Net income from continuing operations (1) 460.4 509.8 22.2 356.4 301.4 Net income from discontinued operations -- -- 134.9 157.2 180.8 Gain on sale of discontinued operations -- -- 776.9 -- -- ----------- --------- --------- --------- --------- Net income (1) $460.4 $509.8 $934.0 $513.6 $482.2
Per Share Data (2): Net income from continuing operations $2.30 $2.51 $0.11 $1.69 $1.44 Net income from discontinued operations -- -- 0.65 0.75 0.86 Gain on sale of discontinued operations -- -- 3.73 -- -- ----------- --------- --------- --------- --------- Net Income-Diluted $2.30 $2.51 $4.49 $2.44 $2.30
The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely 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 reliance on forward-looking statements as a prediction of actual results. In addition, LNC disclaims any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.
On pages 9 through 23, the results of operations of LNC consolidated, LNC's four business segments and other operations are presented and discussed. Within these discussions of the results of operations, reference is made to "Income from Operations". This alternative measure of earnings is defined as "Net income less realized gain (loss) on sale of investments, gain (loss) on sale of subsidiaries and restructuring charges, all net of taxes." Pages 24 through 26 discuss LNC's consolidated investments. Pages 26 through 28 discuss LNC's consolidated financial condition including liquidity and cash flows, and capital resources.
Lincoln Life introduced two new variable universal life products in 1999. The first, Lincoln Variable Universal Life ("LVUL"), targets the younger, middle-aged, emerging affluent customer whose goal is wealth accumulation. This product offers 30 funds from 12 well-known fund managers and an interest bearing account. The Lincoln VUL db was the second product launched and was designed for older individuals seeking low premiums and a high death benefit. As a result of these new product innovations, Lincoln Life experienced rapid sales momentum for variable life products in the latter part of 1999 (50% of variable life sales occurred in the fourth quarter of 1999).
Product Development: Lincoln UK's product development initiatives focused on enhancing products to achieve the following objectives: 1) to offer the customer good value and provide products with a wider range of benefits; 2) to lower charges; 3) to provide a broader range of products which would not necessarily be manufactured internally; and 4) to provide more helpful and informative marketing and sales literature to help customers choose. With the achievement of these objectives, Lincoln UK's management expects to be in the first or top of the second quartile, in terms of product offering, for life insurance companies in the UK.
Exchange Rates: LNC's subsidiary in the UK, as with subsidiaries in other countries, has its balance sheets and income statements translated at the current spot exchange rate as of the year end and average spot exchange rate for the year, respectively.
In addition to embarking upon the transformation program to improve Lincoln UK's operational performance, the results of this strategic review and the unfavorable regulatory developments relating to pension product mis-selling matters led LNC to conclude that a reassessment of the long-term strategic fit of this business segment was appropriate. Accordingly, LNC has engaged outside advisors to assist on a range of strategic options for Lincoln UK including a possible sale of the business.
Under the terms of the Shareholders Agreement with GFS, LNC had the right to put its investment in SSL to GFS for an amount equal to LNC's initial investment in SSL plus a 7% annual return. LNC has given GFS notice of its decision to exercise its put. Given these contractual rights and the status of ongoing discussions with GFS and IPAB concerning these matters, LNC believes that it will recover the value of its investment in SSL along with a 7% annual return on that investment.
Profile: The Investment Management segment includes Delaware Management Holdings, Inc. ("Delaware"); Lynch & Mayer, Inc. ("Lynch & Mayer"); Vantage Global Advisors, Inc. ("Vantage") and Lincoln Investment Management. Delaware has its headquarters in Philadelphia, with offices in London, Denver and Minneapolis. Lynch & Mayer and Vantage each maintain separate headquarters in New York. Lincoln Investment Management has its headquarters in Fort Wayne, Indiana. During the first quarter of 1999, there was a reorganization at Lynch & Mayer that involved the appointment of a new Chief Investment Officer and the combination of the back-office operations with Delaware's (see further discussion of this under "Lynch & Mayer Restructuring Charge" on page 22). During the first quarter of 2000, it is anticipated that Lynch & Mayer will merge its remaining operations with Delaware.
Institutional Investments: The institutional investment management business had assets under management of $30.6 billion at December 31, 1999, compared with $31.2 billion at December 31, 1998. The decrease of 2% was primarily caused by investment performance problems, as well as Delaware's value style being out of favor. Institutional inflows for the Investment Management segment were $7.3 billion for 1999, which was 22% higher than the $6.0 billion in 1998. Net outflows were $2.2 billion for 1999 and $2.7 billion for 1998. The net outflows in 1999 and 1998 were largely due to a combination of under performance in Lynch & Mayer's mid-cap and large-cap growth products and Delaware's domestic value style being out of favor.
The loss from operations shown above includes the earnings from operations that are not directly related to the business segments and unallocated corporate revenues and expenses, such as corporate investment income, interest expense on short-term and long-term borrowings, and corporate overhead expenses. Starting in 1999, 100% of "LNC Operations" was allocated to the business units.
December 31 (in billions) 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------------------ Assets Managed by Advisor Investment Management Segment (1): External Assets $61.4 $61.5 $56.5 $45.5 $40.7 Internal Assets 35.9 39.4 35.6 37.4 36.4 Lincoln UK 8.6 7.6 6.8 6.1 5.3 Within Business Units (Policy Loans) 1.9 1.8 0.8 0.8 0.6 Non-LNC Affiliates 32.7 23.5 19.4 15.3 11.8 ----------- --------- --------- --------- --------- Total Assets Managed $140.5 $133.8 $119.1 $105.1 $94.8
Earnings Per Common Share-Basic (1): Net Income from Continuing Operations $2.33 $2.54 $0.11 Discontinued Operations -- -- 4.45 ---------- ---------- ---------- Net Income $2.33 $2.54 $4.56
The foregoing data is based on stated maturities. Actual maturities will differ in some cases because borrowers may have the right to call or pre-pay obligations.
Year Ended December 31 (in millions) 1999 1998 1997 ----------------------------------------------------------------------------------------------- Insurance assumed $1,509.3 $1,259.8 $1,079.1 Insurance ceded 621.0 695.4 315.0 -------- -------- -------- Net reinsurance premiums $ 888.3 $ 564.4 $ 764.1
Cash paid for interest for 1999, 1998 and 1997 was $132.2 million; $108.3 million and $96.0 million, respectively.
Restricted stock (non-vested stock) awarded from 1997 through 1999 was as follows:
Most of LNC's foreign operations are conducted by Lincoln UK, a UK company. The data for this company is shown above under the Lincoln UK segment heading. The other segments have non-U.S. operations. Foreign intracompany revenues are not significant. Financial data for Lincoln UK and the other non-U.S. units is as follows:
LNC discontinued writing new HMO excess-of-loss reinsurance programs in the third quarter of 1999. Consequently, during the third quarter of 1999, LNC recorded within its Reinsurance segment a charge of $3.2 million after-tax ($4.9 million pre-tax) for employee severance and termination benefits, and other costs related to the discontinuance of the business. The restructuring plan identified the following activities and associated costs to achieve the objectives of the restructuring plan: (1) severance and termination benefits of $2.4 million related to the elimination of 71 positions and (2) other costs of $2.5 million. This charge was included in Underwriting, Acquisition, Insurance and Other Expenses on the Consolidated Statement of Income for the year ended December 31, 1999. Activities under the restructuring plan began in the third quarter of 1999 with expenditures expected to be paid out under this restructuring plan as the discontinuance of this line of business is completed. As of December 31, 1999, $0.9 million (pre-tax) has been expended under this restructuring plan and 16 positions have been eliminated.