46.5 48.5 Unpaid claims - life and health 50.6 48.3 112.6 108.3 48.4 44.7 Unearned premiums 0.0 0.0 Premium deposit funds 20,961.2 19,921.6 19.2 18.3 29.1 30.8 Participating policyholders' funds 179.2 156.7 Other policyholders' funds 652.9 603.5 Liab related to separate accounts 30,479.1 26,934.1 1,601.5 1,310.4 5,692.1 5,077.9 -------- -------- -------- -------- -------- -------- -------- -------- Total Insurance and Inv Contract Liabilities 54,175.1 49,622.4 16,942.8 15,978.4 7,127.5 6,538.1 Federal income taxes 358.6 218.6 173.0 95.7 18.8 29.8 (1.5) (7.3) Short-term debt Long-term debt Junior subordinated debentures issued to affiliated trusts Notes payable to LNC 2.7 0.2 Other liabilities 164.0 94.5 500.4 443.9 891.6 835.7 202.3 201.3 Deferred gain on indemnity reinsurance -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 54,700.4 49,935.7 17,616.2 16,518.0 910.4 865.4 7,328.4 6,732.1 -------- -------- -------- -------- -------- -------- -------- -------- Net unrealized gains (losses) on securities 522.8 309.8 271.5 178.0 3.2 6.4 25.7 25.8 Gains (losses) on derivatives* 10.4 10.6 13.7 16.7 Other shareholders' equity 2,403.2 2,640.3 2,852.8 2,879.6 614.1 592.2 546.3 602.2 S/Hs' equity-minimum pension liability adjustment (0.7) (0.7) (2.6) (2.6) (34.1) (33.0) Cumulative effect of accounting change -------- -------- -------- -------- -------- -------- -------- -------- Shareholders' Equity 2,936.4 2,960.7 3,137.3 3,073.6 614.7 596.0 537.9 595.1 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and S/Hs' Equity 57,636.8 52,896.4 20,753.5 19,591.6 1,525.1 1,461.4 7,866.3 7,327.1 ======== ======== ======== ======== ======== ======== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------- Corporate and Consolidating Other Operations Adjustments Consolidated ------------------- ------------------- ------------------- ------------------- LIABILITIES and SHAREHOLDERS' EQUITY Sep Dec Sep Dec Sep Dec 2003 2002 2003 2002 2003 2002 -------- -------- -------- -------- -------- -------- -------- -------- Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 2,180.6 2,209.4 (94.0) (94.7) 20,459.2 19,950.3 Health reserves 2,611.0 2,640.2 2,657.9 2,689.0 Unpaid claims - life and health 832.5 577.1 (2.8) 1,041.2 778.4 Unearned premiums 26.9 141.2 26.9 141.2 Premium deposit funds 135.1 40.1 535.6 508.1 21,680.2 20,518.8 Participating policyholders' funds 179.2 156.7 Other policyholders' funds 18.6 7.4 671.5 610.9 Liab related to separate accounts 3,510.8 2,856.0 41,283.4 36,178.3 Total Insurance and Inv Contract -------- -------- -------- -------- -------- -------- -------- -------- Liabilities 5,804.6 5,615.4 3,949.5 3,269.4 87,999.6 81,023.6 Federal income taxes (512.6) (655.3) 0.8 318.5 37.1 Short-term debt 90.9 153.0 90.9 153.0 Long-term debt 1,118.5 1,119.2 1,118.5 1,119.2 Junior subordinated debentures issued to affiliated trusts 333.6 392.7 333.6 392.7 Notes payable to LNC 238.4 308.7 (240.9) (308.9) 0.2 (0.0) Other liabilities 3,668.1 3,277.6 (701.3) (681.5) 4,706.6 4,171.5 Deferred gain on indemnity reinsurance 949.0 977.1 949.0 977.1 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 11,691.2 11,188.6 3,008.1 2,597.4 95,254.6 87,837.2 -------- -------- -------- -------- -------- -------- -------- -------- Net unrealized gains (losses) on securities (24.4) 228.2 5.2 5.2 803.9 753.3 Gains (losses) on derivatives* 0.1 1.0 24.1 28.3 Other shareholders' equity 3,428.9 2,595.2 (4,962.9) (4,645.9) 4,882.5 4,663.7 Minimum pension liability adjustment (61.6) (61.6) (99.0) (97.8) Cumulative effect of accounting change -------- -------- -------- -------- -------- -------- -------- -------- Shareholders' Equity 3,343.0 2,762.9 (4,960.7) (4,640.7) 5,608.6 5,347.5 -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and S/Hs' Equity 15,034.2 13,951.4 (1,952.6) (2,043.4) 100,863.3 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 204.1 345.0 234.1 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 99,870.6 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 Junior subordinated debentures issued to affiliated 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 4,785.5 4,699.6 4,946.7 5,130.7 4,612.9 Cumulative effect of accounting change 17.6 -------- -------- -------- -------- -------- Total Shareholders' Equity 5,387.9 4,263.9 4,980.6 5,303.8 5,347.5 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and Shareholders' Equity 93,836.3 103,095.7 99,870.6 98,041.6 93,184.6 ======== ========= ======== ======== ======== Shareholders' Equity Per Share Book Value, Excluding AOCI $23.62 $23.98 $25.88 $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] Sep Dec Mar Jun Sep Dec Mar Jun Sep 2001 2001 2002 2002 2002 2002 2003 2003 2003 -------- -------- -------- -------- -------- -------- -------- -------- -------- ASSETS Investments Corporate bonds 23,424.3 23,105.1 23,470.4 23,993.6 25,484.6 25,934.7 26,936.1 28,419.3 28,286.3 U.S. government bonds 467.7 410.5 429.1 441.6 495.3 513.6 537.0 561.9 522.5 Foreign government bonds 1,160.3 1,174.7 1,180.1 1,120.1 1,038.6 1,110.2 1,206.6 1,349.4 1,352.9 Mortgage backed securities 3,765.6 3,524.7 3,613.9 4,031.0 4,843.7 5,015.5 4,960.1 4,754.9 4,992.7 State and municipal bonds 14.4 44.7 62.6 58.8 97.8 114.4 134.9 150.4 164.0 Preferred stocks - redeemable 99.3 85.9 84.6 79.6 76.8 79.0 112.0 118.5 65.6 Common stocks 311.2 319.3 284.4 267.7 237.2 228.0 145.0 146.6 131.8 Preferred stocks-equity 166.5 151.2 154.2 151.8 160.3 109.2 104.5 110.7 111.2 Mortgage loans 4,663.1 4,535.5 4,448.2 4,395.4 4,285.2 4,205.5 4,235.5 4,314.3 4,151.5 Real estate 288.8 267.9 258.2 258.7 286.4 279.7 242.0 240.3 249.8 Policy loans 1,943.4 1,939.7 1,918.0 1,906.1 1,899.0 1,945.6 1,928.8 1,919.6 1,910.5 Other long-term investments 483.4 553.8 459.6 456.0 457.7 464.4 465.7 505.6 484.7 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Investments 36,788.0 36,113.1 36,363.1 37,160.1 39,362.6 39,999.9 41,008.4 42,591.6 42,423.3 -------- -------- -------- -------- -------- -------- -------- -------- -------- Invest in unconsol affiliates 6.5 8.1 8.1 7.5 Cash and invested cash 1,996.3 3,095.5 1,699.5 2,265.4 1,599.9 1,690.5 1,635.5 1,945.8 1,960.6 Property and equipment 261.0 257.5 266.4 253.5 252.7 242.1 239.4 239.1 237.3 Premiums and fees receivable 264.5 400.1 376.3 461.4 577.2 212.9 194.0 396.0 306.5 Accrued investment income 615.1 563.5 577.1 556.3 568.2 536.7 567.2 555.1 560.2 Assets held in separate accounts 39,479.8 44,833.4 44,916.7 40,579.6 34,069.0 36,178.3 34,775.2 39,942.8 41,283.4 Federal income taxes recoverable 71.6 55.5 593.4 483.4 340.7 317.7 89.1 - - Amount recoverable from reinsurers 3,818.3 6,030.4 6,096.3 6,509.9 7,094.5 7,280.0 7,323.5 7,377.1 7,537.9 Deferred acquisition costs 3,087.2 2,885.3 3,114.9 3,056.6 2,868.7 2,970.9 2,919.0 2,697.1 2,915.4 Other intangible assets 64.1 50.1 47.9 45.8 43.8 41.8 39.8 37.9 35.9 Present value of in-force 1,387.4 1,362.5 1,336.1 1,321.4 1,286.9 1,250.1 1,223.1 1,220.8 1,192.5 Goodwill 1,253.2 1,211.8 1,211.5 1,212.4 1,232.7 1,233.2 1,233.0 1,233.6 1,233.7 Other 1,149.4 1,174.9 1,280.9 1,200.6 1,187.1 1,230.3 1,250.6 1,295.9 1,149.3 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Assets 90,242.4 98,041.6 97,888.5 95,114.2 90,483.9 93,184.6 92,497.6 99,532.8 100,839.9 -------- -------- -------- -------- -------- -------- -------- -------- -------- LIABILITIES and SHAREHOLDERS' EQUITY Liabilities Insurance and Inv Contract Liabilities: Life and annuity reserves 17,990.8 17,917.0 18,014.6 18,611.2 19,142.5 19,950.3 20,025.6 20,194.5 20,459.2 Health reserves 2,573.2 2,537.9 2,492.4 2,176.1 2,448.3 2,689.0 2,689.9 2,703.3 2,657.9 Unpaid claims - life and health 1,206.6 1,087.5 1,153.6 1,086.1 1,100.9 778.4 763.1 997.1 1,041.2 Unearned premiums 8.1 66.9 66.5 154.3 185.8 141.2 141.1 24.0 26.9 Premium deposit funds 18,509.7 18,585.0 18,669.6 19,157.8 20,054.4 20,518.8 21,070.5 21,437.7 21,680.2 Participating policyholders' funds 118.3 100.2 98.6 91.9 90.5 156.7 166.3 193.8 179.2 Other policyholders' funds 554.3 562.7 571.9 584.7 595.7 610.9 607.1 621.8 671.5 Liab related to separate accounts 39,479.8 44,833.4 44,916.7 40,579.6 34,069.0 36,178.3 34,775.2 39,942.8 41,283.4 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Ins and Inv Contr Liabilities 80,440.8 85,690.6 85,983.9 82,441.8 77,687.1 81,023.6 80,238.8 86,115.0 87,999.6 Federal income taxes 72.0 37.1 Short-term debt 539.0 350.2 510.2 211.0 120.0 153.0 125.4 83.4 90.9 Long-term debt 712.4 861.8 861.8 1,112.3 1,118.1 1,119.2 1,118.6 1,121.4 1,118.5 Junior subordinated debentures issued to affiliated trusts 305.0 474.7 376.2 380.0 390.6 392.7 390.8 397.1 333.6 Notes payable to LNC (0.0) 0.0 (0.0) (0.0) 0.2 (0.0) 0.0 Other liabilities 2,840.2 4,216.1 3,864.6 4,501.1 4,661.9 4,171.5 4,214.8 4,989.0 4,724.9 Deferred gain on indemnity reinsurance 1144.5 1,118.6 1,115.2 1,069.5 977.1 959.0 938.9 949.0 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities 84,837.4 92,737.8 92,715.3 89,761.4 85,047.1 87,837.2 87,047.6 93,716.9 95,253.5 -------- -------- -------- -------- -------- -------- -------- -------- -------- S/Hs' equity-unrealized gns (losses)- inv. 247.9 195.7 31.8 325.7 817.5 753.3 872.0 1,117.8 804.5 S/Hs' equity- gains (losses)- derivatives* 2.9 3.9 22.6 22.7 27.3 28.3 25.0 28.8 23.2 S/Hs' equity-foreign currency 6.9 (8.0 (20.8) 22.0 35.4 50.8 39.8 68.4 67.0 S/Hs' equity-minimum pension liability adj (36.0) (35.2) (37.8) (35.2) (97.8) (97.2) (98.8) (99.0) S/Hs' equity-other 5,129.8 5,130.6 5,174.7 5,020.3 4,591.8 4,612.9 4,610.5 4,699.8 4,790.6 Cumulative effect of accounting change 17.4 17.6 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Shareholders' Equity 5,405.0 5,303.8 5,173.2 5,352.8 5,436.8 5,347.5 5,450.0 5,815.9 5,586.4 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Liabilities and Shareholders' Equity 90,242.4 98,041.6 97,888.5 95,114.2 90,483.9 93,184.6 92,497.6 99,532.8 100,839.9 ======== ======== ======== ======== ======== ======== ======== ======== ======== Shareholders' Equity Per Share Book Value, Excluding AOCI $27.03 $27.39 $27.54 $27.21 $25.87 $25.97 $25.94 $26.41 $26.87 Common shares outstanding 189.8 187.3 187.9 184.5 177.5 177.6 177.7 178.0 178.3 * Cumulative effect of accounting change recorded upon the adoption of FAS 133 in the 1st quarter of 2001 is a component of gains (losses) on derivatives in the 1st quarter of 2002.
