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: March 29, 1994
Date of earliest
event reported: March 21, 1994
LINCOLN NATIONAL CORPORATION
(exact name of registrant as specified in its charter)
Indiana 1-6028 35-1140070
(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.
200 East Berry Street, Fort Wayne, Indiana 46802-2706
(Address of principal executive offices) (Zip Code)
219-455-2000
(Registrant's telephone number)
Item 2 Acquisition or Disposition of Assets
(a) On March 21, 1994, Lincoln National Corporation sold 64% of the
outstanding capital stock of EMPHESYS Financial Group,
Inc., ("EMPHESYS") a Delaware Corporation, through an
initial public offering. Net proceeds after deduction
of expense related to the sale were $270,100,000, of
which $220,100,000 was payable in cash and $50,000,000
in a promissory note. The sales proceeds represent a
price of $22.00 per share. This price was determined
by the underwriters based on market demand. EMPHESYS
is a holding company with a 100% ownership of
Employers Health Insurance Company ("Employers
Health"). Employers Health, which is licensed in 46
states provides managed care medical group insurance
products, specialty group insurance products and
administrative services for employers.
Pro Forma Financial statements are set forth in Item 7 hereto.
(b) Not applicable
Item 7 - Financial Statements and Exhibits
(a) Not applicable
(b) Pro Forma Condensed Consolidated Financial Information (Unaudited)
Lincoln National Corporation ("LNC") believes that the following pro
forma statements may not be indicative of the results that actually
would have occurred if the divestitures described herein had been in
effect on the dates indicated or indicative of the results which may be
achieved in the future.
The following pro forma condensed consolidated balance sheet of
LNC and its subsidiaries as of December 31, 1993 and the pro forma
condensed consolidated statement of income for the year ended
December 31, 1993 have been prepared based on the historical
results of operations and financial condition of LNC and include
the 1994 divestiture by LNC of 64% of its interest in EMPHESYS
Financial Group, Inc. ("EMPHESYS"). EMPHESYS is a holding
company, formed in conjunction with this divestiture, which owned
Employers Health Insurance Company at the time of sale. Pro forma
adjustments, which have been prepared by LNC's management, and the
assumptions on which they are based are described in the
accompanying notes to pro forma condensed consolidated financial
statements. While not considered a significant event as defined
in the regulatory guidelines, pro forma adjustments have also been
provided for the divestiture by LNC of its interest in Security
Connecticut Corporation ("Security-Connecticut"). Security-
Connecticut is a holding company, formed in conjunction with this
divestiture, which owned both Security-Connecticut Life Insurance
Company and Lincoln Security Life Insurance Company at the time of
sale. Acquisitions or other divestitures by LNC during 1993 have
not been included in the following pro forma condensed
consolidated financial statements since they are not material to
LNC's financial position or results of operations either
individually or in the aggregate.
The pro forma condensed consolidated balance sheet assumes that LNC's
divestiture of EMPHESYS and Security-Connecticut had been consummated as
of December 31, 1993. The pro forma condensed consolidated statement of
income assumes that LNC's divestiture of EMPHESYS and Security-
Connecticut had been consummated on January 1, 1993. The actual
disposition dates for EMPHESYS and Security-Connecticut were March 21,
1994 and February 2, 1994, respectively.
