(F) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income from operations before Federal income taxes and fixed charges. "Fixed charges" consist of interest expense on debt and amortization of debt expense and interest credited on deferred annuities.
The following table reflects net income adjusted to eliminate certain items (net of applicable income taxes) which management believes are not necessarily indicative of overall operating trends. For example, net realized capital gains or losses on investments, excluding gains or losses on convertible debt which are considered core earnings, are eliminated. Different items are likely to occur in each period presented and others may have different opinions as to which items may warrant adjustment. The adjusted operating income shown below does not constitute net income computed in accordance with GAAP.
(F) Basic adjusted operating income per common share for 1998 and 1997 is calculated using 33.46 million and 23.54 million shares, respectively. Basic adjusted operating income per common share for 1996 and 1995 is calculated using 23.16 million shares.
A summary of the Company's income from operations by operating segment follows:
The Company takes into account asset/liability management considerations in the product development and design process. Contract terms for the Company's interest-sensitive products include surrender and withdrawal provisions which mitigate the risk of losses due to early withdrawals. These provisions generally do one or more of the following: limit the amount of penalty-free withdrawals, limit the circumstances under which withdrawals are permitted, or assess a surrender charge or market value adjustment relating to the underlying assets. The following table summarizes liabilities for interest-sensitive life products and annuities by their contractual withdrawal provisions at December 31, 1998 (including liabilities in both the Closed Block and the general account):
The Closed Block was formed to give certain policyowners additional assurances as to the dividend policies of the Company. As a result of establishing the Closed Block on June 30, 1996, the Company allocated certain assets from its investment portfolio to the Closed Block (see Note 1 to the Consolidated Financial Statements for further discussion). The following table summarizes consolidated invested assets by asset category as of December 31, 1998 and 1997, and sets forth the allocation of such assets between the Closed Block and the general account. The remaining information relating to the Company's investment portfolio presents information about the investment portfolio on a combined basis (including invested assets in both the Closed Block and the general account).
In 1998, the Company adopted the provisions of SFAS 130, "Reporting Comprehensive Income," SFAS 131, "Disclosures about Segments of an Enterprise and Related Information;" and SFAS 132, "Employer's Disclosure about Pensions and Other Postretirement Benefits." Adoption of these statements were of a reporting nature and had no impact on the financial position or results of operations of the Company.
As the year 2000 approaches, an important business issue has emerged regarding how existing application software programs and operating systems can accommodate the date value "2000". Many existing application software products were designed to accommodate only a two-digit date position which represents the year (e.g., the number "95" is stored on the system and represents the year 1995). As a result, the year 1999 (i.e., "99") is the maximum date value many information technology (IT) systems will be able to process accurately.
The Company has made significant progress in accomplishing the necessary modifications and conversions to deal with Year 2000 issues. The Year 2000 Project has four main components: IT Systems, Non-IT Systems, Business Partners and Contingency Planning.
Non-IT Systems include administrative systems such as faxes and phone systems. Facilities also contain non-IT systems such as elevators, heating and cooling systems and security systems. Work on
Additional financial statement schedules are included on pages S-1 through S-15 herein. Reference is made to the Index to Financial Statement Schedules on page S-1 herein.