PAGE 15 Lincoln Retirement Income Statements & Operational Data Unaudited [Millions of Dollars] YTD YTD Sep Sep 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 38.7 16.3 Surrender charges 33.5 37.9 41.8 31.2 31.2 23.8 22.7 Expense assessments 430.7 501.3 591.3 508.6 446.2 345.7 317.1 Other revenue and fees 1.7 14.5 11.0 16.7 3.3 0.6 8.2 Net investment income 1,530.8 1,509.1 1,430.5 1,399.1 1,457.5 1,079.1 1114.2 Realized gains (losses) on investments 17.5 (12.1) (5.2) (64.5) (196.6) (150.5) (57.3) Gains (losses) on derivatives 0.0 0.0 0.0 (0.3) (1.2) (1.2) (0.8) ------- ------- ------- ------- ------- ------- ------- Total Revenue 2,068.1 2,115.8 2,133.7 1,968.3 1,787.7 1,336.3 1,420.5 ------- ------- ------- ------- ------- ------- ------- Operating Benefits and Expenses Benefits paid or provided: Benefits 271.6 259.1 254.7 263.9 314.1 235.8 144.5 Interest credited to policy bal. 955.2 925.2 866.1 863.8 903.8 672.1 653.6 ------- ------- ------- ------- ------- ------- ------- Total insurance benefits 1,226.8 1,184.3 1,120.8 1,127.7 1,217.9 907.8 798.1 Underwriting, acquisition, insurance and other expenses Commissions 236.7 341.4 326.8 336.3 320.8 248.0 221.7 Other volume related expenses 33.1 42.8 52.0 49.7 64.6 46.5 44.7 Operating and administrative expenses 194.0 208.6 206.6 231.8 231.3 161.4 167.7 Restructuring charges 0.0 0.0 0.0 2.0 1.6 1.6 14.6 Taxes, licenses and fees 13.8 0.3 9.3 13.7 11.5 11.9 13.7 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Subtotal 477.6 593.2 594.8 633.6 629.8 469.4 462.4 Deferral of acquisition costs (240.9) (243.9) (188.6) (162.5) DAC amortization 125.5 157.7 128.0 93.0 ------- ------- ------- ------- ------- ------- ------- DAC deferral net of amortization 9.7 (47.7) (37.5) (115.4) (86.2) (60.6) (69.4) PVIF amortization 11.4 15.3 24.2 14.7 31.8 11.8 7.7 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Total underwriting, acquisition, insurance and other expenses 498.8 560.8 581.5 532.8 575.4 420.6 400.7 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 1,701.7 1,661.8 1,793.3 1,328.4 1,198.8 ------- ------- ------- ------- ------- ------- ------- Income from Before Federal Income Tax and Cumulative Effect of ------- ------- ------- ------- ------- ------- ------- Accounting Changes 340.3 368.7 432.0 306.5 (5.6) 7.9 221.7 ------- ------- ------- ------- ------- ------- ------- Federal income taxes 66.5 77.2 77.3 34.1 (59.3) (40.9) 31.1 Income Before Cumulative Effect of Accounting Changes 273.8 291.5 354.7 272.4 53.7 48.7 190.6 Cumulative effect of accounting changes 0.0 0.0 0.0 (7.3) 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Net Income 273.8 291.5 354.7 265.1 53.7 48.7 190.6 ======= ======= ======= ======= ======= ======= ======= Less: Realized gains (losses) on investments 11.4 (7.9) (3.4) (42.3) (127.8) (97.4) (37.2) Gains (losses) on derivatives 0.0 0.0 0.0 (0.2) (0.8) (0.8) (0.5) Restructuring charges 0.0 0.0 0.0 (1.3) (1.0) (1.0) (9.5) Cumulative effect of accounting changes 0.0 0.0 0.0 (7.3) 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Income from Operations 262.4 299.4 358.1 316.2 183.4 147.9 237.8 ======= ======= ======= ======= ======= ======= ======= Effective tax rate on Income from Operations 18.7% 21.4% 18.1% 15.3% 5.4% 8.2% 19.2% Revenue 2,068.1 2,115.8 2,133.7 1,968.3 1,787.7 1,336.3 1,420.5 Less: Realized gains (losses) on investments 17.5 (12.1) (5.2) (64.5) (196.6) (150.5) (57.3) Gains (losses) on derivatives 0.0 0.0 0.0 (0.3) (1.2) (1.2) (0.8) ------- ------- ------- ------- ------- ------- ------- Operating Revenue 2,050.6 2,128.0 2,138.9 2,033.1 1,985.5 1,487.9 1,478.5 ======= ======= ======= ======= ======= ======= ======= Average capital 1,592.6 1,562.0 1602.9 1,831.4 2,339.6 2,284.5 2,391.8 Net Income return on average capital 17.2% 18.7% 22.1% 14.5% 2.3% 2.8% 10.6% Income from operations return on average capital 16.5% 19.2% 22.3% 17.3% 7.8% 8.6% 13.3% - ------------------------------------------------------------------------------------------------------------ Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 812.5 912.8 912.8 855.8 Deferral 240.9 243.9 188.6 162.5 Amortization (125.5) (157.7) (128.0) (93.0) ------- ------- ------- ------- Included in Total Benefits and Expenses 115.4 86.2 60.6 69.4 Adjustment related to realized (gains) losses on securities available-for-sale 68.2 73.0 56.9 (2.0) Adjustment related to unrealized (gains) losses on securities available-for-sale (90.0) (201.4) (171.5) (161.9) Other* 6.7 (14.8) (14.8) - ------- ------- ------- ------- Balance at end-of-period 912.8 855.8 843.9 761.3 ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-period 169.2 154.5 154.5 122.7 Amortization (14.7) (31.8) (11.8) (7.7) Other ------- ------- ------- ------- Balance at end-of-period 154.5 122.7 142.7 115.0 ======= ======= ======= ======= * Includes the transfer of the Legacy Life block of business to the Life Insurance segment in the first quarter of 2002. Note: 2000, 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 Sep Dec Mar Jun Sep 2001 2001 2002 2002 2002 ------ ------ ------ ------ ------ Revenue Premiums 13.2 12.7 12.2 13.1 13.4 Surrender charges 6.5 7.2 7.9 7.2 8.7 Expense assessments 124.9 119.7 121.0 120.7 103.9 Other revenue and fees 1.2 10.0 5.8 (1.3) (4.0) Net investment income 353.7 349.1 356.6 359.1 363.5 Realized gains (losses) on investments (20.8) (31.3) (50.5) (56.2) (43.8) Gains (losses) on derivatives (0.5) 0.2 0.0 (0.1) (1.1) ------ ------ ------ ------ ------ Total Revenue 478.2 467.5 453.0 442.6 440.7 ------ ------ ------ ------ ------ Benefits and Expenses Benefits paid or provided: Benefits 66.3 55.3 55.4 72.5 107.8 Interest credited to policy balances 217.2 227.5 226.1 221.8 224.2 ------ ------ ------ ------ ------ Total insurance benefits 283.5 282.8 281.5 294.3 332.0 Underwriting, acquisition, insurance and other expenses: Commissions 81.1 96.7 82.4 82.5 83.0 Other volume related expenses 12.7 13.1 10.0 16.9 19.6 Operating and administrative expenses 56.9 68.0 54.6 53.8 53.0 Restructuring charges 0.0 0.0 0.0 1.6 0.0 Taxes, licenses and fees 2.2 4.5 4.7 4.2 3.0 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Subtotal 152.9 182.3 151.8 159.0 158.6 Deferral of acquisition costs (58.7) (71.9) (61.7) (60.8) (66.0) DAC amortization 35.6 20.9 32.7 48.3 47.1 ------ ------ ------ ------ ------ DAC deferral net of amortization (23.0) (51.0) (29.1) (12.6) (18.9) PVIF amortization 4.5 1.4 3.8 3.9 4.1 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 134.4 132.7 126.5 150.4 143.8 Goodwill amortization 0.3 0.3 0.0 0.0 0.0 ------ ------ ------ ------ ------ Total Benefits and Expenses 418.2 415.8 408.0 444.7 475.8 ------ ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 60.0 51.8 45.1 (2.2) (35.1) Federal income taxes 2.5 (1.4) (1.5) (11.3) (28.0) ------ ------ ------ ------ ------ Income Before Cumulative Effect of Accounting Changes 57.6 53.1 46.6 9.2 (7.0) ------ ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Net Income 57.6 53.1 46.6 9.2 (7.0) ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments (13.5) (20.7) (32.8) (36.6) (28.0) Gains (losses) on derivatives (0.3) 0.1 0.0 0.1 (0.8) Restructuring charges 0.0 0.0 0.0 (1.0) 0.0 Cumulative effect of accounting changes 0.0 0.0 ------ ------ ------ ------ ------ Income from Operations 71.4 73.7 79.4 46.8 21.8 ====== ====== ====== ====== ====== Effective tax rate on Income from Operations 12.2% 11.1% 16.9% 16.0% (121.8%) Revenue 478.2 467.5 453.0 442.6 440.7 Less: Realized gains (losses) on investments (20.8) (31.3) (50.5) (56.2) (43.8) Gains (losses) on derivatives (0.5) 0.2 0.0 (0.1) (1.1) ------ ------ ------ ------ ------ Operating Revenue 499.5 498.7 503.5 498.8 485.6 ====== ====== ====== ====== ====== Average capital 1,906.4 1,828.9 2,046.1 2,396.3 2,411.1 Net Income return on average capital 12.1% 11.6% 9.1% 1.5% (1.2%) Income from operations return on average capital 15.0% 16.1% 15.5% 7.8% 3.6% - -------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 831.3 781.2 912.8 1031.0 967.8 Deferral 58.7 71.9 61.7 60.8 66.0 Amortization (35.6) (20.9) (32.7) (48.3) (47.1) ------ ------ ------ ------ ------ Included in Total Benefits and Expenses 23.0 51.0 29.1 12.6 18.9 Adjustment related to realized (gains) losses on securities available-for-sale 16.4 34.1 25.7 20.9 10.3 Adjustment related to unrealized (gains) losses on securities available-for-sale (89.7) 46.5 78.2 (96.6) (153.1) Other* 0.3 (0.0) (14.8) ------ ------ ------ ------ ------ Balance at end-of-quarter 781.2 912.8 1,031.0 967.8 843.9 ====== ====== ====== ====== ====== Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 160.4 155.9 154.5 150.7 146.8 Amortization (4.5) (1.4) (3.8) (3.9) (4.1) Other ------ ------ ------ ------ ------ Balance at end-of-quarter 155.9 154.5 150.7 146.8 142.7 ====== ====== ====== ====== ====== For the Quarter Ended Dec Mar Jun Sep 2002 2003 2003 2003 ------ ------ ------ ------ Revenue Premiums 8.7 5.5 3.0 7.8 Surrender charges 7.4 6.9 8.5 7.4 Expense assessments 100.6 97.6 104.3 115.2 Other revenue and fees 2.7 (1.4) 1.3 8.3 Net investment income 378.3 367.0 369.8 377.4 Realized gains (losses) on investments (46.1) (76.8) 0.9 18.6 Gains (losses) on derivatives (0.1) (1.0) (1.5) 1.7 ------ ------ ------ ------ Total Revenue 451.4 397.8 486.4 536.3 ------ ------ ------ ------ Benefits and Expenses Benefits paid or provided: Benefits 78.4 65.0 34.8 44.6 Interest credited to policy balances 231.7 220.1 217.1 216.5 ------ ------ ------ ------ Total insurance benefits 310.1 285.1 251.9 261.1 Underwriting, acquisition, insurance and other expenses: Commissions 72.8 66.8 74.2 80.7 Other volume related expenses 18.1 14.0 14.7 16.1 Operating and administrative expenses 69.9 54.0 56.6 57.0 Restructuring charges 0.0 0.0 6.2 8.4 Taxes, licenses and fees (0.5) 5.7 4.3 3.7 Par policyholder interests 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Subtotal 160.4 140.4 156.0 166.0 Deferral of acquisition costs (55.3) (47.8) (51.0) (63.6) DAC amortization 29.6 31.0 28.5 33.6 ------ ------ ------ ------ DAC deferral net of amortization (25.7) (16.8) (22.6) (30.0) PVIF amortization 20.0 2.3 2.1 3.3 Other intangibles amortization 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 154.8 125.9 135.5 139.3 Goodwill amortization 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Total Benefits and Expenses 464.8 411.0 387.4 400.3 ------ ------ ------ ------ Income Before Federal Income Tax and Cumulative Effect of Accounting Changes (13.4) (13.3) 99.0 135.9 Federal income taxes (18.4) (20.1) 17.3 33.9 ------ ------ ------ ------ Income Before Cumulative Effect of Accounting Changes 5.0 6.9 81.7 102.0 ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Net Income 5.0 6.9 81.7 102.0 ====== ====== ====== ====== Less: Realized gains (losses) on investments (30.4) (50.3) 1.0 12.1 Gains (losses) on derivatives (0.0) (0.2) (1.4) 1.1 Restructuring charges 0.0 0.0 (4.0) (5.5) Cumulative effect of accounting changes ------ ------ ------ ------ Income from Operations 35.4 57.4 86.1 94.3 ====== ====== ====== ====== Effective tax rate on Income from Operations (8.1%) 11.0% 18.6% 24.0% Revenue 451.4 397.8 486.4 536.3 Less: Realized gains (losses) on investments (46.1) (76.8) 0.9 18.6 Gains (losses) on derivatives (0.1) (1.0) (1.5) 1.7 ------ ------ ------ ------ Operating Revenue 497.6 475.5 487.0 516.0 ====== ====== ====== ====== Average capital 2,504.9 2,526.3 2,262.3 2,386.7 Net Income return on average capital 0.8% 1.1% 14.4% 17.1% Income from operations return on average capital 5.7% 9.1% 15.2% 15.8% - --------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 843.9 855.8 820.6 653.1 Deferral 55.3 47.8 51.0 63.6 Amortization (29.6) (31.0) (28.5) (33.6) ------ ------ ------ ------ Included in Total Benefits and Expenses 25.7 16.8 22.6 30.0 Adjustment related to realized (gains) losses on securities available-for-sale 16.1 21.8 7.9 (31.8) Adjustment related to unrealized (gains) losses on securities available-for-sale (29.9) (73.9) (197.9) 109.9 Other* ------ ------ ------ ------ Balance at end-of-quarter 855.8 820.6 653.1 761.3 ====== ====== ====== ====== Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 142.7 122.7 120.4 118.3 Amortization (20.0) (2.3) (2.1) (3.3) Other ------ ------ ------ ------ Balance at end-of-quarter 122.7 120.4 118.3 115.0 ====== ====== ====== ====== * 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 Rollforward Unaudited [Billions of Dollars] YTD YTD Sep Sep 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 2.850 2.333 Withdrawals (incl charges) & deaths (2.468) (2.521) (3.283) (2.448) (2.637) (2.106) (1.517) ------- ------- ------- ------- ------- ------- ------- Net flows (1.016) 0.042 (1.209) 0.894 1.035 0.743 0.816 Transfer from (to) var annuities (0.356) (0.783) (1.329) (0.428) 0.108 0.115 (0.448) Interest credited 0.994 0.840 0.944 0.923 0.940 0.699 0.676 Acq of new business/companies 1.274 ------- ------- ------- ------- ------- ------- ------- Fixed Annuities-Gross 18.111 18.210 16.615 18.004 20.087 19.562 21.131 Reinsurance Ceded (1.606) (1.419) (1.221) (1.514) (2.003) (1.913) (2.264) ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal End -of-Year 16.505 16.791 15.394 16.491 18.085 17.650 18.868 ------- ------- ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits* 1.265 2.310 1.918 3.213 3.600 2.792 2.288 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 2.198 2.032 Withdrawals (incl charges) & deaths (3.019) (3.760) (4.830) (3.856) (3.325) (2.562) (2.376) ------- ------- ------- ------- ------- ------- ------- Net flows (0.228) (1.207) (1.665) (0.789) (0.582) (0.364) (0.344) Transfer from (to) fixed annuities 0.389 0.787 1.320 0.428 (0.122) (0.122) 0.444 Invest inc & change in mkt value 5.414 8.555 (1.721) (4.428) (6.497) (8.210) 4.171 Acq(sale) of new business/companies 0.437 ------- ------- ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Year 33.358 41.493 39.427 34.638 27.438 25.942 31.709 ------- ------- ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits* 2.641 2.409 2.667 2.624 2.569 2.041 1.965 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 5.048 4.365 Withdrawals (incl charges) & deaths (5.487) (6.281) (8.113) (6.304) (5.962) (4.669) (3.893) ------- ------- ------- ------- ------- ------- ------- Net flows (1.244) (1.165) (2.874) 0.105 0.453 0.379 0.472 Transfers 0.033 0.004 (0.009) (0.013) (0.007) (0.003) Interest credited & change in mkt value 6.408 9.395 (0.777) (3.505) (5.558) (7.511) 4.848 Acq of new business/companies 1.711 ------- ------- ------- ------- ------- ------- ------- Total Gross Annuities-Bal End-of-Year 51.469 59.703 56.042 52.642 47.525 45.504 52.841 ------- ------- ------- ------- ------- ------- ------- Reinsurance Ceded (1.606) (1.419) (1.221) (1.514) (2.003) (1.913) (2.264) ------- ------- ------- ------- ------- ------- ------- Total Annuities (Net of Ceded) - Bal End-of-Year 49.862 58.284 54.821 51.129 45.522 43.591 50.577 ======= ======= ======= ======= ======= ======= ======= Total Annuities Incremental Deposits* 3.906 4.719 4.585 5.837 6.169 4.834 4.253 ------- ------- ------- ------- ------- ------- ------- Var Ann Under Agree - Included above 0.649 0.719 0.941 1.077 1.186 1.083 1.820 ------- ------- ------- ------- ------- ------- ------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.709 0.459 1.712 1.844 1.494 1.068 Withdrawals (1.367) (2.271) (1.604) (1.473) (1.246) (0.681) ------- ------- ------- ------- ------- ------- Net Flows (0.658) (1.812) 0.108 0.371 0.247 0.387 ------- ------- ------- ------- ------- ------- Gross Fixed Account Values 10.475 10.219 11.226 Reinsurance Ceded (2.003) (1.913) (2.264) ------- ------- ------- Net Fixed Account Values 8.473 8.306 8.962 Variable Annuities - including fixed portion of variable contracts Deposits 4.407 4.780 4.697 4.571 3.554 3.297 Withdrawals (4.915) (5.842) (4.700) (4.489) (3.422) (3.212) ------- ------- ------- ------- ------- ------- ------- Net Flows (0.508) (1.062) (0.003) 0.082 0.132 0.085 ------- ------- ------- ------- ------- ------- ------- Variable Account Values 37.050 35.286 41.616 Fixed Portion of Variable Contracts Deposits 1.853 1.615 1.630 1.828 1.356 1.265 Withdrawals (1.154) (1.012) (0.844) (1.164) (0.860) (0.836) ------- ------- ------- ------- ------- ------- ------- Net Flows 0.699 0.603 0.786 0.664 0.496 0.429 ------- ------- ------- ------- ------- ------- ------- Fixed Portion of Variable Account