Lincoln Financial Group Reports Third Quarter Earnings; Record Net Flows and Strong Sales Characterize the Quarter.Business Editors PHILADELPHIA--(BUSINESS WIRE)--Oct. 29, 2003 Lincoln National Corporation Lincoln National Corporation (NYSE: LNC) is a holding company, which operates multiple insurance and investment management businesses through subsidiary companies. LNC was organized under the laws of the state of Indiana in 1968, and maintains its principal executive offices (NYSE NYSE See: New York Stock Exchange :LNC LNC Legal Nurse Consultant LNC Libertarian National Committee LNC Low Noise Converter LNC Lloyd Noble Center (University of Oklahoma, Norman campus) LNC Local Node Clock LNC Chief Legalman (Naval Rating) ), the parent company of the Lincoln Financial Group of companies, today reported net income of $133.3 million, or $0.74 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share for its third quarter of 2003. For the third quarter of 2002, the company recorded a net loss of $136.4 million, or $0.74 per diluted share. Income from operations for the third quarter of 2003 was $156.0 million, or $0.87 per diluted share. Comparatively, Lincoln reported income from operations for the third quarter of 2002 of $62.1 million, or $0.34 per diluted share. The attached table reconciles net income to income from operations for the corporation and its business segments. "The underlying business performance in the third quarter, even after unusual items, continued to improve and we reached record domestic net cash flows," said Jon A. Boscia, chairman and chief executive officer of Lincoln Financial Group. Product Net Cash Flows The company reported record total domestic net cash flows in the quarter of $1.8 billion, an increase of 76% over the prior quarter and nearly 100% over third quarter 2002 results. "Delaware's strong investment performance, interest in our Lincoln Principal Security(SM) variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. rider, a broad portfolio of life insurance products and committed wholesaler and planner forces continue to drive significant improvement in our net flows," said Boscia. Consolidated domestic retail deposits, which include annuities, mutual funds and other personal wealth accumulation products, were nearly $3.4 billion for the third quarter and $9.2 billion for the first nine months of 2003. Lincoln Retirement Net income for the Retirement segment was $102 million, compared to a net loss of $7 million for the third quarter 2002. Income from operations for this segment was $94.3 million, versus $21.8 million in the year ago period. Third quarter 2003 earnings for this segment were favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impacted by Deferred Acquisition Costs (DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter ) unlocking, adjustments for reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. recoverables and additional investment income from prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. and make-wholes. Gross deposits grew to nearly $1.6 billion in the third quarter. "We are very pleased that third quarter deposits reinforce the quality of new products and features that we introduced in June and July," commented Boscia. Life Insurance Net income for the Life segment in the third quarter was $55.8 million versus $46.4 million for the same period a year ago. Income from operations for the segment was $58.7 million compared to $62.7 million for the third quarter 2002. Third quarter 2003 earnings for this segment were impacted by negative DAC unlocking, marketing and advertising costs. First year retail life insurance premiums were $208 million, an increase of 20% over both second quarter and last year's third quarter. "Increases in retail sales were driven by universal life (UL) and term insurance products. We expect this trend to continue and, in an effort to provide complete product solutions, are currently in the process of rolling out an enhanced version of our UL product. This enhanced product incorporates competitive features for this ever-changing marketplace while maintaining our pricing discipline and recognizing current reserve requirements Reserve Requirements Requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve Bank. ," said Boscia. Life insurance in-force increased to $273 billion, up 10% from a year ago, reflecting strong sales. Delaware Investments Delaware Investments reported net income of $6.3 million versus a net loss of $3.9 million in the third quarter of 2002. Income from operations for the segment was $9.7 million in the quarter, which compares to an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $3.0 million in the year ago period. Results were favorably impacted by Delaware's positive net flows, equity markets and a DAC true-up in the 401(k) business. "Delaware achieved positive net flows for the seventh consecutive quarter and continues to deliver solid and consistent performance in both institutional accounts and retail funds for year-to-date, one-year and three-year time frames," said Boscia. Lincoln UK For the third quarter, Lincoln UK reported net income of $11.5 million compared to $0.2 million in the same period a year ago. The segment reported income from operations of $11.3 million versus an operating loss of $0.6 million in the third quarter of 2002. Equity Market Performance "The market performance this quarter was near our financial assumptions and impacted Lincoln's third quarter results by $0.05 per diluted share, which was slightly better than the estimate that resulted from application of the guidance provided in Lincoln's second quarter 10-Q and on LFG LFG Landfill Gas LFG Lincoln Financial Group (insurance & financial planning company) LFG Looking For Group (Everquest) LFG Lexical-Functional Grammar (computational linguistics) .com. The variance from guidance was largely due to good performance by the money managers in our funds and customers' account selections," said Richard C. Vaughan, chief financial officer, Lincoln Financial Group. Deferred