The pro forma financial statements should be read in conjunction with
the notes thereto and the audited financial statements of LNC and notes
thereto.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
December 31, 1993
(in millions)
As Reported Pro Forma
Lincoln Security-
National Security- EMPHESYS Connecticut
Corporation EMPHESYS Connecticut Adjustments Adjustments Consolidated
ASSETS:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments $29,731.9 $(636.1) $(1,427.4) $508.3 (b) $227.2 (j) $28,403.9
Cash and invested cash 709.7 (8.0) (19.2) 682.5
Other 17,938.8 (149.6) (384.0) 17,405.2
Total Assets $48,380.4 $(793.7) $(1,830.6) $508.3 $227.2 $46,491.6
LIABILITIES AND SHAREHOLDERS' EQUITY:
Policy liabilities and accruals $13,510.8 $(307.3) $(1,310.5) $ $ $11,893.0
Contractholder funds 14,872.1 (25.1) (56.7) 14,790.3
Short and long-term debt 686.5 (6.5) 128.1 (c) 808.1
Other liabilities 15,238.7 (114.5) (137.7) (98.5) (k) 14,888.0
Total Liabilities 44,308.1 (453.4) (1,504.9) 128.1 (98.5) 42,379.4
Preferred Stock 311.5 311.5
Common Stock 543.7 (8.8) (2.9) 8.8 (d) 2.9 (l) 543.7
Earned surplus 2,303.7 (304.5) (322.8) 361.6 (e) 322.8 (l) 2,360.8
Other shareholders' equity 913.4 (27.0) 9.8 (f) 896.1
Total Shareholders' Equity 4,072.3 (340.3) (325.7) 380.2 325.7 4,112.2 (p)
Total Liabilities and
Shareholders' Equity $48,380.4 $(793.7) $(1,830.6) $508.3 $227.2 $46,491.6
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
Year Ended December 31, 1993
(in millions, except per share amounts))
As Reported Pro Forma
Lincoln Security-
National Security- EMPHESYS Connecticut
Corporation EMPHESYS Connecticut Adjustments Adjustments Consolidated
(a)
REVENUE:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums and other considerations $ 5,973.4 $(1,255.2) $ (156.5) $ $ $ 4,561.7
Net investment income 2,146.5 (47.4) (109.4) 44.9 (g) 13.3 (m) 2,047.9
Realized gain on investments 268.4 (2.1) (8.6) 257.7
Loss on sale of subsidiaries
Total Revenue 8,388.3 (1,304.7) (274.5) 44.9 $ 13.3 $ 6,867.3
BENEFITS AND EXPENSES:
Benefits and settlement expenses 5,628.3 (919.3) (170.1) $ $ 4,538.9
Underwriting, acquisition,
insurance and other expenses 2,029.4 (295.2) (61.3) 1,672.9
Interest expense 44.3 3.5 (h) 47.8
Total Benefits and Expenses 7,702.0 (1,214.5) (231.4) 3.5 6,259.6
Income before Federal
Income Taxes and Cumulative
Effect of Accounting Change 686.3 (90.2) (43.1) 41.4 13.3 607.7
Federal Income Taxes 172.5 (32.1) (17.9) 7.4 (i) 4.7 (n) 134.6
Income before Cumulative
Effect of Accounting Change $ 513.8 $ (58.1) $ (25.2) $ 34.0 $ 8.6 $ 473.1 (o) (p)
Income before Cumulative Effect
of Accounting Change Per Share $5.02 $4.62 (p)
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(a) The information in the "As Reported" column for Lincoln National
Corporation excludes the 1993 loss on sale of subsidiary related
to the sale of Security-Connecticut Corporation. Following is a
reconciliation of the data shown in this column to the data shown
in the 1993 annual report to shareholders and Form 10-K:
<TABLE>
Elimination
Shareholders' of Loss on As Reported
Report and Sale of in Pro Forma
Form 10-K Subsidiary Statements
(in millions, except per share amounts)
<S> <C> <C> <C>
Total Revenue $8,289.8 $98.5 $8,388.3
Income Before Cumulative
Effect of Accounting Change 415.3 98.5 513.8
Income Before Cumulative
Effect of Accounting
Change Per Share $4.06 $.96 $5.02
</TABLE>
(b) Adjustment to reflect the receipt of a promissory note from
EMPHESYS ($50.0 million), a 36% interest in EMPHESYS Common Stock
($110.1 million), the cash proceeds from the sale of EMPHESYS
Common Stock to the public ($235.4 million) less the expenses
related to the sale ($15.3 million) and the cash proceeds by LNC's
wholly owned subsidiary, Lincoln National Life Insurance Company
("LNL"), from its sale of 36% of EMPHESYS to its parent ($128.1
million). The interest rate on the promissory note is based on
the 90 day LIBOR rate plus .75%. The promissory note is payable
in full on or before March 21, 1997.
(c) Adjustment to reflect the issuance of commercial paper by the holding
company, LNC, to purchase a 36% interest in EMPHESYS from LNL.
(d) Adjustment to reflect consolidating adjustment for EMPHESYS'
Common Stock.