Values 16.491 9.612 9.344 9.906 Average Daily Variable Account Values 35.932 41.776 35.573 30.826 31.955 29.197 - ----------------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income 7.22% 7.38% 7.38% 6.98% 7.04% 6.51% Interest Credited 5.13% 5.24% 5.33% 4.87% 4.94% 4.30% ------- ------- ------- ------- ------- ------- ------- 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 Rollforward Unaudited [Billions of Dollars] Dec Mar Jun Sep Dec Mar 2000 2001 2001 2001 2001 2002 ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal Beg-of-Quarter 16.929 16.615 16.598 16.696 17.317 18.004 Gross Deposits 0.482 0.560 0.668 0.896 1.218 0.906 Withdrawals (incl charges) & deaths (0.810) (0.787) (0.574) (0.525) (0.562) (0.730) ------- ------- ------- ------- ------- ------- Net flows (0.328) (0.227) 0.094 0.372 0.656 0.176 Transfer from (to) var annuities (0.216) (0.014) (0.222) 0.021 (0.213) (0.232) Interest credited 0.230 0.225 0.226 0.228 0.244 0.230 Acq of new business/companies ------- ------- ------- ------- ------- ------- Fixed Annuities-Gross 16.615 16.598 16.696 17.317 18.004 18.178 Reinsurance Ceded (1.221) (1.169) (1.146) (1.266) (1.514) (1.645) ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal End-of-Quarter 15.394 15.430 15.551 16.051 16.491 16.534 ------- ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits* 0.447 0.536 0.611 0.873 1.193 0.881 Variable Annuities-Bal Beg-of-Quarter 42.743 39.427 34.733 36.961 30.506 34.638 Gross Deposits 0.846 0.887 0.703 0.684 0.793 0.808 Withdrawals (incl charges) & deaths (1.199) (1.250) (0.993) (0.795) (0.818) (0.896) ------- ------- ------- ------- ------- ------- Net flows (0.353) (0.363) (0.290) (0.111) (0.025) (0.088) Transfer from (to) fixed annuities 0.212 0.011 0.227 (0.023) 0.213 0.234 Invest inc & change in mkt value (3.175) (4.342) 2.291 (6.321) 3.944 0.366 Acq(sale) of new business/companies ------- ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Quarter 39.427 34.733 36.961 30.506 34.638 35.150 ------- ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits 0.650 0.683 0.612 0.604 0.725 0.725 Total Annuities - Bal Beg-of-Quarter 59.673 56.042 51.331 53.657 47.823 52.642 Gross Deposits 1.328 1.447 1.371 1.580 2.011 1.714 Withdrawals (incl charges) & deaths (2.009) (2.037) (1.567) (1.320) (1.380) (1.626) ------- ------- ------- ------- ------- ------- Net flows (0.681) (0.590) (0.196) 0.261 0.631 0.088 Transfers (0.004) (0.003) 0.005 (0.002) 0.002 Interest credited & change in mkt value (2.945) (4.117) 2.517 (6.093) 4.188 0.596 Acq of new business/companies Total Gross Annuities - Bal End-of-Quarter 56.042 51.331 53.657 47.823 52.642 53.328 ------- ------- ------- ------- ------- ------- Reinsurance Ceded (1.221) (1.169) (1.146) (1.266) (1.514) (1.645) ------- ------- ------- ------- ------- ------- Total Annuities (Net of Ceded) - Bal End-of-Qtr 54.821 50.162 52.512 46.557 51.128 51.683 ======= ======= ======= ======= ======= ======= Total Annuities Incremental Deposits* 1.097 1.219 1.223 1.477 1.918 1.606 Var Ann Under Agree - Included above 0.941 0.904 0.975 0.907 1.077 1.207 * Incremental Deposits represent gross deposits reduced by transfers from other Lincoln Retirement products. - --------------------------------------------------------------------------------------------------------------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.085 0.160 0.329 0.489 0.734 0.505 Withdrawals (0.570) (0.556) (0.356) (0.340) (0.352) (0.463) ------- ------- ------- ------- ------- ------- Net Flows (0.485) (0.396) (0.027) 0.149 0.382 0.042 ------- ------- ------- ------- ------- ------- Gross Fixed Account Values Reinsurance Ceded ------- ------- ------- ------- ------- ------- Net Fixed Account Values ------- ------- ------- ------- ------- ------- Variable Annuities - including fixed portion of variable contracts Deposits 1.243 1.287 1.042 1.091 1.277 1.209 Withdrawals (1.439) (1.481) (1.211) (0.979) (1.028) (1.163) ------- ------- ------- ------- ------- ------- Net Flows (0.196) (0.194) (0.169) 0.112 0.249 0.046 ------- ------- ------- ------- ------- ------- Variable Account Values Fixed Portion of Variable Contracts Deposits 0.397 0.400 0.339 0.407 0.484 0.401 Withdrawals (0.240) (0.231) (0.218) (0.184) (0.210) (0.267) ------- ------- ------- ------- ------- ------- Net Flows 0.157 0.169 0.121 0.223 0.274 0.134 ------- ------- ------- ------- ------- ------- Fixed Portion of Variable Account Values Average Daily Variable Account Values 39.682 38.180 36.499 34.399 33.216 34.341 - ------------------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income*** 7.37% 7.50% 7.45% 7.33% 7.26% 7.15% Interest Credited 5.14% 5.40% 5.29% 5.34% 5.28% 5.14% ------- ------- ------- ------- ------- ------- Spread*** 2.23% 2.09% 2.16% 1.99% 1.98% 2.01% Lincoln Retirement Annuity Account Value Rollforward Unaudited [Billions of Dollars] (continued) Jun Sep Dec Mar Jun Sep 2002 2002 2002 2003 2003 2003 ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal Beg-of-Quarter 18.178 18.679 19.562 20.086 20.611 20.863 Gross Deposits 0.853 1.091 0.822 0.776 0.778 0.778 Withdrawals (incl charges) & deaths (0.551) (0.825) (0.531) (0.524) (0.501) (0.492) ------- ------- ------- ------- ------- ------- Net flows 0.302 0.265 0.291 0.253 0.277 0.286 Transfer from (to) var annuities (0.032) 0.379 (0.007) 0.046 (0.250) (0.243) Interest credited 0.231 0.238 0.240 0.226 0.226 0.225 Acq of new business/companies ------- ------- ------- ------- ------- ------- Fixed Annuities-Gross 18.679 19.562 20.086 20.611 20.863 21.131 Reinsurance Ceded (1.770) (1.913) (2.003) (2.075) (2.169) (2.264) ------- ------- ------- ------- ------- ------- Fixed Annuities-Bal End-of-Quarter 16.910 17.650 18.085 18.537 18.696 18.868 ------- ------- ------- ------- ------- ------- Fixed Annuities Incremental Deposits* 0.839 1.072 0.808 0.753 0.768 0.767 Variable Annuities-Bal Beg-of-Quarter 35.150 31.206 25.942 27.438 26.474 30.457 Gross Deposits 0.787 0.603 0.545 0.648 0.584 0.800 Withdrawals (incl charges) & deaths (0.866) (0.800) (0.763) (0.806) (0.762) (0.809) ------- ------- ------- ------- ------- ------- Net flows (0.079) (0.197) (0.217) (0.158) (0.178) (0.009) Transfer from (to) fixed annuities 0.032 (0.388) 0.000 (0.048) 0.249 0.243 Invest inc & change in mkt value (3.897) (4.679) 1.713 (0.759) 3.912 1.018 Acq(sale) of new business/companies ------- ------- ------- ------- ------- ------- Var Annuities-Bal End-of-Quarter 31.206 25.942 27.438 26.474 30.457 31.709 ------- ------- ------- ------- ------- ------- Variable Annuities Incremental Deposits 0.744 0.573 0.528 0.629 0.560 0.776 Total Annuities - Bal Beg-of-Quarter 53.328 49.885 45.504 47.524 47.085 51.320 Gross Deposits 1.640 1.694 1.368 1.424 1.363 1.578 Withdrawals (incl charges) & deaths (1.417) (1.626) (1.294) (1.329) (1.263) (1.301) ------- ------- ------- ------- ------- ------- Net flows 0.223 0.068 0.074 0.095 0.099 0.277 Transfers 0.000 (0.009) (0.006) (0.002) (0.002) 0.001 Interest credited & change in mkt value (3.666) (4.441) 1.953 (0.532) 4.137 1.243 Acq of new business/companies Total Gross Annuities - Bal End-of-Quarter 49.885 45.504 47.524 47.085 51.320 52.841 ------- ------- ------- ------- ------- ------- Reinsurance Ceded (1.770) (1.913) (2.003) (2.075) (2.169) (2.264) ------- ------- ------- ------- ------- ------- Total Annuities (Net of Ceded) - Bal End-of-Qtr 48.115 43.591 45.522 45.010 49.151 50.576 ======= ======= ======= ======= ======= ======= Total Annuities Incremental Deposits* 1.583 1.645 1.336 1.382 1.328 1.543 Var Ann Under Agree - Included above 1.175 1.083 1.186 1.355 1.637 1.820 * Incremental Deposits represent gross deposits reduced by transfers from other Lincoln Retirement products. - --------------------------------------------------------------------------------------------------------------- Fixed Annuities - excluding fixed portion of variable contracts Deposits 0.430 0.559 0.351 0.368 0.356 0.344 Withdrawals (0.267) (0.516) (0.228) (0.208) (0.235) (0.238) ------- ------- ------- ------- ------- ------- Net Flows 0.163 0.042 0.123 0.160 0.121 0.106 ------- ------- ------- ------- ------- ------- Gross Fixed Account Values 10.048 10.219 10.475 10.759 11.001 11.226 Reinsurance Ceded (1.770) (1.913) (2.003) (2.075) (2.169) (2.264) ------- ------- ------- ------- ------- ------- Net Fixed Account Values 8.278 8.306 8.473 8.684 8.832 8.962 ------- ------- ------- ------- ------- ------- Variable Annuities - including fixed portion of variable contracts Deposits 1.210 1.135 1.017 1.056 1.007 1.234 Withdrawals (1.150) (1.109) (1.066) (1.121) (1.028) (1.063) ------- ------- ------- ------- ------- ------- Net Flows 0.060 0.026 (0.049) (0.065) (0.022) 0.172 ------- ------- ------- ------- ------- ------- Variable Account Values 39.839 35.286 37.050 36.327 40.320 41.616 Fixed Portion of Variable Contracts Deposits 0.423 0.532 0.472 0.408 0.422 0.434 Withdrawals (0.284) (0.309) (0.303) (0.316) (0.266) (0.254) ------- ------- ------- ------- ------- ------- Net Flows 0.139 0.223 0.169 0.093 0.156 0.180 ------- ------- ------- ------- ------- ------- Fixed Portion of Variable Account Values 8.632 9.344 9.612 9.853 9.864 9.906 Average Daily Variable Account Values 33.502 28.023 27.431 26.907 29.195 31.490 - --------------------------------------------------------------------------------------------------------------- Annuity Product Spread Information** Net Investment Income*** 7.11% 6.87% 6.89% 6.61% 6.49% 6.42% Interest Credited 4.92% 4.76% 4.72% 4.42% 4.29% 4.20% ------- ------- ------- ------- ------- ------- Spread*** 2.18% 2.11% 2.17% 2.19% 2.20% 2.22% * 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. *** The net investment income and spread reported above includes earnings from mortgage loan prepayments and make-wholes. The impact of prepayments and make-wholes on investment income and spread was 0.15% in the 3rd quarter of 2003, 0.05% in the 2nd quarter of 2003, and 0.09% in the 3rd quarter of 2003.
PAGE 19 Life Insurance Segment Income Statements Unaudited [Millions of Dollars] YTD YTD Sep Sep For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 -------- -------- -------- -------- -------- -------- -------- Revenue Premiums 185.9 235.8 227.3 212.4 203.8 147.4 142.7 Surrender charges 52.1 66.3 66.4 66.1 54.1 38.6 37.5 Mortality assessments 350.1 444.6 465.2 499.4 501.5 374.2 388.2 Expense assessments 146.2 165.8 191.8 191.4 199.5 143.2 146.8 Other revenue and fees 2.6 9.8 14.2 17.9 23.7 17.5 19.5 Net investment income 642.6 840.1 871.5 910.2 899.1 675.8 683.0 Realized gains (losses) on investments (1.0) (2.2) (17.4) (57.6) (98.2) (92.7) (16.9) Gains (losses) on derivatives 0.0 0.0 0.0 0.7 1.5 1.4 (0.4) -------- -------- -------- -------- -------- -------- -------- Total Revenue 1,378.5 1,760.4 1,819.0 1,840.6 1,785.0 1,305.4 1,400.5 -------- -------- -------- -------- -------- -------- -------- Benefits and Expenses Benefits paid or provided: Benefits 371.3 430.4 411.5 418.6 427.4 312.9 332.8 Div accum & div to policyholders 70.7 81.5 80.8 78.5 76.0 53.2 47.8 Interest credited to policy bal. 393.1 493.8 525.4 569.9 598.6 447.8 450.7 -------- -------- -------- -------- -------- -------- -------- Total insurance benefits 835.1 1,005.8 1,017.8 1,067.0 1,101.9 813.9 831.3 Underwriting, acquisition, insurance and other expenses: Commissions 107.5 163.4 152.8 142.1 139.8 101.2 97.5 Other volume related expenses 122.7 185.6 200.9 176.4 190.4 132.0 145.7 Operating and administrative expenses 146.0 171.2 169.4 166.8 162.2 117.5 120.8 Restructuring Charges 30.8 0.0 0.0 5.4 0.0 0.0 15.3 Taxes, licenses and fees 29.7 51.8 48.5 49.2 53.2 41.7 44.3 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 432.5 575.2 572.6 539.9 545.6 392.4 423.6 Deferral of acquisition costs 0.0 (324.8) (336.5) (235.1) (258.7) DAC amortization 0.0 95.0 105.8 69.5 97.5 -------- -------- -------- -------- -------- -------- -------- DAC deferral net of amortization (159.3) (235.0) (286.5) (229.8) (230.7) (165.6) (161.2) PVIF amortization 51.9 58.8 103.7 75.9 73.9 56.5 61.5 Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -------- -------- -------- -------- -------- -------- -------- Total underwriting, acquisition, insurance and other expenses 325.0 399.1 389.8 385.9 388.8 283.3 324.0 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 1,431.4 1,476.6 1,490.8 1,097.2 1,155.3 -------- -------- -------- -------- -------- -------- -------- Income from Before Federal Income Tax and Cumulative Effect of Accounting Changes 198.7 332.2 387.6 364.0 294.2 208.2 245.2 Federal income taxes 71.2 120.6 141.6 129.2 88.1 61.6 75.3 Income Before Cumulative Effect of -------- -------- -------- -------- -------- -------- -------- Accounting Changes 127.5 211.5 246.0 234.8 206.1 146.6 169.9 -------- -------- -------- -------- -------- -------- -------- Cumulative effect of accounting changes 0.0 0.0 0.0 (5.5) 0.0 -------- -------- -------- -------- -------- -------- -------- Net Income 127.5 211.5 246.0 229.3 206.1 146.6 169.9 ======== ======== ======== ======== ======== ======== ======== Less: Realized gains (losses) on investments (1.7) (0.5) (10.7) (38.5) (63.8) (60.2) (11.0) Gains (losses) on derivatives 0.0 0.0 0.0 1.6 1.0 0.9 (0.3) Restructuring charges (20.0) 0.0 0.0 (3.5) 0.0 0.0 (10.0) Cumulative effect of accounting changes 0.0 0.0 0.0 (5.5) 0.0 0.0 0.0 -------- -------- -------- -------- -------- -------- -------- Income from Operations 149.2 212.0 256.7 275.3 269.0 205.9 191.2 ======== ======== ======== ======== ======== ======== ======== Effective tax rate on Income from Operations 35.6% 36.6% 36.6% 35.4% 31.2% 31.2% 31.2% Revenue 1378.5 1,760.4 1,819.0 1,840.6 1,785.0 1,305.4 1400.5 Less: Realized gains (losses) on investments (1.0) (2.2) (17.4) (57.6) (98.2) (92.7) (16.9) Gains (losses) on derivatives 0.0 0.7 1.5 1.4 (0.4) -------- -------- -------- -------- -------- -------- -------- Operating Revenue 1,379.5 1,762.6 1,836.4 1,897.5 1,881.7 1,396.7 1417.8 ======== ======== ======== ======== ======== ======== ======== Average capital 1,948.0 2,712.3 2,641.3 2,734.4 2,846.3 2,844.5 2,835.2 Net Income return on average capital 6.5% 7.8% 9.3% 8.4% 7.2% 6.9% 8.0% Income from operations return on average capital 7.7% 7.8% 9.7% 10.1% 9.4% 9.7% 9.0% - ------------------------------------------------------------------------------------------------------------------------------ Roll Forward of Deferred Acquisition Costs Balance at beginning-of-period 1,079.3 1,265.6 1,265.6 1,424.4 Deferral 324.8 336.5 235.1 258.7 Amortization (95.0) (105.8) (69.5) (97.5) -------- -------- -------- -------- -------- -------- -------- Included in Total Benefits and Expenses 229.8 230.7 165.6 161.2 Adjustment related to realized (gains) losses on securities available-for-sale 43.0 39.7 38.8 (20.9) Adjustment related to unrealized (gains) losses on securities available-for-sale (89.0) (130.9) (127.2) (81.4) Other* 2.5 19.3 19.3 - -------- -------- -------- -------- -------- -------- -------- Balance at end-of-period 1,265.6 1,424.4 1,362.1 1,483.3 ======== ======== ======== ======== ======== ======== ======== 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) (56.5) (61.5) Other (0.7) (0.0) (0.1) - -------- -------- -------- -------- -------- -------- -------- Balance at end-of-period 964.0 890.1 907.4 828.6 ======== ======== ======== ======== ======== ======== ======== * Includes the transfer of the Legacy Life block of business from the Lincoln Retirement segment in the first quarter of 2002. Note: 2000, 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 Sep Dec Mar Jun Sep Dec Mar Jun Sep 2001 2001 2002 2002 2002 2002 2003 2003 2003 ------- ------- ------- ------- ------- ------- ------- ------- ------- Revenue Premiums 46.4 64.4 51.1 47.6 48.6 56.4 47.8 49.7 45.2 Surrender charges 15.6 19.9 11.7 13.5 13.4 15.5 11.4 12.4 13.7 Mortality assessments 124.7 125.5 123.9 123.9 126.3 127.3 129.7 128.4 130.2 Expense assessments 46.0 52.8 46.9 47.2 49.2 56.3 48.3 49.6 48.9 Other revenue and fees 3.0 6.0 5.7 6.7 5.1 6.2 5.8 7.3 6.4 Net investment income 233.2 226.6 226.0 225.7 224.1 223.3 227.6 229.0 226.4 Realized gains (losses) on investments (8.2) (31.1) (41.4) (25.4) (25.9) (5.5) (12.7) (2.6) (1.7) Gains (losses) on derivatives (0.1) 0.6 0.0 0.6 0.7 0.1 (0.5) 0.3 (0.3) ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Revenue 460.6 464.7 423.9 439.8 441.6 479.6 457.5 474.0 468.9 ------- ------- ------- ------- ------- ------- ------- ------- ------- Benefits and Expenses Benefits paid or provided: Benefits 102.3 112.9 104.1 103.6 105.2 114.6 103.8 110.5 118.5 Div accum & div to policyholders 16.5 25.4 17.8 18.2 17.2 22.8 14.4 17.6 15.9 Interest credited to policy bal. 143.5 146.9 146.3 148.9 152.6 150.7 150.1 149.8 150.7 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total insurance benefits 262.3 285.1 268.1 270.8 275.1 288.0 268.3 277.9 285.1 Underwriting, acquisition, insurance and other expenses: Commissions 32.5 45.1 34.6 34.8 31.8 38.6 32.4 30.7 34.4 Other volume related expenses 41.4 56.9 42.7 43.6 45.8 58.3 54.2 43.2 48.3 Operating and administrative expenses 43.1 39.8 38.2 38.2 41.1 44.7 40.6 38.5 41.7 Restructuring charges 0.0 2.3 0.0 0.0 0.0 0.0 5.5 7.3 2.5 Taxes, licenses and fees 12.0 12.5 13.2 15.3 13.2 11.5 14.4 13.8 16.1 Par policyholder interests 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Foreign exchange 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- ------- ------- Subtotal 129.0 156.5 128.6 132.0 131.8 153.2 147.1 133.4 143.0 Deferral of acquisition costs (85.3) (106.3) (74.3) (82.2) (78.6) (101.4) (91.0) (79.7) (88.0) DAC amortization 29.7 30.2 22.1 23.6 23.9 36.3 47.0 29.5 21.1 ------- ------- ------- ------- ------- ------- ------- ------- ------- DAC deferral net of amortization (55.5) (76.1) (52.3) (58.6) (54.8) (65.1) (44.0) (50.2) (66.9) PVIF amortization 20.5 14.7 16.9 16.3 23.3 17.4 17.4 17.2 26.9 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 94.0 95.1 93.2 89.6 100.4 105.5 120.5 100.4 103.0 Goodwill amortization 5.9 5.