Acquisition Costs ("DAC"), Present Value of In-Force Value of In-Force is a life insurance term for the present value of the profits that will emerge from a block of life insurance policies over time. The value of in-force business is the present value of expected future earnings on in-force business less the present value ("PVIF PVIF Present Value Interest Factor PVIF present value of in-force PVIF Prime Value Imputation Fund (Australia) ") and Deferred Front-End Loads Front-End Load A commission or sales fee charged at the time of the initial purchase for an investment, usually mutual funds and insurance policies. It is deducted from the investment amount and thus, lowers the size of the investment. ("DFEL") During the quarter, Lincoln completed its annual comprehensive review of assumptions underlying the amortization of DAC, PVIF and DFEL, which resulted in an after-tax charge of $6.4 million to the third quarter's operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. . The unlocking for these items affected the Investment, Life and Retirement segments. However, it is not expected to have a significant impact on the level of DAC, PVIF and DFEL amortization going forward for any of the three segments. "We are pleased that the net amount of unlocking was a fraction of 1% of the total of DAC, PVIF and DFEL balances," said Vaughan. Realignment re·a·lign tr.v. re·a·ligned, re·a·lign·ing, re·a·ligns 1. To put back into proper order or alignment. 2. To make new groupings of or working arrangements between. Initiatives The realignment initiatives announced in 2003 impacted net income in the third quarter by a net charge of $11.1 million, resulting from the net effect of restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. and investments in business growth initiatives, partially offset by savings. These initiatives positively impacted third quarter income from operations by $1.8 million. "Implementation of the realignment initiatives has progressed as planned and we expect $16 million in net charges in the fourth quarter of 2003, of which $2 million is expected to positively impact income from operations," said Vaughan. "As we approach 2004, we expect $3 million in net charges, of which $14 million is expected to positively impact income from operations," he added. Corporate and Other Corporate and Other, which includes financing, distribution losses, and the amortization of the deferred gain from the reinsurance business sold in 2001, reported a net loss of $42.3 million for the third quarter versus a net loss of $172.1 for the year ago period. Within these net losses are charges for reserve developments and related amortization on business sold through reinsurance of $18.4 million for the third quarter of 2003 and $176.4 million for the prior year quarter. The operating loss for the third quarter was $18.0 million versus an operating loss of $18.8 million in the third quarter of 2002. As of September 30, 2003, the book value of Lincoln National Corporation common stock, excluding accumulated other comprehensive income In 1997 the Financial Accounting Standards Board issued a Statement on Financial Accounting Standards entitled “Comprehensive Income”. This statement required all income statement items to be reported either as a regular item in the income statement and or a special item as , was $26.87, compared with $25.87 a year ago. Book value, including accumulated other comprehensive income, was $31.34, compared with $30.64 a year ago. Lincoln Financial Group will discuss the company's third quarter results in a conference call beginning at 11:00 a.m. (EST EST electroshock therapy. EST abbr. electroshock therapy ) on Thursday, October 30, 2003. Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. With headquarters in Philadelphia, Lincoln Financial Group has consolidated assets of over $100 billion and had annual consolidated revenues of $4.6 billion in 2002. Through its wealth accumulation and protection businesses, the company provides annuities, life insurance, 401(k) and 403(b) plans, mutual funds, managed accounts, institutional investment and financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against and advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal . Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. - Cautionary Language Certain statements made in this press release are "forward-looking statements" within the meaning of the Securities Litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. Reform Act of 1995 (the "Act"). Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: "believe," "anticipate," "expect," "estimate," "project," "will," "shall" and other words or phrases with similar meaning. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. These risks and uncertainties include, among others, subsequent significant changes in: the company (e.g., acquisitions and divestitures of legal entities and blocks of business - directly or by means of reinsurance transactions including the recently completed divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of LNC's reinsurance business); financial markets (e.g., interest rates and securities markets); competitors and competing products and services; LNC's ability to operate its businesses in a relatively normal manner; legislation (e.g., corporate, individual, estate and product taxation); the price of LNC's stock; accounting principles generally accepted in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ; regulations (e.g., insurance and securities regulations); and debt and claims-paying ratings issued by nationally recognized statistical rating organizations A Nationally Recognized Statistical Rating Organization (or "NRSRO") is a credit rating agency which issues credit ratings that the U.S. Securities and Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes. . Other risks and uncertainties include: the risk that significant accounting, fraud or corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. issues may adversely affect the value of certain investments; whether necessary regulatory approvals are obtained (e.g., insurance department, Hart-Scott-Rodino, etc.) and, if obtained, whether they are obtained on a timely basis; whether proceeds from divestitures of legal entities and blocks of business can be used as planned; litigation, arbitration and other actions (e.g., a) adverse decisions in significant actions including but not limited to extracontractual and class action damage cases, b) new decisions which change the law, c) unexpected trial court rulings, d) unavailability of witnesses and e) newly discovered evidence NEWLY DISCOVERED EVIDENCE. That evidence which, after diligent search for it, was not discovered until after the trial of a cause. 