(e) Adjustment to reflect consolidating adjustment for EMPHESYS'
earned surplus ($304.5 million) at December 31, 1993, the gain on
the divestiture of EMPHESYS ($46.3 million) and the estimated
results of operations of EMPHESYS from January 1, 1994 to the
March 21, 1994 closing date ($10.8 million).
(f) Adjustment to reflect consolidating adjustment for EMPHESYS' net
unrealized gain on securities available-for-sale ($27.0 million),
less the amount applicable to the divestiture of the 64% interest
in EMPHESYS ($17.2 million).
(g) Adjustment to reflect an increase in net investment income from
the interest income related to the $50.0 million promissory note
at an average interest rate of 4.5% ($2.3 million), the interest
income from the investment of the net proceeds from the 64%
divestiture of EMPHESYS in a 7 1/2 year Treasury Bond at 6.36%
($14.0 million), the interest income from the investment by LNL in
a 7 1/2 year Treasury Bond at 6.36% of its proceeds from the 36%
divestiture of EMPHESYS to its parent ($8.0 million), the
investment income from the investment of the interest payments on
the promissory note and the 6.36% Treasury Bonds at a short-term
interest rate of 3.0% ($.2 million), and the equity earnings from
the 36% ownership interest in EMPHESYS ($20.4 million). The
assumed earnings of EMPHESYS is the $58.1 million "As Reported"
herein less the net of tax effect of the interest expense on the
$50.0 million promissory note ($1.5 million).
(h) Adjustment to reflect an increase in interest expense from the issuance
of commercial paper by the holding company at an average rate of 2.75%.
(i) Adjustment to reflect the tax effect of the pro forma adjustments, less
the $20.4 equity in earnings from the 36% ownership interest in
EMPHESYS, at the federal statutory tax rate for 1993 of 35%. The effect
of state taxes is not material to the pro forma consolidated results of
operations of LNC.
(j) Adjustment to reflect the receipt of a $65.0 million promissory
note from Security-Connecticut and the cash proceeds from the sale
of Security-Connecticut Common Stock ($187.0 million) less the
expenses related to the sale ($14.8 million) and LNC's capital
contribution to Security-Connecticut in January 1994 ($10.0
million). The interest rate on this promissory note is based on
the 90 day LIBOR rate plus .75%. The promissory note is payable
in full on or before February 2, 1997.
(k) Adjustment to reverse the reserve for loss on sale of Security-
Connecticut recorded as of December 31, 1993.
(l) Adjustment to reflect consolidating adjustment for Security-
Connecticut's Common Stock and earned surplus.
(m) Adjustment to reflect an increase in net investment income from
the investment income related to the $65.0 million promissory note
at an average interest rate of 4.5% ($2.9 million), the interest
income from the investment of the net proceeds from the
divestiture of Security-Connecticut in a 7 1/2 year Treasury Bond
at 6.36% ($10.3 million) and the investment income from the
investment of the interest payments on the promissory note and the
6.36% Treasury Bond at a short-term interest rate of 3.0% ($.1
million).
(n) Adjustment to reflect the tax effect of the pro forma adjustments at the
federal statutory tax rate for 1993 of 35%. The effect of state taxes
is not material to the pro forma consolidated results of operations of
LNC.
(o) In March 1994, LNC recorded a gain on sale of EMPHESYS of $46.3
million (also $46.3 million pre-tax). This gain is not reflected
in the pro forma condensed statement of income.
(p) The accompanying pro forma EMPHESYS adjustments are based on the
assumption that LNC will divest itself of 64% of such company. Should the
underwriters exercise their entire overallotment option on or before the
April 13, 1994 expiration date, LNC could divest up to 73% of EMPHESYS.
The divestiture of an additional 9% of EMPHESYS would increase pro forma
shareholder's equity by $5.2 million, increase the gain on sale by $7.1
million and decrease the pro forma income before cumulative effect of
accounting change by $4.3 million ($.04 per share).
SIGNATURE PAGE
LINCOLN NATIONAL CORPORATION
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Lincoln National Corporation
By /s/ Richard C. Vaughan
Richard C. Vaughan
Senior Vice President and
Chief Financial Officer
By /s/ Donald L. Van Wyngarden
Donald L. Van Wyngarden
Second Vice President and
Controller
Date March 29, 1994