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Benefits and Expenses 362.2 386.2 361.3 360.4 375.5 393.6 388.8 378.3 388.1 ------- ------- ------- ------- ------- ------- ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 98.4 78.4 62.6 79.4 66.1 86.0 68.7 95.7 80.8 Federal income taxes 34.7 27.5 19.1 22.7 19.7 26.5 20.2 30.1 24.9 Income Before Cumulative Effect of ------- ------- ------- ------- ------- ------- ------- ------- ------- Accounting Changes 63.8 50.9 43.5 56.7 46.4 59.5 48.5 65.6 55.8 ======= ======= ======= ======= ======= ======= ======= ======= ======= 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 63.8 50.9 43.5 56.7 46.4 59.5 48.5 65.6 55.8 ======= ======= ======= ======= ======= ======= ======= ======= ======= Less: Realized gains (losses) on investments (5.3) (21.3) (26.9) (16.4) (16.9) (3.6) (8.1) (1.9) (1.1) Gains (losses) on derivatives (0.0) 1.5 0.0 0.3 0.6 0.1 (0.5) 0.4 (0.2) Restructuring charges 0.0 (1.5) 0.0 0.0 0.0 0.0 (3.6) (4.7) (1.6) 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 69.1 72.3 70.4 72.8 62.7 63.1 60.7 71.8 58.7 ======= ======= ======= ======= ======= ======= ======= ======= ======= Effective tax rate on Income from Operations 35.2% 35.0% 32.3% 30.1% 31.3% 31.0% 30.6% 31.8% 31.1% Revenue 460.6 464.7 423.9 439.8 441.6 479.6 457.5 474.0 468.9 Less: Realized gains (losses) on investments (8.2) (31.1) (41.4) (25.4) (25.9) (5.5) (12.7) (2.6) (1.7) Gains (losses) on derivatives (0.1) 0.6 0.0 0.6 0.7 0.1 (0.5) 0.3 (0.3) ------- ------- ------- ------- ------- ------- ------- ------- ------- Operating Revenue 468.9 495.2 465.3 464.6 466.8 485.0 470.7 476.2 470.8 ======= ======= ======= ======= ======= ======= ======= ======= ======= Average capital 2,739.3 2,748.0 2,805.9 2,870.1 2,857.6 2,851.5 2,863.9 2,792.7 2,849.0 Net Income return on average capital 9.3% 7.4% 6.2% 7.9% 6.5% 8.3% 6.8% 9.4% 7.8% Income from operations return on average capital 10.1% 10.5% 10.0% 10.1% 8.8% 8.8% 8.5% 10.3% 8.2% Roll Forward of Deferred Acquisition Costs Balance at beginning-of-quarter 1,151.1 1,156.0 1,265.6 1,385.3 1,404.9 1,362.2 1,424.5 1,447.7 1,381.3 Deferral 85.3 106.3 74.3 82.2 78.6 101.4 91.0 79.7 88.0 Amortization (29.7) (30.2) (22.1) (23.6) (23.9) (36.3) (47.0) (29.5) (21.1) ------- ------- ------- ------- ------- ------- ------- ------- ------- Included in Total Benefits and Expenses 55.5 76.1 52.3 58.6 54.8 65.1 44.0 50.2 66.9 Adjustment related to realized (gains) losses on securities available-for-sale 7.2 14.7 15.8 11.2 11.7 1.0 7.0 (0.3) (27.6) Adjustment related to unrealized (gains) losses on securities available-for-sale (59.6) 18.5 34.0 (51.9) (109.3) (3.7) (27.9) (116.3) 62.8 Other* 1.8 0.3 17.6 1.7 ------- ------- ------- ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 1,156.0 1,265.6 1,385.3 1,404.9 1,362.2 1,424.5 1,447.7 1,381.3 1,483.4 ======= ======= ======= ======= ======= ======= ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-quarter 999.9 978.7 964.0 947.1 930.7 907.4 890.1 872.7 855.5 Amortization (20.5) (14.7) (16.9) (16.3) (23.3) (17.4) (17.4) (17.2) (26.9) Other (0.7) (0.1) 0.1 ------- ------- ------- ------- ------- ------- ------- ------- ------- Balance at end-of-quarter 978.7 964.0 947.1 930.7 907.4 890.1 872.7 855.5 828.5 ======= ======= ======= ======= ======= ======= ======= ======= ======= * 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 Sep Sep For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 233.0 342.9 289.3 292.7 495.3 318.2 445.8 Variable Universal Life 101.3 142.2 218.7 228.6 134.5 107.5 55.0 Whole Life 20.0 23.9 22.4 26.3 30.3 19.3 22.0 Term 48.0 45.9 41.9 30.8 32.3 24.2 29.3 ------- ------- ------- ------- ------- ------- ------- Total Retail 402.3 555.0 572.3 578.4 692.3 469.2 552.2 Corporate Owned Life Insurance (COLI) 4.0 14.7 87.0 47.3 88.1 61.3 96.0 ------- ------- ------- ------- ------- ------- ------- Total 406.3 569.7 659.3 625.6 780.4 530.5 648.2 ------- ------- ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 35.0 188.3 200.6 196.1 201.7 136.8 157.4 Lincoln Financial Distributors 356.3 367.9 444.7 413.0 556.3 385.2 434.3 Other* 15.0 13.5 14.0 16.6 22.4 8.5 56.4 ------- ------- ------- ------- ------- ------- ------- Total by Distribution 406.3 569.7 659.3 625.6 780.4 530.5 648.2 ======= ======= ======= ======= ======= ======= ======= Life Insurance In-Force (Billions) Universal Life & Other 105.837 109.288 115.872 121.168 126.016 124.085 127.855 Term Insurance 67.076 85.701 100.130 113.226 127.880 123.945 145.480 ------- ------- ------- ------- ------- ------- ------- Total Life Segment In-Force 172.914 194.988 216.002 234.394 253.896 248.030 273.335 ======= ======= ======= ======= ======= ======= ======= For the Quarter Ended Dec Mar Jun Sep Dec Mar 2000 2001 2001 2001 2001 2002 ------- ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 80.9 57.7 70.0 67.4 97.5 86.4 Variable Universal Life 75.1 56.0 52.2 50.1 70.2 39.0 Whole Life 8.0 4.1 5.1 6.7 10.4 5.2 Term 7.6 6.5 7.2 8.1 9.1 8.7 ------- ------- ------- ------- ------- ------- Total Retail 171.6 124.2 134.6 132.4 187.2 139.4 Corporate Owned Life Insurance (COLI) 49.0 7.1 21.0 5.1 14.2 6.9 ------- ------- ------- ------- ------- ------- Total 220.7 131.3 155.6 137.4 201.3 146.3 ------- ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 66.2 38.1 48.2 41.8 68.0 41.5 Lincoln Financial Distributors 150.6 89.1 104.0 90.4 129.5 100.9 Other* 3.9 4.2 3.4 5.2 3.8 3.8 ------- ------- ------- ------- ------- ------- Total by Distribution 220.7 131.3 155.6 137.4 201.3 146.3 ======= ======= ======= ======= ======= ======= Insurance In-Force (Billions) Universal Life & Other 115.872 116.747 118.007 119.029 121.168 122.316 Term Insurance 100.130 102.467 105.265 108.723 113.226 117.752 ------- ------- ------- ------- ------- ------- Total Segment In-Force 216.002 219.214 223.272 227.751 234.394 240.068 ======= ======= ======= ======= ======= ======= For the Quarter Ended Jun Sep Dec Mar Jun Sep 2002 2002 2002 2003 2003 2003 ------- ------- ------- ------- ------- ------- First Year Premiums by Product (Millions) Universal Life 98.9 132.9 177.1 130.8 142.7 172.3 Variable Universal Life 42.4 26.1 27.0 24.4 14.1 16.6 Whole Life 6.4 7.7 11.0 6.5 7.1 8.5 Term 8.1 7.3 8.1 9.1 9.6 10.5 ------- ------- ------- ------- ------- ------- Total Retail 155.8 174.0 223.2 170.7 173.5 208.0 Corporate Owned Life Insurance (COLI) 46.6 7.8 26.8 10.6 61.8 23.7 ------- ------- ------- ------- ------- ------- Total 202.4 181.8 249.9 181.3 235.3 231.7 ------- ------- ------- ------- ------- ------- First Year Premiums by Distribution (Millions) Lincoln Financial Advisors 48.3 46.9 64.9 42.1 48.4 66.9 Lincoln Financial Distributors 151.6 132.7 171.1 131.6 146.6 156.1 Other* 2.6 2.2 13.9 7.5 40.2 8.7 ------- ------- ------- ------- ------- ------- Total by Distribution 202.4 181.8 249.9 181.3 235.3 231.7 ======= ======= ======= ======= ======= ======= Insurance In-Force (Billions) Universal Life & Other 123.674 124.085 126.016 126.414 127.276 127.855 Term Insurance 121.076 123.945 127.880 133.251 139.191 145.480 ------- ------- ------- ------- ------- ------- Total Segment In-Force 244.750 248.030 253.896 259.666 266.467 273.335 ======= ======= ======= ======= ======= ======= * 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 Sep Sep 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 0.921 1.092 Withdrawals & deaths (0.701) (0.452) (0.426) (0.319) (0.426) (0.302) (0.325) ------ ------ ------ ------ ------ ------ ------ Net flows (0.026) 0.564 0.528 0.724 0.906 0.620 0.768 Policyholder assessments 0.000 (0.544) (0.584) (0.598) (0.648) (0.479) (0.517) Interest credited 0.350 0.370 0.382 0.405 0.428 0.320 0.321 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 7.987 8.782 ------ ------ ------ ------ ------ ------ ------ 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 0.379 0.325 Withdrawals & deaths (0.100) (0.099) (0.132) (0.251) (0.193) (0.146) (0.135) ------ ------ ------ ------ ------ ------ ------ Net flows 0.093 0.228 0.475 0.332 0.311 0.233 0.190 Policyholder assessments 0.000 (0.084) (0.141) (0.170) (0.186) (0.139) (0.143) Invest inc & chg in mkt value 0.105 0.370 (0.130) (0.225) (0.313) (0.397) 0.253 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 1.575 1.991 ------ ------ ------ ------ ------ ------ ------ 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 0.202 0.181 Withdrawals & deaths (0.294) (0.162) (0.168) (0.200) (0.199) (0.136) (0.163) ------ ------ ------ ------ ------ ------ ------ Net flows 0.046 0.193 0.154 0.107 0.103 0.065 0.018 Policyholder assessments 0.000 (0.168) (0.168) (0.164) (0.167) (0.121) (0.112) Interest credited 0.096 0.109 0.113 0.118 0.127 0.096 0.094 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 2.164 2.185 ------ ------ ------ ------ ------ ------ ------ - --------------------------------------------------------------------------------------------------------------------------- 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 1.502 1.598 Withdrawals & deaths (1.095) (0.713) (0.727) (0.771) (0.818) (0.584) (0.622) ------ ------ ------ ------ ------ ------ ------ Net flows 0.113 0.985 1.158 1.163 1.320 0.918 0.976 Policyholder assessments (0.795) (0.893) (0.931) (1.002) (0.738) (0.772) Invest inc & change in market value 0.551 0.849 0.364 0.299 0.241 0.019 0.668 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 11.726 12.958 ====== ====== ====== ====== ====== ====== ====== (1) Includes fixed investment option of VUL products.
PAGE 23 Life Insurance Segment Life Insurance Account Value Roll Forward Unaudited [Billions of Dollars] Dec Mar Jun Sep Dec Mar 2000 2001 2001 2001 2001 2002 ------ ------ ------ ------ ------ ------ Universal Life-Bal Beg-of-Quarter 6.878 6.976 7.063 7.216 7.315 7.508 Deposits 0.265 0.227 0.270 0.233 0.314 0.248 Withdrawals & deaths (0.114) (0.091) (0.071) (0.085) (0.073) (0.097) ------ ------ ------ ------ ------ ------ Net flows 0.151 0.136 0.199 0.147 0.241 0.150 Policyholder assessments (0.150) (0.147) (0.147) (0.150) (0.153) (0.158) Interest credited 0.097 0.098 0.100 0.102 0.105 0.104 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.018 ------ ------ ------ ------ ------ ------ Universal Life-Bal End-of-Quarter (1) 6.976 7.063 7.216 7.315 7.508 7.622 ------ ------ ------ ------ ------ ------ Variable Universal Life-Bal Beg of Quarter 1.812 1.808 1.633 1.766 1.527 1.746 Deposits 0.245 0.136 0.138 0.124 0.186 0.129 Withdrawals & deaths (0.048) (0.049) (0.060) (0.055) (0.088) (0.055) ------ ------ ------ ------ ------ ------ Net flows 0.197 0.087 0.078 0.069 0.098 0.074 Policyholder assessments (0.041) (0.041) (0.041) (0.042) (0.045) (0.047) Invest inc & chg in mkt value (0.160) (0.221) 0.096 (0.266) 0.166 0.013 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.132 ------ ------ ------ ------ ------ ------ Variable Universal Life -Bal End-of-Quarter 1.808 1.633 1.766 1.527 1.746 1.919 ------ ------ ------ ------ ------ ------ Interest Sensitive Whole Life - Bal Beg-of-Quarter 2.026 2.062 2.068 2.084 2.096 2.123 Deposits 0.113 0.056 0.069 0.077 0.105 0.063 Withdrawals & deaths (0.056) (0.041) (0.043) (0.054) (0.061) (0.051) ------ ------ ------ ------ ------ ------ Net flows 0.057 0.014 0.027 0.022 0.044 0.012 Policyholder assessments (0.050) (0.037) (0.040) (0.041) (0.047) (0.042) Interest credited 0.029 0.028 0.030 0.030 0.030 0.033 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 2.062 2.068 2.084 2.096 2.123 2.126 ------ ------ ------ ------ ------ ------ - ------------------------------------------------------------------------------------------------------------------------ Total Segment- Life Insurance Account Values Bal Beg-of-Quarter 10.716 10.847 10.764 11.066 10.939 11.377 Deposits 0.622 0.418 0.477 0.434 0.605 0.440 Withdrawals & deaths (0.218) (0.181) (0.173) (0.195) (0.222) (0.204) ------ ------ ------ ------ ------ ------ Net flows 0.404 0.237 0.304 0.239 0.383 0.236 Policyholder assessments (0.241) (0.225) (0.228) (0.232) (0.246) (0.246) Invest inc & change in market value (0.033) (0.094) 0.226 (0.134) 0.301 0.151 Acq of new business/transfers between segments 0.000 0.000 0.000 0.000 0.000 0.150 ------ ------ ------ ------ ------ ------ Total Segment -Bal End-of-Quarter 10.847 10.764 11.066 10.939 11.377 11.667 ====== ====== ====== ====== ====== ====== Jun Sep Dec Mar Jun Sep 2002 2002 2002 2003 2003 2003 ------ ------ ------ ------ ------ ------ Universal Life-Bal Beg-of-Quarter 7.622 7.838 7.987 8.211 8.359 8.542 Deposits 0.364 0.310 0.410 0.316 0.350 0.426 Withdrawals & deaths (0.096) (0.108) (0.125) (0.107) (0.101) (0.117) ------ ------ ------ ------ ------ ------ Net flows 0.268 0.201 0.286 0.210 0.249 0.309 Policyholder assessments (0.158) (0.162) (0.170) (0.168) (0.171) (0.178) Interest credited 0.106 0.110 0.108 0.106 0.106 0.108 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) 7.838 7.987 8.211 8.359 8.542 8.782 ------ ------ ------ ------ ------ ------ Variable Universal Life-Bal Beg of Quarter 1.919 1.776 1.575 1.690 1.689 1.930 Deposits 0.147 0.102 0.126 0.118 0.114 0.093 Withdrawals & deaths (0.057) (0.034) (0.047) (0.036) (0.050) (0.048) ------ ------ ------ ------ ------ ------ Net flows 0.090 0.068 0.079 0.082 0.064 0.045 Policyholder assessments (0.046) (0.046) (0.047) (0.049) (0.048) (0.046) Invest inc & chg in mkt value (0.186) (0.224) 0.083 (0.034) 0.225 0.062 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 1.776 1.575 1.690 1.689 1.930 1.991 ------ ------ ------ ------ ------ ------ Interest Sensitive Whole Life - Bal Beg-of-Quarter 2.126 2.145 2.164 2.186 2.185 2.191 Deposits 0.066 0.073 0.100 0.051 0.062 0.067 Withdrawals & deaths (0.039) (0.045) (0.063) (0.046) (0.050) (0.066) ------ ------ ------ ------ ------ ------ Net flows 0.026 0.027 0.037 0.005 0.012 0.001 Policyholder assessments (0.039) (0.040) (0.046) (0.036) (0.038) (0.039) Interest credited 0.032 0.031 0.031 0.030 0.032 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 2.145 2.164 2.186 2.185 2.191 2.185 ------ ------ ------ ------ ------ ------ - ------------------------------------------------------------------------------------------------------------------------ Total Segment- Life Insurance Account Values Bal Beg-of-Quarter 11.667 11.759 11.726 12.086 12.233 12.663 Deposits 0.577 0.484 0.636 0.486 0.526 0.586 Withdrawals & deaths (0.192) (0.187) (0.234) (0.190) (0.202) (0.231) ------ ------ ------ ------ ------ ------ Net flows 0.385 0.297 0.402 0.296 0.324 0.355 Policyholder assessments (0.244) (0.248) (0.263) (0.252) (0.257) (0.262) Invest inc & change in market value (0.049) (0.082) 0.222 0.103 0.363 0.202 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 11.759 11.726 12.086 12.233 12.663 12.958 ====== ====== ====== ====== ====== ====== (1) Includes fixed investment option of VUL products.