2. In general a new trial will be granted on the ground that new, important, and material evidence has been discovered since the ); acts of God (e.g., hurricanes, earthquakes and storms); whether there will be any significant charges or benefits resulting from the contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. described in the footnotes to LNC's consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge ; acts of terrorism or war; the stability of governments in countries in which LNC does business; and other insurance risks (e.g., policyholder Policyholder An individual who owns an insurance policy. mortality and morbidity morbidity /mor·bid·i·ty/ (mor-bid´it-e) 1. a diseased condition or state. 2. the incidence or prevalence of a disease or of all diseases in a population. mor·bid·i·ty n. ). The risks included here are not exhaustive. Lincoln National Corporation's annual reports on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , quarterly reports on Form 10-Q Form 10-Q See 10-Q. , current reports on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. and other documents filed with the Securities and Exchange Commission include additional risks and factors which could impact LNC's business and financial performance. Moreover, LNC operates in a rapidly changing and competitive environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. Further, it is not possible to assess the impact of all risk factors on LNC's business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undo To restore the last editing operation that has taken place. For example, if a segment of text has been deleted or changed, performing an undo will restore the original text. Programs may have several levels of undo, including being able to reconstruct the original data for all edits reliance on forward-looking statements as a prediction of actual results or a projection of earnings. This press release was issued on October 29, 2003 and all information in this release is as of October 29, 2003. LNC undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in LNC's expectations.
LINCOLN NATIONAL CORPORATION
Digest of Earnings
3rd Quarter Ended September 30
------------------------------
2003 2002(a)
---- -------
Revenue $1,268,849,000 $1,163,430,000
Net Income $133,313,000 ($136,389,000)
Share Earnings (Basic)
----------------------
Net Income $.75 ($.75)
Share Earnings (Diluted)
------------------------
Net Income $.74 ($.74)
Average Number of Shares (Basic) 177,483,351 181,295,515
Average Number of Shares (Diluted) 179,857,804 183,242,039
Nine Months Ended September 30
------------------------------
2003 2002(a)
---- -------
Revenue $3,581,329,000 $3,446,860,000
Net Income $317,604,000 ($2,235,000)
Share Earnings (Basic)
----------------------
Net Income $1.79 ($.01)
Share Earnings (Diluted)
------------------------
Net Income $1.77 ($.01)
Average Number of Shares (Basic) 177,238,951 184,658,447
Average Number of Shares (Diluted) 179,122,313 186,973,901
(a) Third Quarter and Nine Months of 2002 includes the effect of LNC's
adoption of the fair value method of accounting for stock options
under Statement of Financial Accounting Standards ("SFAS") No. 123, as
amended by SFAS No. 148.
Definition of Income from Operations
Income from operations represents after-tax results excluding, as
applicable, realized gains or losses on investments and derivatives,
restructuring charges, reserve changes on business sold through
reinsurance, gain on sale of subsidiaries and certain other items.
Income from operations is an internal measure used by the company in
the management of its operations. Management believes that this
performance measure explains the results of the company's ongoing
operations in a manner that allows for a better understanding of the
underlying trends in the company's current business.
(amounts in millions, except EPS)
For the Quarter Ended September 2003
Lincoln Life Investment Lincoln Corporate
Retirement Insurance Management UK & Other Total
--------------------------------------------------------
Net Income $102.0 $55.8 $6.3 $11.5 ($42.3) $133.3
Less:
Net realized
gain on
investments
and
derivatives 13.2 (1.3) 0.1 0.2 0.1 12.3
Restructuring
charges (5.5) (1.6) (3.5) - (2.3) (12.9)
Reserve
Development
and Related
Amortization
on Business
Sold through
Reinsurance - - - - (18.4) (18.4)
Loss on early
retirement
of
subordinated
debt - - - - (3.7) (3.7)
--------------------------------------------------------
Income from
Operations 94.3 58.7 9.7 11.3 (18.0) 156.0
Earnings per
share
(diluted)
Net Income $0.74
Income from
Operations $0.87
(amounts in millions, except EPS)
For the Quarter Ended September 2002
Lincoln Life Investment Lincoln Corporate
Retirement Insurance Management UK & Other Total
--------------------------------------------------------
Net Income ($7.0) $46.4 ($3.9) $0.2 ($172.1) ($136.4)
Less:
Net realized
gain (loss)
on
investments
and
derivatives (28.8) (16.3) (1.2) 0.8 22.0 (23.5)
Restructuring
charges - - 0.3 - 1.1 1.4
Reserve
Development
and Related
Amortization
on Business
Sold through
Reinsurance - - - - (176.4) (176.4)
--------------------------------------------------------
Income from
Operations 21.8 62.7 (3.0) (0.6) (18.8) 62.1
Earnings per
share
(diluted)
Net Income ($0.74)
Income from
Operations $0.34
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