PAGE 24 Investment Management Income Statements Unaudited [Millions of Dollars] YTD YTD Sep Sep For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ ------ Revenue Investment advisory fees - External 249.0 248.6 231.6 197.2 183.3 138.7 146.8 Investment advisory fees - Insurance Assets 100.2 103.0 112.4 105.0 97.7 73.5 75.0 Other revenue and fees 92.5 106.6 115.9 99.2 87.0 64.9 81.1 Net investment income 67.0 56.9 57.7 53.6 50.5 37.9 37.4 Realized gains (losses) on investments 0.9 (0.1) (3.9) (3.7) (5.4) (4.0) (0.1) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Total Revenue 509.6 514.9 513.7 451.2 413.1 310.9 340.2 ------ ------ ------ ------ ------ ------ ------ Benefits and Expenses Underwriting, acquisition, insurance and other expenses: Operating and administrative expenses 384.7 369.6 424.9 410.2 393.2 297.4 301.3 Restructuring Charges 0.0 12.5 7.1 0.6 (0.4) (0.4) 5.3 Taxes, licenses and fees 13.1 10.3 11.6 16.8 13.0 10.6 8.2 ------ ------ ------ ------ ------ ------ ------ Subtotal 397.8 392.4 443.6 427.5 405.8 307.6 314.8 Other intangibles amortization 18.8 17.7 16.3 10.8 8.2 6.2 6.0 ------ ------ ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 416.6 410.1 459.9 438.3 414.0 313.9 320.7 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 433.3 426.3 476.1 454.6 414.0 313.9 320.7 ------ ------ ------ ------ ------ ------ ------ Income from Before Federal Income Tax and Cumulative Effect of Accounting Changes 76.3 88.6 37.6 (3.3) (0.9) (2.9) 19.4 Federal income taxes 31.9 37.0 19.8 5.5 0.5 (0.4) 7.5 Income Before Cumulative Effect of ------ ------ ------ ------ ------ ------ ------ Accounting Changes 44.4 51.6 17.9 (8.9) (1.4) (2.5) 12.0 ------ ------ ------ ------ ------ ------ ------ 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 17.9 (9.0) (1.4) (2.5) 12.0 ====== ====== ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments 0.5 (0.1) (2.5) (2.4) (3.5) (2.6) (0.1) 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 0.3 (3.5) 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 25.0 (6.1) 1.8 (0.2) 15.5 ====== ====== ====== ====== ====== ====== ====== Net Income - - before Goodwill Amortization 60.8 67.9 34.1 7.3 (1.4) (2.5) 12.0 Net Income - -before Goodwill & Intang. Amort. 73.1 79.4 44.7 14.3 3.9 1.5 15.8 Inc from Oper -before Goodwill Amortization 60.3 77.2 41.3 10.1 1.8 (0.2) 15.5 Income from Operations - - before Goodwill & Intang. Amort 72.6 88.7 51.8 17.1 7.2 3.8 19.4 Revenue 509.6 514.9 513.7 451.2 413.1 310.9 340.2 Less: Realized gains (losses) on investments 0.9 (0.1) (3.9) (3.7) (5.4) (4.0) (0.1) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ ------ ------ Operating Revenue 508.7 515.0 517.6 454.9 418.5 314.9 340.3 ====== ====== ====== ====== ====== ====== ====== Average Capital (Securities at Cost) 642.3 593.7 582.0 557.0 581.2 578.7 595.5 Net Income return on average capital 6.9% 8.7% 3.1% (1.6%) (0.2%) (0.6%) 2.7% Inc. from oper. return on average capital 6.8% 10.3% 4.3% (1.1%) 0.3% (0.1%) 3.5% Note: 2000, 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 Sep Dec Mar Jun Sep 2001 2001 2002 2002 2002 ------ ------ ------ ------ ------ Revenue Investment advisory fees - External 46.2 49.3 48.0 47.8 42.9 Investment advisory fees - Insurance Assets 26.0 26.3 25.0 24.3 24.1 Other revenue and fees 23.9 23.4 23.0 22.0 19.9 Net investment income 13.6 12.8 12.8 12.7 12.4 Realized gains (losses) on investments (0.8) (1.1) (1.5) (0.7) (1.8) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Total Revenue 108.8 110.8 107.3 106.1 97.5 ------ ------ ------ ------ ------ Benefits and Expenses Underwriting, acquisition, insurance and other expenses: Operating and administrative expenses 99.0 101.3 97.2 100.8 99.4 Restructuring Charges 0.0 0.6 0.0 0.0 (0.4) Taxes, licenses and fees 4.2 3.6 4.6 4.2 1.9 ------ ------ ------ ------ ------ Subtotal 103.2 105.5 101.8 105.0 100.9 Other intangibles amortization 2.3 2.3 2.2 2.0 2.0 ------ ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 105.5 107.8 103.9 107.0 102.9 Goodwill amortization 4.1 4.1 0.0 0.0 0.0 Interest on notes payable 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Total Benefits and Expenses 109.5 111.9 103.9 107.0 102.9 ------ ------ ------ ------ ------ Income from Before Federal Income Tax and Cumulative Effect of Accounting Changes (0.7) (1.1) 3.4 (1.0) (5.4) Federal income taxes 1.4 1.3 1.3 (0.2) (1.5) Income Before Cumulative Effect of ------ ------ ------ ------ ------ Accounting Changes (2.1) (2.4) 2.1 (0.8) (3.9) ------ ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Net Income (2.1) (2.4) 2.1 (0.8) (3.9) ====== ====== ====== ====== ====== Less: Realized gains (losses) on investments (0.5) (0.7) (1.0) (0.4) (1.2) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 Restructuring charges 0.0 (0.4) 0.0 0.0 0.3 Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Income from Operations (1.6) (1.3) 3.1 (0.3) (3.0) ====== ====== ====== ====== ====== Net Income -before Goodwill Amortization 1.9 1.7 2.1 (0.8) (3.9) Net Income -before Goodwill & Intang. Amort 3.4 3.2 3.5 0.6 (2.6) Inc from Oper -before Goodwill Amortization 2.5 2.8 3.1 (0.3) (3.0) Inc from Oper -before Goodwill & Intang. Amort 3.9 4.2 4.5 1.0 (1.7) Revenue 108.8 110.8 107.3 106.1 97.5 Less: Realized gains (losses) on investments (0.8) (1.1) (1.5) (0.7) (1.8) Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 ------ ------ ------ ------ ------ Operating Revenue 109.7 111.8 108.9 106.7 99.3 ====== ====== ====== ====== ====== Average Capital (Securities at Cost) 556.7 555.4 562.7 587.2 586.3 Net Income return on average capital (1.5%) (1.7%) 1.5% (0.5%) (2.6%) Income from operations return on average capital (1.1%) (0.9%) 2.2% (0.2%) (2.0%) For the Quarter Ended Dec Mar Jun Sep 2002 2003 2003 2003 ------ ------ ------ ------ Revenue Investment advisory fees - External 44.7 44.2 49.4 53.2 Investment advisory fees - Insurance Assets 24.2 24.1 25.4 25.5 Other revenue and fees 22.1 22.0 29.5 29.5 Net investment income 12.7 12.1 12.1 13.2 Realized gains (losses) on investments (1.5) (0.4) 0.1 0.2 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Total Revenue 102.2 102.1 116.4 121.7 ------ ------ ------ ------ Benefits and Expenses Underwriting, acquisition, insurance and other expenses: Operating and administrative expenses 95.8 95.2 104.4 101.6 Restructuring Charges 0.0 0.0 0.0 5.3 Taxes, licenses and fees 2.4 3.0 2.8 2.4 ------ ------ ------ ------ Subtotal 98.2 98.2 107.2 109.3 Other intangibles amortization 2.0 2.0 2.0 2.0 ------ ------ ------ ------ Total underwriting, acquisition, insurance and other expenses 100.2 100.2 109.2 111.3 Goodwill amortization 0.0 0.0 0.0 0.0 Interest on notes payable 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Total Benefits and Expenses 100.2 100.2 109.2 111.3 ------ ------ ------ ------ Income from Before Federal Income Tax and Cumulative Effect of Accounting Changes 2.0 1.9 7.2 10.3 Federal income taxes 0.9 0.8 2.6 4.0 Income Before Cumulative Effect of ------ ------ ------ ------ Accounting Changes 1.1 1.0 4.6 6.3 ------ ------ ------ ------ Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Net Income 1.1 1.0 4.6 6.3 ====== ====== ====== ====== Less: Realized gains (losses) on investments (0.9) (0.3) 0.0 0.1 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 Restructuring charges 0.0 0.0 0.0 (3.5) Cumulative effect of accounting changes 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Income from Operations 2.1 1.3 4.5 9.7 ====== ====== ====== ====== Net Income -before Goodwill Amortization 1.1 1.0 4.6 6.3 Net Income -before Goodwill & Intang. Amort 2.4 2.4 5.8 7.6 Inc from Oper -before Goodwill Amortization 2.1 1.3 4.5 9.7 Inc from Oper -before Goodwill & Intang. Amort 3.4 2.6 5.8 11.0 Revenue 102.2 102.1 116.4 121.7 Less: Realized gains (losses) on investments (1.5) (0.4) 0.1 0.2 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 ------ ------ ------ ------ Operating Revenue 103.6 102.5 116.3 121.4 ====== ====== ====== ====== Average Capital (Securities at Cost) 588.8 597.6 588.6 600.4 Net Income return on average capital 0.8% 0.7% 3.1% 4.2% Income from operations return on average capital 1.4% 0.9% 3.1% 6.4%
PAGE 26 Investment Management Assets Under Management Roll Forward Unaudited [Billions of Dollars] YTD YTD Sep Sep 1998 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ ------ Retail Fixed - Bal Beg-of-Year 8.125 8.219 7.423 6.607 7.120 7.120 7.631 Fund Sales 1.166 0.991 0.769 0.876 1.218 0.890 1.336 Redemptions (1.234) (1.424) (1.401) (1.051) (1.182) (0.872) (1.081) Net Money Market (0.141) (0.111) (0.207) (0.046) (0.050) (0.014) (0.014) Transfers 0.132 0.177 (0.168) 0.405 0.206 0.114 (0.080) ------ ------ ------ ------ ------ ------ ------ Net Flows(1) (0.077) (0.367) (1.007) 0.184 0.192 0.118 0.162 Market 0.170 (0.429) 0.098 0.329 0.320 0.279 0.289 Acquisitions/addition of Assets under Administration(1) 0.094 ------ ------ ------ ------ ------ ------ ------ Balance End-of-Year 8.219 7.423 6.607 7.120 7.631 7.516 8.083 ------ ------ ------ ------ ------ ------ ------ Retail Equity - Bal Beg-of-Year 17.754 22.081 23.384 21.523 17.987 17.987 14.916 Fund Sales 3.581 3.270 4.116 2.817 4.477 3.132 2.581 Redemptions (2.459) (4.972) (4.431) (2.838) (3.690) (2.809) (2.120) Net Money Market (0.001) (0.001) 0.001 Transfers 0.730 (0.144) (0.178) (0.538) (0.173) (0.137) 0.064 ------ ------ ------ ------ ------ ------ ------ Net Flows(1) 1.851 (1.847) (0.492) (0.560) 0.614 0.186 0.524 Market 2.476 3.150 (1.711) (2.976) (3.686) (4.470) 2.521 Acquisitions/addition of Assets under Administration(1) 0.342 ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 22.081 23.384 21.523 17.987 14.916 13.703 17.961 ------ ------ ------ ------ ------ ------ ------ 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 1.946 1.589 Retail Sales-Mutual Funds 1.912 2.151 2.577 1.523 1.829 1.430 1.652 Retail Sales-Managed Acct. & Other 0.595 0.549 0.525 0.469 1.115 0.646 0.676 ------ ------ ------ ------ ------ ------ ------ Total Retail Sales 4.747 4.261 4.885 3.693 5.695 4.022 3.917 Redemptions (3.693) (6.396) (5.832) (3.889) (4.873) (3.681) (3.201) Net Money Market (0.142) (0.112) (0.206) (0.046) (0.050) (0.014) (0.014) Transfers 0.862 0.033 (0.346) (0.133) 0.033 (0.023) (0.016) ------ ------ ------ ------ ------ ------ ------ Net Flows(1) 1.774 (2.214) (1.500) (0.375) 0.806 0.304 0.686 Market 2.647 2.721 (1.613) (2.648) (3.365) (4.192) 2.810 Acquisitions/addition of Assets under Administration(1) 0.435 ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 30.300 30.807 28.130 25.107 22.547 21.219 26.044 ------ ------ ------ ------ ------ ------ ------ - -------------------------------------------------------------------------------------------------------------------------- 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 1.998 1.274 Withdrawals/Terminations (1.242) (1.700) (1.973) (1.229) (1.146) (0.708) (0.722) Transfers (0.074) (0.001) (0.005) 0.017 0.004 0.006 0.005 ------ ------ ------ ------ ------ ------ ------ Net Flows 0.853 0.300 (1.207) (0.569) 1.139 1.296 0.557 Market 0.394 (0.319) 0.382 (0.052) 0.607 0.421 0.284 Acquisitions ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 6.955 6.936 6.111 5.490 7.237 7.208 8.077 ------ ------ ------ ------ ------ ------ ------ 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 1.873 2.607 Withdrawals/Terminations (7.441) (7.800) (7.209) (2.879) (1.991) (1.670) (1.760) Transfers 0.047 0.012 (0.008) 0.035 0.045 0.036 0.013 ------ ------ ------ ------ ------ ------ ------ Net Flows (3.555) (2.539) (4.486) 0.338 0.967 0.239 0.861 Market 2.919 1.935 (0.033) (1.636) (2.070) (3.117) 3.436 Acquisitions ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 24.235 23.631 19.112 17.814 16.711 14.935 21.008 ------ ------ ------ ------ ------ ------ ------ 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 3.871 3.881 Withdrawals/Terminations (8.683) (9.500) (9.182) (4.109) (3.137) (2.378) (2.482) Transfers (0.027) 0.011 (0.013) 0.052 0.050 0.042 0.018 ------ ------ ------ ------ ------ ------ ------ Net Flows (2.702) (2.239) (5.693) (0.231) 2.106 1.535 1.417 Market 3.313 1.616 0.349 (1.688) (1.463) (2.696) 3.720 Acquisitions ------ ------ ------ ------ ------ ------ ------ Balance at End-of-Year 31.191 30.568 25.223 23.304 23.948 22.143 29.085 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Retail/Institutional - At End-of-Year 61.490 61.375 53.354 48.411 46.495 43.362 55.129 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Insurance Assets - At End-of-Year 39.432 35.934 35.686 38.119 41.104 40.416 42.984 ------ ------ ------ ------ ------ ------ ------ Total Assets Under Management At End-of-Year 100.922 97.309 89.040 86.530 87.599 83.778 98.113 ====== ====== ====== ====== ====== ====== ====== (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 0.196 0.164
PAGE 27 Investment Management Assets Under Management Roll Forward Unaudited [Billions of Dollars] Dec Mar Jun Sep Dec Mar 2000 2001 2001 2001 2001 2002 --------- --------- --------- --------- --------- --------- Retail Fixed - Bal-Beg-of-Qtr 6.631 6.607 6.752 6.769 7.208 7.122 Fund Sales 0.212 0.248 0.203 0.207 0.218 0.292 Redemptions (0.277) (0.261) (0.285) (0.262) (0.242) (0.289) Net Money Market (0.051) 0.010 (0.030) 0.005 (0.031) (0.003) Transfers 0.010 0.047 (0.002) 0.388 (0.027) (0.041) --------- --------- --------- --------- --------- --------- Net Flows(1) (0.106) 0.043 (0.114) 0.338 (0.083) (0.041) Market 0.082 0.102 0.131 0.101 (0.003) 0.007 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 6.607 6.752 6.769 7.208 7.122 7.088 --------- --------- --------- --------- --------- --------- Retail Equity - Bal-Beg-of-Qtr 24.047 21.523 18.253 19.754 15.871 17.989 Fund Sales 1.071 0.917 0.681 0.638 0.580 0.908 Redemptions (0.837) (0.911) (0.666) (0.653) (0.607) (0.791) Net Money Market 0.000 0.000 0.000 0.000 0.000 0.000 Transfers (0.069) (0.070) (0.047) (0.441) 0.019 0.014 --------- --------- --------- --------- --------- --------- Net Flows(1) 0.165 (0.064) (0.032) (0.456) (0.008) 0.130 Market (2.690) (3.205) 1.532 (3.427) 2.126 0.133 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 21.523 18.253 19.754 15.871 17.989 18.253 --------- --------- --------- --------- --------- --------- Total Retail - Bal-Beg-of-Qtr 30.679 28.130 25.005 26.523 23.079 25.111 Retail Sales-Annuities 0.589 0.540 0.403 0.434 0.323 0.589 Retail Sales-Mutual Funds 0.563 0.483 0.355 0.336 0.348 0.452 Retail Sales-Managed Acct. & Other 0.131 0.142 0.127 0.074 0.127 0.159 --------- --------- --------- --------- --------- --------- Total Retail Sales 1.283 1.165 0.885 0.845 0.798 1.200 Redemptions (1.114) (1.173) (0.951) (0.915) (0.850) (1.081) Net Money Market (0.051) 0.010 (0.030) 0.005 (0.031) (0.003) Transfers (0.059) (0.023) (0.049) (0.053) (0.009) (0.027) --------- --------- --------- --------- --------- --------- Net Flows(1) 0.059 (0.021) (0.146) (0.118) (0.091) 0.089 Market (2.608) (3.103) 1.663 (3.326) 2.123 0.140 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 28.130 25.005 26.523 23.079 25.111 25.340 --------- --------- --------- --------- --------- --------- - ------------------------------------------------------------------------------------------------------ Institutional Fixed - Bal-Beg-of-Qtr 6.276 6.112 5.891 5.810 5.640 5.490 Inflows 0.135 0.310 0.233 0.020 0.080 0.804 Withdrawals/Terminations (0.568) (0.432) (0.112) (0.493) (0.192) (0.239) Transfers 0.001 0.003 0.010 0.001 0.002 (0.001) --------- --------- --------- --------- --------- --------- Net Flows (0.433) (0.119) 0.131 (0.472) (0.109) 0.565 Market 0.269 (0.102) (0.212) 0.302 (0.041) (0.036) --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 6.112 5.891 5.810 5.640 5.490 6.019 --------- --------- --------- --------- --------- --------- Institutional Equity - Bal-Beg-of-Qtr 19.044 19.113 17.312 18.406 16.241 17.815 Inflows 0.750 0.881 0.823 0.863 0.615 0.672 Withdrawals/Terminations (1.368) (1.199) (0.501) (0.555) (0.624) (0.512) Transfers 0.007 0.018 (0.008) 0.009 0.016 0.006 --------- --------- --------- --------- --------- --------- Net Flows (0.611) (0.299) 0.313 0.317 0.007 0.167 Market 0.680 (1.502) 0.780 (2.482) 1.567 0.661 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 19.113 17.312 18.406 16.241 17.815 18.643 --------- --------- --------- --------- --------- --------- Total Institutional - Bal-Beg-of-Qtr 25.320 25.225 23.203 24.216 21.881 23.305 Inflows 0.885 1.192 1.056 0.883 0.696 1.476 Withdrawals/Terminations (1.936) (1.631) (0.613) (1.048) (0.816) (0.751) Transfers 0.008 0.022 0.002 0.010 0.018 0.006 Net Flows (1.043) (0.417) 0.445 (0.155) (0.103) 0.731 Market 0.949 (1.605) 0.568 (2.180) 1.526 0.625 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 25.225 23.203 24.216 21.881 23.305 24.661 --------- --------- --------- --------- --------- --------- Total Retail/Inst - At End-of-Qtr 53.355 48.209 50.739 44.960 48.415 50.002 --------- --------- --------- --------- --------- --------- Insurance Assets-End-of-Qtr 35.686 36.324 36.018 37.337 38.119 37.171 --------- --------- --------- --------- --------- --------- Total Assets Under Management At End-of-Qtr 89.041 84.533 86.757 82.297 86.534 87.172 ========= ========= ========= ========= ========= ========= (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. Net Cash Flows from Assets Under Admin: 0.001 0.027 0.013 0.007 0.034 0.090 Investment Management Assets Under Management Roll Forward (continued) Unaudited [Billions of Dollars] Jun Sep Dec Mar Jun Sep 2002 2002 2002 2003 2003 2003 --------- --------- --------- --------- --------- --------- Retail Fixed - Bal-Beg-of-Qtr 7.088 7.169 7.516 7.633 7.907 8.190 Fund Sales 0.272 0.325 0.328 0.424 0.469 0.443 Redemptions (0.306) (0.277) (0.311) (0.327) (0.318) (0.435) Net Money Market (0.002) (0.009) (0.035) 0.001 (0.006) (0.008) Transfers 0.021 0.134 0.092 0.062 (0.055) (0.086) --------- --------- --------- --------- --------- --------- Net Flows(1) (0.015) 0.174 0.074 0.159 0.090 (0.087) Market 0.096 0.174 0.043 0.115 0.193 (0.020) Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 7.169 7.516 7.633 7.907 8.190 8.083 --------- --------- --------- --------- --------- --------- Retail Equity - Bal-Beg-of-Qtr 18.253 16.611 13.703 14.914 14.286 16.906 Fund Sales 1.084 1.140 1.345 0.717 0.813 1.051 Redemptions (0.881) (1.137) (0.881) (0.803) (0.612) (0.706) Net Money Market 0.000 0.000 0.000 0.000 0.000 0.000 Transfers (0.022) (0.128) (0.036) (0.059) 0.011 0.112 --------- --------- --------- --------- --------- --------- Net Flows(1) 0.182 (0.126) 0.428 (0.145) 0.213 0.457 Market (1.824) (2.782) 0.784 (0.484) 2.408 0.598 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 16.611 13.703 14.914 14.286 16.906 17.961 --------- --------- --------- --------- --------- --------- Total Retail - Bal-Beg-of-Qtr 25.340 23.779 21.219 22.547 22.192 25.096 Retail Sales-Annuities 0.601 0.756 0.806 0.488 0.528 0.573 Retail Sales-Mutual Funds 0.562 0.416 0.399 0.450 0.558 0.644 Retail Sales-Managed Acct. & Other 0.194 0.293 0.469 0.202 0.196 0.277 --------- --------- --------- --------- --------- --------- Total Retail Sales 1.356 1.465 1.673 1.141 1.282 1.494 Redemptions (1.186) (1.414) (1.192) (1.130) (0.930) (1.141) Net Money Market (0.002) (0.009) (0.035) 0.001 (0.006) (0.008) Transfers (0.001) 0.006 0.056 0.003 (0.044) 0.025 --------- --------- --------- --------- --------- --------- Net Flows(1) 0.167 0.048 0.502 0.014 0.302 0.370 Market (1.728) (2.608) 0.826 (0.369) 2.601 0.578 Acquisitions/addition of Assets under Admin.(1) 0.000 0.000 0.000 0.000 0.000 0.000 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 23.779 21.219 22.547 22.192 25.096 26.044 --------- --------- --------- --------- --------- --------- - ------------------------------------------------------------------------------------------------------ Institutional Fixed - Bal-Beg-of-Qtr 6.019 6.844 7.208 7.238 7.606 7.754 Inflows 0.663 0.530 0.283 0.592 0.126 0.556 Withdrawals/Terminations (0.161) (0.308) (0.438) (0.308) (0.188) (0.226) Transfers 0.000 0.007 (0.002) 0.002 0.003 (0.000) --------- --------- --------- --------- --------- --------- Net Flows 0.503 0.229 (0.157) 0.286 (0.059) 0.330 Market 0.323 0.134 0.187 0.083 0.207 (0.007) --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 6.844 7.208 7.238 7.606 7.754 8.077 --------- --------- --------- --------- --------- --------- Institutional Equity - Bal-Beg-of-Qtr 18.643 18.119 14.936 16.710 15.919 19.607 Inflows 0.569 0.631 1.040 0.494 0.727 1.386 Withdrawals/Terminations (0.635) (0.523) (0.322) (0.459) (0.381) (0.921) Transfers 0.018 0.011 0.010 0.008 0.002 0.003 --------- --------- --------- --------- --------- --------- Net Flows (0.047) 0.119 0.728 0.044 0.348 0.469 Market (0.476) (3.302) 1.046 (0.835) 3.339 0.933 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 18.119 14.936 16.710 15.919 19.607 21.008 --------- --------- --------- --------- --------- --------- Total Institutional - Bal-Beg-of-Qtr 24.661 24.963 22.143 23.948 23.526 27.360 Inflows 1.232 1.162 1.323 1.086 0.853 1.943 Withdrawals/Terminations (0.796) (0.831) (0.760) (0.767) (0.568) (1.147) Transfers 0.019 0.017 0.008 0.010 0.005 0.003 --------- --------- --------- --------- --------- --------- Net Flows 0.455 0.348 0.572 0.330 0.289 0.799 Market (0.153) (3.168) 1.233 (0.752) 3.546 0.926 --------- --------- --------- --------- --------- --------- Balance at End-of-Qtr 24.963 22.143 23.948 23.526 27.360 29.085 --------- --------- --------- --------- --------- --------- Total Retail/Inst - At End-of-Qtr 48.742 43.362 46.495 45.718 52.456 55.129 --------- --------- --------- --------- --------- --------- Insurance Assets-End-of-Qtr 38.476 40.416 41.104 42.130 43.857 42.984 --------- --------- --------- --------- --------- --------- Total Assets Under Management At End-of-Qtr 87.218 83.778 87.599 87.848 96.313 98.113 ========= ========= ========= ========= ========= ========= (1) Retail assets under management have been restated to include assets under administration beginning in January of 2000. Net Cash Flows from Assets Under Admin: 0.061 0.045 0.068 0.068 0.059 0.038
PAGE 28 Lincoln UK Income Statements Unaudited [Millions of Dollars] YTD YTD Sep Sep 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 36.5 42.9 Mortality assessments 29.3 27.1 31.4 33.9 32.4 23.5 27.0 Expense assessments 153.6 182.3 178.1 134.8 105.3 82.4 69.2 Other revenue and fees 11.2 13.8 2.6 (1.4) 24.9 36.8 9.0 Net investment income 87.9 75.3 70.3 64.8 62.1 45.5 47.9 Realized gains (losses) on investments 1.1 3.0 3.2 12.4 1.9 0.7 0.2 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 --------- --------- --------- --------- --------- --------- --------- Total Revenue 439.7 446.6 433.8 290.7 277.2 225.4 196.3 --------- --------- --------- --------- --------- --------- --------- Benefits and Expenses Benefits paid or provided: Benefits 151.0 306.2 178.5 83.4 84.2 61.1 65.2 Underwriting, acquisition, insurance and other expenses: Commissions 52.6 54.5 37.7 10.8 6.1 4.8 2.9 Operating and administrative expenses 125.8 153.0 142.5 82.5 77.0 56.4 58.3 Restructuring Charges 0.0 10.0 99.4 0.0 (1.7) 0.0 0.0 --------- --------- --------- --------- --------- --------- --------- Subtotal 178.5 217.4 279.5 93.2 81.4 61.2 61.3 Deferral of acquisition costs (4.2) (3.4) (2.8) (1.9) DAC amortization 35.9 50.0 61.4 27.8 --------- --------- --------- --------- --------- --------- --------- DAC deferral net of amortization (16.0) (12.4) (7.2) 31.7 46.5 58.6 26.0 PVIF amortization 13.2 28.4 4.7 22.5 30.8 25.2 (3.4) Other intangibles amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 --------- --------- --------- --------- --------- --------- --------- Total underwriting, acquisition, insurance and other expenses 175.6 233.5 277.0 147.4 158.7 145.1 83.9 Goodwill amortization 6.3 7.0 4.0 0.6 0.0 0.0 0.0 --------- --------- --------- --------- --------- --------- --------- Total Benefits and Expenses 332.9 546.7 459.6 231.5 242.9 206.2 149.1 --------- --------- --------- --------- --------- --------- --------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 106.9 (100.1) (25.7) 59.2 34.3 19.2 47.2 Federal income taxes 35.2 (81.8) (10.6) (7.6) (3.4) (0.6) 16.5 Income Before Cumulative Effect of --------- --------- --------- --------- --------- --------- --------- Accounting Changes 71.7 (18.2) (15.1) 66.8 37.7 19.8 30.7 --------- --------- --------- --------- --------- --------- --------- 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) (15.1) 66.8 37.7 19.8 30.7 ========= ========= ========= ========= ========= ========= ========= Less: Realized gains (losses) on investments 0.8 2.1 2.3 8.7 1.3 0.5 0.2 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) 59.2 58.1 34.6 19.3 30.6 ========= ========= ========= ========= ========= ========= ========= Effective tax rate on Income from Operations 32.9% 85.1% 15.9% (24.2%) (12.8%) (4.1%) 35.0% Revenue 439.7 446.6 433.8 290.7 277.2 225.4 196.3 Less: Realized gains (losses) on investments 1.1 3.0 3.2 12.4 1.9 0.7 0.2 Gains(losses) on derivatives --------- --------- --------- --------- --------- --------- --------- Operating Revenue 438.6 443.6 430.6 278.2 275.4 224.8 196.1 ========= ========= ========= ========= ========= ========= ========= Average capital 472.5 520.4 494.0 593.8 549.9 551.8 515.4 Net Income return on average capital 15.2% (3.5%) (3.1%) 11.3% 6.9% 4.8% 8.0% Income from operations return on average capital 15.0% (2.7%) 12.0% 9.8% 6.3% 4.7% 7.9% - ----------------------------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 635.0 587.3 587.3 597.6 Deferral 4.2 3.4 2.8 1.9 Amortization (35.9) (50.0) (61.4) (27.8) --------- --------- --------- --------- Included in Total Benefits and Expenses (31.7) (46.5) (58.6) (25.9) Foreign currency translation adjustment (16.0) 56.8 43.1 19.2 Other 0.0 0.0 0.0 0.0 --------- --------- --------- --------- Balance at end-of-year 587.3 597.6 571.8 590.8 ========= ========= ========= ========= 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) (25.2) 3.4 Foreign currency translation adjustment (7.0) 24.1 18.0 8.2 Other --------- --------- --------- --------- Balance at end-of-year 244.0 237.3 236.8 249.0 ========= ========= ========= ========= Note: 2000, 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 Sep Dec Mar Jun Sep Dec Mar Jun Sep 2001 2001 2002 2002 2002 2002 2003 2003 2003 ------ ------- ------- ------- ------- ------ ------- ------- ------- Revenue Premiums 11.8 11.9 12.1 12.1 12.4 14.2 12.7 13.8 16.5 Mortality assessments 8.5 7.1 6.5 8.3 8.7 8.9 9.1 9.2 8.7 Expense assessments 35.5 24.1 25.3 27.8 29.4 22.8 21.6 24.5 23.2 Other revenue and fees 8.8 (9.2) (0.2) 12.5 24.5 (11.9) 10.3 (3.9) 2.6 Net investment income 14.8 15.2 14.7 15.3 15.6 16.6 15.2 16.7 16.0 Realized gains (losses) on investments 5.5 4.3 (5.1) 4.5 1.2 1.2 (0.0) 0.0 0.3 Gains (losses) on derivatives 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------- ------- ------- ------- ------ ------- ------- ------- Total Revenue 85.0 53.4 53.2 80.5 91.8 51.8 68.9 60.2 67.3 ------ ------- ------- ------- ------- ------ ------- ------- ------- Benefits and Expenses Benefits paid or provided: Benefits 20.7 20.8 18.3 19.0 23.8 23.1 18.2 24.3 22.7 Underwriting, acquisition, insurance and other expenses: Commissions 2.6 1.9 1.3 1.9 1.6 1.3 1.1 0.8 1.0 Operating and administrative expenses 20.3 24.7 17.3 18.9 20.2 20.6 18.3 20.5 19.6 Restructuring Charges 0.0 0.0 0.0 0.0 0.0 (1.7) 0.0 0.0 0.0 ------ ------- ------- ------- ------- ------ ------- ------- ------- Subtotal 22.9 26.6 18.6 20.9 21.8 20.2 19.4 21.3 20.6 Deferral of acquisition costs (1.3) (0.9) (0.9) (1.0) (0.9) (0.6) (0.8) (0.8) (0.2) DAC amortization 18.7 (3.8) 6.7 20.9 33.8 (11.5) 18.6 1.9 7.3 ------ ------- ------- ------- ------- ------ ------- ------- ------- DAC deferral net of amortization 17.4 (4.8) 5.8 19.9 33.0 (12.1) 17.7 1.2 7.1 PVIF amortization 9.4 5.6 0.7 11.7 12.8 5.5 3.0 (5.7) (0.7) 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 49.6 27.4 25.0 52.5 67.6 13.6 40.1 16.8 27.0 Goodwill amortization 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ------ ------- ------- ------- ------- ------ ------- ------- ------- Total Benefits and Expenses 70.5 48.4 43.3 71.5 91.4 36.7 58.3 41.1 49.6 ------ ------- ------- ------- ------- ------ ------- ------- ------- Income Before Federal Income Tax and Cumulative Effect of Accounting Changes 14.5 5.1 9.8 9.0 0.4 15.1 10.6 19.1 17.6 Federal income taxes 1.0 (16.9) (0.5) (0.3) 0.2 (2.8) 3.8 6.6 6.1 Income Before Cumulative Effect of ------ ------- ------- ------- ------- ------ ------- ------- ------- Accounting Changes 13.5 22.0 10.3 9.3 0.2 17.9 6.8 12.4 11.5 ------ ------- ------- ------- ------- ------ ------- ------- ------- 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 13.5 22.0 10.3 9.3 0.2 17.9 6.8 12.4 11.5 ====== ======= ======= ======= ======= ====== ======= ======= ======= Less: Realized gains (losses) on investments 3.9 3.0 (3.6) 3.2 0.9 0.8 (0.0) 0.0 0.2 Restructuring charges 0.0 0.0 0.0 0.0 0.0 1.7 0.0 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 9.6 19.0 13.8 6.1 (0.6) 15.3 6.8 12.4 11.3 ====== ======= ======= ======= ======= ====== ======= ======= ======= Effective tax rate on Income from Operations (6.8%) (2,417.1%) 7.2% (37.0%) 25.4% (26.1%) 35.5% 34.7% 35.0% Revenue 85.0 53.4 53.2 80.5 91.8 51.8 68.9 60.2 67.3 Less: Realized gains (losses) on investments 5.5 4.3 (5.1) 4.5 1.2 1.2 (0.0) 0.0 0.3 ------ ------- ------- ------- ------- ------ ------- ------- ------- Operating Revenue 79.5 49.1 58.3 75.9 90.6 50.6 68.9 60.2 67.0 ====== ======= ======= ======= ======= ====== ======= ======= ======= Average capital 607.3 596.3 585.2 544.9 525.3 544.0 539.2 494.4 512.5 Net Income return on average capital 8.9% 14.7% 7.0% 6.8% 0.2% 13.2% 5.1% 10.1% 9.0% Income from operations return on average capital 6.3% 12.7% 9.5% 4.5% (0.5%) 11.3% 5.1% 10.1% 8.8% - ------------------------------------------------------------------------------------------------------------------------------- Roll Forward of Deferred Acquisition Costs Balance at beginning-of-year 583.4 589.7 587.3 569.4 591.0 571.8 597.6 569.1 595.1 Deferral 1.3 0.9 0.9 1.0 0.9 0.6 0.8 0.8 0.2 Amortization (18.7) 3.8 (6.7) (20.9) (33.8) 11.5 (18.6) (1.9) (7.3) ------ ------- ------- ------- ------- ------ ------- ------- ------- Included in Total Benefits and Expenses (17.4) 4.8 (5.8) (19.9) (33.0) 12.1 (17.7) (1.1) (7.1) Foreign currency translation adjustment 23.8 (7.2) (12.2) 41.6 13.8 13.7 (10.8) 27.2 2.8 Other ------ ------- ------- ------- ------- ------ ------- ------- ------- Balance at end-of-year 589.7 587.3 569.4 591.0 571.8 597.6 569.1 595.1 590.9 ====== ======= ======= ======= ======= ====== ======= ======= ======= Roll Forward of Present Value of In-Force Balance at beginning-of-year 251.9 252.8 244.0 238.3 243.9 236.8 237.4 230.1 247.0 Amortization (9.4) (5.6) (0.7) (11.7) (12.8) (5.5) (3.0) 5.7 0.7 Foreign currency translation adjustment 10.3 (3.2) (5.1) 17.4 5.7 6.1 (4.3) 11.2 1.3 Other ------ ------- ------- ------- ------- ------ ------- ------- ------- Balance at end-of-year 252.8 244.0 238.3 243.9 236.8 237.4 230.1 247.0 249.0 ====== ======= ======= ======= ======= ====== ======= ======= =======
PAGE 30 Lincoln UK Operational Data Unaudited [Millions of Dollars] For the Year Ended December 31 1998 1999 2000 2001 2002 ------- ------- ------- ------- ------- Unit Linked Assets - Beg-of-Year (Billions) 5.643 6.265 7.220 6.441 5.607 Deposits 0.473 0.537 0.554 0.481 0.453 Withdrawals (incl. chgs) & Deaths (0.547) (0.566) (0.644) (0.529) (0.519) ------- ------- ------- ------- ------- Net 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 Dec Mar Jun Sep Dec Mar 2000 2001 2001 2001 2001 2002 ------- ------- ------- ------- ------- ------- Unit Linked Assets Balance-Beg-of-Quarter (Billions) 6.499 6.441 5.677 5.768 5.218 5.607 Deposits 0.116 0.132 0.111 0.128 0.111 0.114 Withdrawals (incl. chgs) & Deaths (0.153) (0.147) (0.131) (0.136) (0.115) (0.127) ------- ------- ------- ------- ------- ------- Net Flows (0.037) (0.015) (0.020) (0.009) (0.004) (0.013) Inv Inc & Chg in Mkt Val (0.100) (0.421) 0.115 (0.768) 0.457 0.141 Acq of new business/companies Foreign Currency Adjustment 0.078 (0.328) (0.004) 0.226 (0.063) (0.117) ------- ------- ------- ------- ------- ------- Unit Linked Assets - End-of-Quarter 6.441 5.677 5.768 5.218 5.607 5.618 ======= ======= ======= ======= ======= ======= Individual Life In-force (Billions) 24.290 21.894 21.519 21.299 20.878 20.010 Exchange Rate - Dollars to Pounds For-the-Quarter 1.454 1.455 1.421 1.442 1.448 1.423 End-of-Quarter 1.493 1.416 1.415 1.474 1.456 1.426 For the Quarter Ended Jun Sep Dec Mar Jun Sep 2002 2002 2002 2003 2003 2003 ------ ------- ------- ------- ------- ------- Unit Linked Assets Balance-Beg-of-Quarter (Billions) 5.618 5.520 4.825 5.079 4.748 5.468 Deposits 0.115 0.119 0.104 0.094 0.090 0.113 Withdrawals (incl. chgs) & Deaths (0.137) (0.126) (0.129) (0.153) (0.137) (0.152) ------ ------- ------- ------- ------- ------- Net Flows (0.022) (0.006) (0.025) (0.059) (0.047) (0.039) Inv Inc & Chg in Mkt Val (0.479) (0.812) 0.146 (0.184) 0.549 0.205 Acq of new business/companies Foreign Currency Adjustment 0.403 0.123 0.133 (0.087) 0.218 0.059 ------ ------- ------- ------- ------- ------- Unit Linked Assets - End-of-Quarter 5.520 4.825 5.079 4.748 5.468 5.692 ====== ======= ======= ======= ======= ======= Individual Life In-force (Billions) 20.401 19.815 18.896 18.512 19.138 19.258 Exchange Rate - Dollars to Pounds For-the-Quarter 1.464 1.555 1.570 1.605 1.618 1.615 End-of-Quarter 1.532 1.569 1.610 1.580 1.656 1.664
PAGE 31 Other Operations Unaudited [Millions of Dollars] YTD YTD Sep Sep For the Year Ended December 31 1998 1999 2000 2001 2002 2002 2003 ------- ------- ------- ------- ------- ------- ------- Revenue 1,691.1 1,966.0 1,946.9 1,827.3 372.4 268.8 223.9 Less: Realized gains (losses) on investments 0.5 14.4 (5.0) 8.2 25.6 24.5 (7.4) Gains (losses) on derivatives 0.0 0.0 0.0 (9.7) 0.9 0.6 7.5 Amortization of deferred gain-reserve development 0.0 0.0 0.0 0.0 (0.8) (1.4) 3.3 Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 12.8 (8.3) 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- Operating Revenue 1,690.6 1,951.6 1,951.9 1,815.9 355.0 245.2 220.5 ======= ======= ======= ======= ======= ======= ======= Operating Revenue by Source: Lincoln Financial Advisors 286.4 317.0 377.5 360.7 318.0 228.4 221.3 Lincoln Financial Distributors 33.5 107.5 119.9 113.4 127.3 90.5 97.0 ------- ------- ------- ------- ------- ------- ------- Total Distribution 319.9 424.4 497.4 474.0 445.4 318.9 318.3 Reinsurance 1,581.2 1,824.1 1,770.6 1,699.4 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 0.0 0.0 20.4 75.2 68.3 54.9 Other [Including Consolidating Adjustments] (210.5) (296.9) (316.0) (377.9) (165.6) (142.0) (152.7) ------- ------- ------- ------- ------- ------- ------- Total Operating Revenue 1,690.6 1,951.6 1,951.9 1,815.9 355.0 245.2 220.5 ======= ======= ======= ======= ======= ======= ======= - ----------------------------------------------------------------------------------------------------------------------------- Income (Loss) Net Loss (7.6) (76.1) (18.2) (6.6) (247.3) (214.8) (85.6) Less: Realized gains (losses) on investments 2.7 10.2 (3.2) 5.9 16.7 15.9 (4.8) Gains (losses) on derivatives 0.0 0.0 0.0 (6.3) 0.6 0.4 4.9 Gain on sale of reinsurance subsidiaries 0.0 0.0 0.0 15.0 (9.4) 0.0 0.0 Reserve development/ Amortization of deferred gain 0.0 0.0 0.0 0.0 (199.1) (190.8) (18.7) Restructuring charges (14.3) (3.2) 1.0 (19.5) 1.1 1.1 (2.4) Cumulative effect of accounting changes 0.0 0.0 0.0 (2.7) 0.0 0.0 0.0 Loss on early retirement of subordinated debt 0.0 0.0 0.0 0.0 0.0 0.0 (3.7) ------- ------- ------- ------- ------- ------- ------- Operating Income (Loss) 4.0 (83.1) (16.0) 1.0 (57.2) (41.3) (61.0) ======= ======= ======= ======= ======= ======= ======= Income (Loss) from Operations by Source: Lincoln Financial Advisors (23.7) (20.8) (15.4) (20.1) (31.4) (27.7) (25.2) Lincoln Financial Distributors (8.2) (14.0) (19.6) (33.2) (35.2) (27.2) (26.3) ------- ------- ------- ------- ------- ------- ------- Total Distribution (31.9) (34.8) (35.0) (53.3) (66.6) (54.9) (51.5) 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 44.4 35.7 LNC Financing (51.5) (83.5) (84.9) (77.9) (43.0) (29.4) (43.1) Other Corporate (17.5) (5.0) (18.6) (9.5) 3.5 (1.4) (2.0) ------- ------- ------- ------- ------- ------- ------- Income (Loss) from Operations 4.0 (83.1) (16.0) 1.0 (57.2) (41.3) (61.0) ======= ======= ======= ======= ======= ======= ======= - ----------------------------------------------------------------------------------------------------------------------------- Sep Dec Mar Jun Sep Dec Mar Jun Sep For the Quarter Ended 2001 2001 2002 2002 2002 2002 2003 2003 2003 ------- ------- ------- ------- ------- ------- ------- ------- ------- Revenue 485.3 367.4 88.5 88.5 91.8 103.6 73.0 76.1 74.8 Less: Realized gains (losses) on investments (12.8) 29.5 (4.9) (3.8) 33.2 1.2 0.4 (0.2) (7.6) Gains (losses) on derivatives (0.0) (9.7) 0.1 (0.1) 0.6 0.3 (0.4) 0.2 7.7 Amort. of deferred gain-reserve development 0.0 0.0 0.0 0.0 (1.4) 0.5 (0.2) (0.2) 3.7 Gain on sale of reinsurance subsidiaries 0.0 12.8 0.0 0.0 0.0 (8.3) 0.0 0.0 0.0 ------- ------- ------- ------- ------- ------- ------- ------- ------- Operating Revenue 498.2 334.7 93.3 92.4 59.4 109.8 73.3 76.3 70.9 ======= ======= ======= ======= ======= ======= ======= ======= ======= Operating Revenue by Source: Lincoln Financial Advisors 78.9 116.7 75.9 78.1 74.4 89.6 69.4 75.3 76.7 Lincoln Financial Distributors 32.0 35.0 29.4 29.3 31.8 36.9 35.4 29.4 32.2 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distribution 111.0 151.7 105.3 107.4 106.2 126.5 104.8 104.6 108.9 Reinsurance 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 20.4 24.1 22.1 22.1 6.9 18.4 18.2 18.3 Other [Including Consolidating Adjustments] (80.2) (102.9) (36.0) (37.1) (68.9) (23.6) (49.9) (46.6) (56.2) ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Operating Revenue 498.2 334.7 93.3 92.4 59.4 109.8 73.3 76.3 70.9 ======= ======= ======= ======= ======= ======= ======= ======= ======= - ----------------------------------------------------------------------------------------------------------------------------- Income (Loss) Net Income (Loss) (24.6) 33.2 (16.8) (25.8) (172.1) (32.6) (21.7) (21.6) (42.4) Less: Realized gains (losses) on investments (8.3) 19.7 (3.3) (2.4) 21.6 0.8 0.5 (0.4) (4.9) Gains (losses) on derivatives (0.0) (6.3) 0.1 (0.1) 0.4 0.2 (0.5) 0.4 5.0 Gain on sale of reinsurance subsidiaries 0.0 15.0 0.0 0.0 0.0 (9.4) 0.0 0.0 0.0 Reserve development/ Amortization of deferred gain 0.0 0.0 0.0 (14.4) (176.4) (8.2) (0.1) (0.1) (18.5) Restructuring charges 0.0 (18.3) 0.0 0.0 1.1 0.0 0.0 0.0 (2.4) Cumulative effect of accounting changes 0.0 (0.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Loss on early retirement of subordinated debt 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (3.7) ------- ------- ------- ------- ------- ------- ------- ------- ------- Income (Loss) from Operations (16.3) 23.0 (13.6) (8.9) (18.8) (15.9) (21.5) (21.5) (18.0) ======= ======= ======= ======= ======= ======= ======= ======= ======= Income from Operations by Source: Lincoln Financial Advisors (5.3) 6.4 (10.1) (8.7) (8.9) (3.7) (10.4) (7.4) (7.4) Lincoln Financial Distributors (8.4) (5.1) (6.6) (7.6) (13.1) (8.0) (8.1) (10.7) (7.5) ------- ------- ------- ------- ------- ------- ------- ------- ------- Total Distribution (13.7) 1.3 (16.6) (16.3) (22.0) (11.7) (18.4) (18.1) (15.0) Reinsurance 17.2 30.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortization of deferred gain on indemnity reinsurance* 0.0 12.9 15.7 14.4 14.4 4.5 11.9 11.9 11.9 LNC Financing (19.5) (14.7) (8.2) (10.2) (11.0) (13.5) (15.3) (14.4) (13.3) Other Corporate (0.3) (7.1) (4.4) 3.2 (0.2) 4.9 0.3 (0.8) (1.5) ------- ------- ------- ------- ------- ------- ------- ------- ------- Income(Loss) from Operations (16.3) 23.0 (13.6) (8.9) (18.8) (15.9) (21.5) (21.5) (18.0) ======= ======= ======= ======= ======= ======= ======= ======= ======= * The amortization of deferred gain on sale of reinsurance business represents the amortization of deferred gain recognized on the business sold through indemnity reinsurance to Swiss Re.
PAGE 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 - Managed Acct. & 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 - Managed Acct. & Other 2.512 Consolidating Adjustments (8.891) ------ Account Balances 80.512 ====== Consolidated Domestic Retail Deposits/Account Balances (continued) Unaudited [Billions of Dollars] YTD YTD Sep Sep 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ Deposits - For the Year Lincoln Retirement - Fixed Annuities 2.563 2.074 3.342 3.672 2.850 2.333 Lincoln Retirement - Variable Annuities 2.553 3.165 3.067 2.743 2.198 2.032 Lincoln Retirement - Life Insurance 0.017 0.014 0.012 0.000 0.000 0.000 Life Insurance Segment - Life Insurance 1.698 1.884 1.934 2.138 1.502 1.598 Inv Mgmt - Annuities 1.561 1.782 1.701 2.751 1.946 1.589 Inv Mgmt - Mutual Funds (1) 2.151 2.577 1.523 1.829 1.430 1.652 Inv Mgmt - Managed Acct. & Other 0.549 0.525 0.469 1.115 0.646 0.676 Consolidating Adjustments (0.499) (0.765 (0.608) (1.576) (1.051) (0.671) ------ ------ ------ ------ ------ ------ Gross Deposits 10.593 11.256 11.439 12.671 9.522 9.210 ====== ====== ====== ====== ====== ====== 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 ====== ====== ====== ====== Dec Mar Jun Sep Dec Mar 2000 2001 2001 2001 2001 2002 ------ ------ ------ ------ ------ ------ Deposits - For the Quarter Lincoln Retirement - Fixed Annuities 0.482 0.560 0.668 0.896 1.218 0.906 Lincoln Retirement - Variable Annuities 0.846 0.887 0.703 0.684 0.793 0.808 Lincoln Retirement - Life Insurance 0.004 0.003 0.004 0.003 0.002 0.000 Life Insurance Segment - Life Insurance 0.622 0.418 0.477 0.434 0.605 0.440 Inv Mgmt - Annuities 0.589 0.540 0.403 0.434 0.323 0.589 Inv Mgmt - Mutual Funds (1) 0.563 0.483 0.355 0.336 0.348 0.452 Inv Mgmt - Managed Acct. & Other 0.131 0.142 0.127 0.074 0.127 0.159 Consolidating Adjustments (0.240) (0.146) (0.110) (0.193) (0.159) (0.280) ------ ------ ------ ------ ------ ------ Gross Deposits 2.996 2.886 2.627 2.669 3.258 3.074 ------ ------ ------ ------ ------ ------ Account Balances - End of Quarter Lincoln Retirement - Fixed Annuities 15.394 15.430 15.551 16.051 16.491 16.534 Lincoln Retirement - Variable Annuities 39.427 34.733 36.961 30.506 34.638 35.150 Lincoln Retirement - Life Insurance 0.160 0.147 0.157 0.134 0.149 Life Insurance Segment - Life Insurance 10.847 10.764 11.066 10.939 11.377 11.667 Inv Mgmt - Annuities 13.527 11.822 12.532 10.714 11.835 11.920 Inv Mgmt - Mutual Funds (1) 13.261 11.530 12.215 10.726 11.552 11.597 Inv Mgmt - Managed Acct. & Other 1.342 1.653 1.774 1.635 1.719 1.821 Consolidating Adjustments (7.757) (6.601) (7.092) (6.002) (6.676) (6.640) ------ ------ ------ ------ ------ ------ Account Balances 86.201 79.479 83.164 74.704 81.086 82.049 ------ ------ ------ ------ ------ ------ Jun Sep Dec Mar Jun Sep 2002 2002 2002 2003 2003 2003 ------ ------ ------ ------ ------ ------ Deposits - For the Quarter Lincoln Retirement - Fixed Annuities 0.853 1.091 0.822 0.776 0.778 0.778 Lincoln Retirement - Variable Annuities 0.787 0.603 0.545 0.648 0.584 0.800 Lincoln Retirement - Life Insurance Life Insurance Segment - Life Insurance 0.577 0.484 0.636 0.486 0.526 0.586 Inv Mgmt - Annuities 0.601 0.756 0.806 0.488 0.528 0.573 Inv Mgmt - Mutual Funds (1) 0.562 0.416 0.399 0.450 0.558 0.644 Inv Mgmt - Managed Acct. & Other 0.194 0.293 0.469 0.202 0.196 0.277 Consolidating Adjustments (0.333) (0.437) (0.525) (0.171) (0.211) (0.288) ------ ------ ------ ------ ------ ------ Gross Deposits 3.240 3.206 3.151 2.880 2.960 3.370 ------ ------ ------ ------ ------ ------ Account Balances - End of Quarter Lincoln Retirement - Fixed Annuities 16.910 17.650 18.085 18.537 18.696 18.868 Lincoln Retirement - Variable Annuities 31.206 25.942 27.438 26.474 30.457 31.709 Lincoln Retirement - Life Insurance Life Insurance Segment - Life Insurance 11.759 11.726 12.086 12.233 12.663 12.958 Inv Mgmt - Annuities 10.896 9.327 9.981 9.660 11.002 11.392 Inv Mgmt - Mutual Funds (1) 11.033 10.069 10.297 10.241 11.357 11.616 Inv Mgmt - Managed Acct. & Other 1.847 1.820 2.270 2.292 2.737 3.037 Consolidating Adjustments (6.000) (4.940) (5.123) (4.891) (5.628) (5.792) ------ ------ ------ ------ ------ ------ Account Balances 77.651 71.594 75.034 74.546 81.284 83.788 ------ ------ ------ ------ ------ ------ 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) ====== Dec Mar Jun Sep Dec Mar For the Quarter 2000 2001 2001 2001 2001 2002 ------ ------ ------ ------ ------ ------ Lincoln Retirement (0.681) (0.590) (0.196) 0.261 0.631 0.088 Life Insurance Segment 0.404 0.237 0.304 0.239 0.383 0.236 Investment Management Segment- Retail (1) 0.059 (0.021) (0.146) (0.118) (0.091) 0.089 Consolidating Adjustments 0.092 0.163 0.042 (0.002) (0.169) 0.009 ------ ------ ------ ------ ------ ------ Total Retail Net Flows (0.126) (0.211) 0.004 0.380 0.754 0.423 ------ ------ ------ ------ ------ ------ Investment Management Segment- Instit. (1.043) (0.417) 0.445 (0.155) (0.103) 0.731 Consolidating Adjustments (0.013) (0.020) 0.018 (0.030) 0.016 0.022 ------ ------ ------ ------ ------ ------ Total Net Flows (1.182) (0.648) 0.467 0.195 0.667 1.176 ====== ====== ====== ====== ====== ====== Total Domestic Net Flows (continued) Unaudited [Billions of Dollars] YTD YTD Sep Sep For the Year 1999 2000 2001 2002 2002 2003 ------ ------ ------ ------ ------ ------ Lincoln Retirement (1.165) (2.874) 0.105 0.453 0.379 0.472 Life Insurance Segment 0.985 1.158 1.163 1.320 0.918 0.976 Investment Management Segment- Retail (1) (2.209) (1.499) (0.375) 0.806 0.304 0.686 Consolidating Adjustments 1.276 1.022 (0.035) (0.082) 0.104 0.122 ------ ------ ------ ------ ------ ------ Total Retail Net Flows (1.114) (2.194) 0.927 2.496 1.705 2.256 ------ ------ ------ ------ ------ ------ Investment Management Segment- Institutional (2.240) (5.694) (0.231) 2.106 1.535 1.417 Consolidating Adjustments 0.035 (0.015) (0.005) 0.004 0.014 ------ ------ ------ ------ ------ ------ Total Net Flows (3.354) (7.854) 0.681 4.608 3.244 3.687 ====== ====== ====== ====== ====== ====== Jun Sep Dec Mar Jun Sep For the Quarter 2002 2002 2002 2003 2003 2003 ------ ------ ------ ------ ------ ------ Lincoln Retirement 0.223 0.068 0.074 0.095 0.099 0.277 Life Insurance Segment 0.385 0.297 0.402 0.296 0.324 0.355 Investment Management Segment- Retail (1) 0.167 0.048 0.502 0.014 0.302 0.370 Consolidating Adjustments (0.038) 0.133 (0.187) 0.162 (0.003) (0.038) ------ ------ ------ ------ ------ ------ Total Retail Net Flows 0.737 0.545 0.791 0.568 0.723 0.965 ------ ------ ------ ------ ------ ------ Investment Management Segment- Instit. 0.455 0.348 0.572 0.330 0.289 0.799 Consolidating Adjustments (0.026) 0.008 0.001 (0.030) 0.009 0.035 ------ ------ ------ ------ ------ ------ Total Net Flows 1.166 0.901 1.364 0.868 1.021 1.799 ====== ====== ====== ====== ====== ====== 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] 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 133.833 140.443 129.737 122.463 115.921 ======= ======= ======= ======= ======= Dec Mar Jun Sep Dec Mar For the Quarter Ended 2000 2001 2001 2001 2001 2002 ------- ------- ------- ------- ------- ------- Assets Managed by Source LNC's Investments and Cash: Fixed Maturities 27.450 27.811 27.874 28.932 28.346 28.841 Equity securities 0.550 0.560 0.534 0.478 0.470 0.439 Other investments 7.369 7.374 7.388 7.379 7.297 7.084 ------- ------- ------- ------- ------- ------- Total LNC Investments(1) 35.369 35.744 35.796 36.788 36.113 36.363 Separate accounts 50.580 44.506 47.140 39.480 44.833 44.917 Cash and invested cash 1.927 2.015 1.502 1.996 3.095 1.700 ------- ------- ------- ------- ------- ------- Total LNC 87.876 82.266 84.438 78.264 84.042 82.979 ------- ------- ------- ------- ------- ------- Non-affiliate assets managed 41.861 38.416 40.109 35.889 38.421 39.853 ------- ------- ------- ------- ------- ------- Total Assets Managed 129.737 120.682 124.547 114.153 122.463 122.832 ======= ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 53.355 48.209 50.739 44.960 48.415 50.002 (See page 27 for additional detail) DLIA-Corp 35.686 36.324 36.018 37.337 38.119 37.171 (Assets managed internally-see page 27) Lincoln (UK) 7.873 7.012 7.027 6.474 6.847 6.772 Policy Loans (within business units) 1.961 1.947 1.947 1.943 1.940 1.918 Non-LNC Affiliates 30.862 27.190 28.815 23.439 27.142 26.970 ------- ------- ------- ------- ------- ------- Total Assets Managed 129.737 120.682 124.547 114.153 122.463 122.832 ======= ======= ======= ======= ======= ======= Jun Sep Dec Mar Jun Sep For the Quarter Ended 2002 2002 2002 2003 2003 2003 ------- ------- ------- ------- ------- ------- Assets Managed by Source LNC's Investments and Cash: Fixed Maturities 29.725 32.037 32.767 33.887 35.355 35.384 Equity securities 0.419 0.397 0.337 0.249 0.257 0.243 Other investments 7.016 6.928 6.895 6.872 6.980 6.796 ------- ------- ------- ------- ------- ------- Total LNC Investments(1) 37.160 39.363 40.000 41.008 42.592 42.423 Separate accounts 40.580 34.069 36.178 34.775 39.943 41.283 Cash and invested cash 2.265 1.600 1.691 1.635 1.946 1.957 ------- ------- ------- ------- ------- ------- Total LNC 80.005 75.031 77.869 77.419 84.480 85.664 ------- ------- ------- ------- ------- ------- Non-affiliate assets managed 39.531 35.650 38.052 37.501 42.917 45.176 ------- ------- ------- ------- ------- ------- Total Assets Managed 119.536 110.682 115.921 114.920 127.397 130.840 ======= ======= ======= ======= ======= ======= Assets Managed by Advisor Investment Management segment(1) 48.742 43.362 46.495 45.718 52.456 55.129 (See page 27 for additional detail) DLIA-Corp 38.476 40.416 41.104 42.130 43.857 42.984 (Assets managed internally-see page 27) Lincoln (UK) 6.753 6.068 6.351 5.962 6.726 6.887 Policy Loans (within business units) 1.906 1.899 1.946 1.929 1.920 1.910 Non-LNC Affiliates 23.659 18.937 20.026 19.181 22.439 23.929 ------- ------- ------- ------- ------- ------- Total Assets Managed 119.536 110.682 115.921 114.920 127.397 130.840 ======= ======= ======= ======= ======= ======= (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 Common Share Data] YTD YTD Sep Sep 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 1,580.0 1,625.7 Equity Securities 22.8 20.1 19.5 17.6 15.4 10.3 9.6 Mortgage loans on real estate 383.6 369.2 373.8 374.5 356.8 270.5 260.4 Real estate 86.8 64.1 51.8 49.5 47.4 34.2 30.7 Policy loans 99.5 116.5 125.0 125.3 134.5 92.5 92.4 Invested cash 156.8 110.3 87.2 68.4 37.6 29.4 6.0 Other investments 88.4 51.8 66.8 69.4 16.3 16.4 27.8 --------- --------- --------- --------- --------- --------- --------- Investment revenue 2,903.7 2,964.8 2,872.8 2,825.9 2,725.0 2,033.3 2,052.7 Investment expense (193.1) (122.4) (88.7) (117.1) (93.1) (68.7) (73.4) --------- --------- --------- --------- --------- --------- --------- Net Investment Income 2,710.6 2,842.5 2,784.1 2,708.7 2,631.9 1,964.6 1,979.3 --------- --------- --------- --------- --------- --------- --------- Gross-up of Tax Exempt Income 11.6 8.1 7.8 7.2 7.5 5.0 5.9 --------- --------- --------- --------- --------- --------- --------- Adjusted Net Invest Income 2,722.3 2,850.5 2,791.9 2,715.9 2,639.4 1,969.6 1,985.2 ========= ========= ========= ========= ========= ========= ========= Mean Invested Assets (Amortized Cost) 36,573.8 39,027.5 37,471.3 37,616.9 38,828.5 38,527.0 40,968.8 Ratio of Adjusted Net Invest Inc Over Mean Invested Assets 7.44% 7.30% 7.45% 7.22% 6.80% 6.82% 6.46% Investment Gains (Losses) Realized Gains (Losses) on Investments 13.7 3.8 (17.5) (68.7) (177.2) (143.9) (53.0) Gains(Losses) on Derivatives 0.0 0.0 0.0 (4.9) 0.8 0.5 4.1 Incr (Decr) in Unreal Gains on Sec Avail-for-Sale (after DAC/Tax) 116.4 (1,018.1) 477.7 183.7 840.1 621.9 51.2 Incr (Decr) on Derivatives* 21.4 2.3 23.4 (5.1) Securities Available-for-Sale [Billions of Dollars] Fixed Maturity Sec (Fair Value) 30.233 27.689 27.450 28.346 32.767 32.037 35.384 Fixed Maturity Sec (Amortized Cost) 28.640 28.357 27.373 27.956 31.103 30.431 32.896 Equity Securities (Fair Value) 0.543 0.604 0.550 0.470 0.337 0.397 0.243 Equity Securities (Amortized Cost) 0.437 0.481 0.458 0.444 0.334 0.389 0.223 % of Fixed Maturity Securities (Based on Fair Value) Treasuries and AAA 25.6% 22.8% 22.1% 17.2% 20.1% 20.0% 20.4% AA or better 32.6% 29.8% 29.2% 23.6% 25.8% 26.7% 26.4% BB or less 7.0% 8.0% 6.7% 8.3% 6.6% 6.6% 6.9% - ------------------------------------------------------------------------------------------------------------------------------- Sep Dec Mar Jun Sep Dec Mar Jun Sep For the Quarter Ended 2001 2001 2002 2002 2002 2002 2003 2003 2003 ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Investment Income Fixed Maturity Securities 536.9 530.1 522.5 523.8 533.6 537.0 542.3 546.8 536.6 Equity Securities 3.7 5.1 3.4 4.3 2.7 5.1 2.8 2.9 3.9 Mortgage loans on real estate 94.2 92.4 89.5 90.2 90.8 86.4 81.6 84.3 94.5 Real estate 12.7 10.9 12.3 11.9 10.0 13.2 10.7 10.0 10.0 Policy loans 31.0 31.6 30.2 31.1 31.1 42.0 30.9 30.6 30.9 Invested cash 14.8 11.3 12.4 9.1 7.9 8.2 4.5 (1.7) 3.2 Other investments 28.2 3.5 7.8 9.8 (1.2) (0.1) 8.2 10.7 8.9 ------- ------- ------- ------- ------- ------- ------- ------- ------- Investment revenue 721.4 684.8 678.1 680.2 675.0 691.7 681.0 683.5 688.2 Investment expense (28.2) (31.8) (23.3) (22.8) (22.7) (24.4) (26.3) (23.3) (23.8) ------- ------- ------- ------- ------- ------- ------- ------- ------- Net Investment Income 693.3 653.1 654.8 657.4 652.4 667.3 654.6 660.2 664.4 ------- ------- ------- ------- ------- ------- ------- ------- ------- Gross-up of Tax Exempt Income 1.5 2.1 1.5 2.0 1.5 2.6 1.7 1.8 2.3 ------- ------- ------- ------- ------- ------- ------- ------- ------- Adjusted Net Invest Income 694.8 655.2 656.3 659.4 653.9 669.9 656.4 662.0 666.8 ======= ======= ======= ======= ======= ======= ======= ======= ======= Mean Invested Assets (Amortized Cost) 37,685.8 38,449.3 38,169.9 38,235.5 39,175.8 39,733.1 40,342.2 40,966.9 41,597.3 Ratio of Adjusted Net Invest Inc Over Mean Invested Assets 7.37% 6.82% 6.88% 6.90% 6.68% 6.74% 6.51% 6.46% 6.41% Investment Gains (Losses) Realized Gains (Losses) on Investments (23.8) (20.0) (67.6) (52.7) (23.6) (33.3) (58.2) (1.1) 6.4 Gains (Losses) on Derivatives (0.4) (4.6) 0.1 0.3 0.1 0.2 (1.2) (0.6) 5.9 Incr (Decr) in Unreal Gains on Sec Avail-for-Sale (after DAC/Tax) 171.8 (52.2) (163.9) 293.8 491.9 (64.3) 118.7 245.9 (313.4) Incr (Decr) on Derivatives* 3.7 (6.7) 1.2 1.2 0.0 4.6 (3.4) 3.8 (5.6) Securities Available-for-Sale [Billions of Dollars] Fixed Maturity Sec (Fair Value) 28.932 28.346 28.841 29.725 32.037 32.767 33.887 35.355 35.384 Fixed Maturity Sec (Amortized Cost) 28.253 27.956 27.801 28.335 30.431 31.103 31.905 32.257 32.896 Equity Securities (Fair Value) 0.478 0.470 0.439 0.419 0.397 0.337 0.249 0.257 0.243 Equity Securities (Amortized Cost) 0.453 0.444 0.253 0.255 0.389 0.334 0.247 0.244 0.223 % of Fixed Maturity Securities (Based on Fair Value) Treasuries and AAA 17.9% 17.2% 17.8% 18.2% 20.0% 20.1% 20.3% 19.5% 20.4% AA or better 24.3% 23.6% 24.7% 25.0% 26.7% 25.8% 25.8% 25.1% 26.4% BB or less 7.2% 8.3% 7.5% 6.4% 6.6% 6.6% 6.6% 6.6% 6.9%
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% - ----------------------------------------------------------------------------------------------------------- Dec Mar Jun Sep Dec Mar Jun For the Quarter Ended 2000 2001 2001 2001 2001 2002 2002 ------ ------ ------ ------ ------ ------ ------ Common Stock: Highest Price 50.938 48.250 52.300 52.750 49.450 53.650 52.540 Lowest Price 40.875 38.000 41.280 41.000 40.000 47.200 40.750 Closing Price 47.313 42.470 51.750 46.630 48.570 50.730 42.000 Yield [3] 2.6% 2.9% 2.4% 2.6% 2.6% 2.5% 3.0% Preferred Stock Dividend 0.013 0.019 0.018 0.017 0.017 0.016 0.015 (Millions) Debt: (End of Period) Senior Debt Ratings A.M. Best [5] a a a a a a a Fitch A+ A+ A+ A+ A+ A+ A+ Moody's A3 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] 20.8% 22.2% 21.2% 21.1% 21.4% 22.7% 22.6% Debt to Equity [4] 26.3% 28.4% 26.7% 26.6% 27.0% 29.1% 29.0% - ------------------------------------------------------------------------------------------------ Common Stock / Debt Information Unaudited [Dollars per Share, except Percentages] (continued) 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% 23.2% Debt to Equity [4] 26.9% 30.3% 26.3% 27.0% 30.5% - ------------------------------------------------------------------------------------------ Sep Dec Mar Jun Sep For the Quarter Ended 2002 2002 2003 2003 2003 ------ ------ ------ ------ ------ Common Stock: Highest Price 42.080 35.950 35.700 37.500 38.640 Lowest Price 29.120 25.150 24.730 27.870 34.630 Closing Price 30.550 31.580 28.000 35.630 35.380 Yield [3] 4.2% 4.2% 4.8% 3.8% 3.8% Preferred Stock Dividend 0.015 0.015 0.014 0.016 0.014 (Millions) Debt: (End of Period) Senior Debt Ratings A.M. Best [5] 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] 23.1% 23.2% 23.1% 22.3% 21.6% Debt to Equity [4] 29.9% 30.5% 30.0% 28.7% 27.5% * 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-Junior subordinated debentures issued to affiliated trusts (hybrid securities) are considered 50% debt and 50% equity. [5] In October 2003, A.M. Best changed their notching practices for life insurance companies and affirmed Lincoln's senior debt rating as "a-".
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 2000 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) 6.0 358.5 269.3 57.8 Change in Operating & Administrative Expense (1.6) (1.6) (1.6) (1.6) (1.5) (1.6) (1.6) (1.6) (6.0) (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) (2.2) (2.3) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (1.1) (1.0) (1.0) (1.1) (1.0) (1.0) (1.0) (1.0) (3.8) (4.2) (4.0) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 75.5 78.9 57.6 53.1 46.6 9.2 (7.0) 5.0 354.7 265.1 53.8 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Life Insurance: Net Income - As previously reported 62.9 53.5 64.7 51.9 44.2 57.4 47.1 60.2 249.3 233.0 208.9 Change in Operating & Administrative Expense (1.4) (1.4) (1.4) (1.4) (1.1) (1.1) (1.1) (1.1) (5.0) (5.6) (4.4) Federal Income Tax (0.5) (0.5) (0.5) (0.5) (0.4) (0.4) (0.4) (0.4) (1.7) (2.0) (1.6) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (0.9) (0.9) (0.9) (0.9) (0.7) (0.7) (0.7) (0.7) (3.3) (3.6) (2.8) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 62.0 52.6 63.8 51.0 43.5 56.7 46.4 59.5 246.0 229.4 206.1 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Investment Management: Net Income - As previously reported 2.0 2.9 2.9 4.0 7.0 6.2 3.1 9.3 37.0 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) (26.1) (27.9) (37.1) Federal Income Tax (1.6) (1.6) (1.7) (2.3) (1.6) (2.5) (2.6) (3.3) (7.0) (7.2) (10.0) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (4.6) (4.6) (5.1) (6.4) (4.9) (7.0) (7.0) (8.2) (19.1) (20.7) (27.1) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated (2.6) (1.7) (2.2) (2.4) 2.1 (0.8) (3.9) 1.1 17.9 (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 (13.2) 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) (2.0) (2.4) (2.3) Federal Income Tax (0.1) 0.0 (0.1) (0.1) 0.0 0.0 0.0 0.0 (0.1) (0.3) 0.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (0.5) (0.6) (0.5) (0.5) (0.5) (0.6) (0.6) (0.6) (1.9) (2.1) (2.3) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 14.3 17.0 13.5 22.0 10.3 9.2 0.2 17.9 (15.1) 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) (10.2) 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) (12.3) (21.3) (9.8) Federal Income Tax (1.9) (1.9) (1.7) (1.8) (0.9) (0.8) (0.8) (0.8) (4.3) (7.3) (3.3) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (3.5) (3.4) (3.6) (3.5) (1.7) (1.6) (1.6) (1.6) (8.0) (14.0) (6.5) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 0.4 (15.6) (24.7) 33.1 (16.8) (25.8) (172.1) (32.4) (18.2) (6.8) (247.1) ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== Consolidated: Net Income - As previously reported 160.2 141.7 119.1 169.2 94.5 59.4 (125.5) 63.2 621.4 590.2 91.6 Change in Operating & Administrative Expense (15.2) (15.1) (15.7) (17.6) (12.2) (15.2) (15.3) (17.2) (51.4) (63.6) (59.9) Federal Income Tax (4.6) (4.6) (4.6) (5.2) (3.4) (4.3) (4.4) (5.1) (15.3) (19.0) (17.2) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ After Tax Adjustment (10.6) (10.5) (11.1) (12.4) (8.8) (10.9) (10.9) (12.1) (36.1) (44.6) (42.7) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net Income - Restated 149.6 131.2 108.0 156.8 85.7 48.5 (136.4) 51.1 585.3 545.6 48.9 ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
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