SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996 Commission file number 1-6028
LINCOLN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1140070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Berry Street, Fort Wayne, Indiana 46802-2706
(Address of Principal Executive Offices)
Registrant's telephone number (219) 455-2000
Common stock outstanding October 25, 1996 104,315,307
Indicate by check mark whether registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
The exhibit index to this report is located on page 18.
Page 1 of 32
<PAGE> -2-
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<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30 December 31
(000'S omitted) 1996 1995
ASSETS
Investments:
<S> <C> <C>
Securities available-for-sale, at fair value:
Fixed maturity (cost 1996 - $24,333,932;
1995 - $23,935,527) ------------------ $25,062,943 $25,834,476
Equity (cost 1996 - $812,767;
1995 - $936,124) --------------------- 1,004,143 1,164,844
Mortgage loans on real estate ------------ 3,379,861 3,186,872
Real estate ------------------------------ 775,863 775,912
Policy loans ----------------------------- 628,442 602,573
Other investments ------------------------ 361,544 371,765
Total Investments ---------------------- 31,212,796 31,936,442
Investment in unconsolidated affiliates ---- 21,475 5,562
Cash and invested cash --------------------- 1,435,509 1,572,855
Property and equipment --------------------- 244,556 243,763
Deferred acquisition costs ----------------- 1,959,767 1,436,685
Premiums and fees receivable --------------- 786,247 537,979
Accrued investment income ------------------ 465,653 462,737
Assets held in separate accounts ----------- 26,690,384 22,769,068
Federal income taxes ----------------------- 55,809 --
Amounts recoverable from reinsurers -------- 2,476,289 2,495,189
Goodwill ----------------------------------- 452,513 471,465
Other intangible assets -------------------- 495,007 528,934
Other assets ------------------------------- 941,852 797,054
Total Assets ----------------------------- $67,237,857 $63,257,733
See notes to consolidated financial statements on page 7.
</TABLE>
<PAGE> -3-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
-CONTINUED-
September 30 December 31
(000's omitted) 1996 1995
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
<S> <C> <C>
Future policy benefits, claims
and claim expenses -------------------- $13,040,715 $12,922,547
Unearned premiums ----------------------- 824,954 813,380
Total Policy Liabilities and Accruals - 13,865,669 13,735,927
Contractholder funds ---------------------- 18,590,556 18,784,508
Liabilities related to separate accounts -- 26,690,384 22,769,068
Federal income taxes ---------------------- -- 128,426
Short-term debt --------------------------- 229,272 426,848
Long-term debt ---------------------------- 651,335 659,303
Minority interest in consolidated
subsidiaries ---------------------------- 211,265 --
Other liabilities ------------------------- 2,396,503 2,375,531
Total Liabilities ----------------------- 62,634,984 58,879,611
Minority Interest - Preferred Securities
of Subsidiary Companies ------------------- 315,000 --
Shareholders' Equity:
Series A preferred stock
(9/30/96 liquidation value - $3,006) ----- 1,235 1,335
Common stock ------------------------------ 893,573 889,476
Retained earnings ------------------------- 3,037,423 2,775,718
Foreign currency translation adjustment --- 14,091 13,413
Net unrealized gain (loss) on securities
available-for-sale ----------------------- 341,551 698,180
Total Shareholders' Equity -------------- 4,287,873 4,378,122
Total Liabilities, Minority Interest
and Shareholders' Equity -------------- $67,237,857 $63,257,733
See notes to consolidated financial statements on page 7.
</TABLE>
<PAGE> -4-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended Three Months Ended
September 30 September 30
(000's omitted) 1996 1995 1996 1995
Revenue:
<S> <C> <C> <C> <C>
Insurance premiums ----------- $2,379,108 $2,325,231 $ 810,684 $ 800,342
Insurance fees --------------- 454,643 387,062 156,021 135,153
Investment advisory fees ----- 148,908 90,277 49,803 47,697
Net investment income -------- 1,721,296 1,659,555 587,880 558,500
Equity in earnings of
unconsolidated affiliates -- 1,265 13,455 974 4,656
Realized gain on investments - 102,614 174,473 1,827 68,002
Other ------------------------ 161,480 148,326 77,694 54,048
Total Revenue ------------ 4,969,314 4,798,379 1,684,883 1,668,458
Benefits and Expenses:
Benefits and settlement
expenses ------------------- 2,942,242 2,892,186 1,002,268 987,906
Underwriting, acquisition,
insurance and other expenses 1,452,150 1,314,851 495,185 457,653
Interest and debt expense ---- 60,676 53,441 23,529 19,493
Total Benefits
and Expenses ----------- 4,455,068 4,260,478 1,520,982 1,465,052
Net Income Before Federal
Income Taxes and
Minority Interest ------ 514,246 537,901 163,901 203,406
Federal income taxes ----------- 132,702 130,851 37,825 49,081
Net Income before
Minority Interest ------ 381,544 407,050 126,076 154,325
Minority interest in
consolidated subsidiaries ---- 10,767 -- 6,766 --
Net Income --------------- $ 370,777 $ 407,050 $ 119,310 $ 154,325
Net Income Per Share ----------- $3.55 $3.91 $1.14 $1.48
Cash Dividends Per Share
Common Stock ----------------- $1.38 $1.29 $ .46 $ .43
See notes to consolidated financial statements on page 7.
</TABLE>
<PAGE> -5-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30
Number of Shares Issued Amounts
(000's omitted from dollar amounts) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Preferred Stock:
(Shares authorized: 10,000,000)
Series A Preferred Stock:
Balance at
beginning of year -------- 40,646 43,218 $ 1,335 $ 1,420
Conversion into
common stock ------------- (3,066) (2,072) (100) (68)
Balance at September 30 - 37,580 41,146 1,235 1,352
Series E and F Preferred Stock:
Balance at beginning of year -- 4,417,897 -- 309,913
Conversion into
common stock ------------- -- (4,417,897) -- (309,913)
Balance at September 30 - -- -- -- --
Common Stock:
(Shares authorized: 800,000,000)
Balance at beginning of year -104,185,117 94,477,942 889,476 555,382
Conversion of series A
preferred stock ------------ 24,528 16,576 100 68
Conversion of E and F
preferred stock ------------ -- 8,835,794 -- 309,913
Issued for benefit plans ----- 151,335 631,001 3,997 20,931
Balance at September 30 -104,360,980 103,961,313 893,573 886,294
Retained Earnings:
Balance at beginning of year - 2,775,718 2,479,532
Net income ------------------- 370,777 407,050
Realized gain (loss) on sale
of minority interest
in subsidiary -------------- 34,371 --
Cash dividends declared ------ (143,443) (138,267)
Balance at September 30 - 3,037,423 2,748,315
Foreign Currency Translation Adjustment:
Accumulated adjustment at
beginning of year ---------- 13,413 6,890
Change during period --------- 678 9,693
Balance at September 30 - 14,091 16,583
Net Unrealized Gain (Loss) on
Securities Available-for-Sale:
Balance at beginning of year - 698,180 (311,077)
Realized gain (loss) on sale
of minority interest
in subsidiary --------------- (19,101) --
Other change during period --- (337,528) 1,007,821
Balance at September 30 - 341,551 696,744
Total Shareholders' Equity
at September 30 ------- $4,287,873 $4,349,288
Common Stock (assuming conversion
of series A, E & F preferred stock):
End of Period -----------104,661,620 104,290,481
Average for the Period --104,587,473 103,986,236
See notes to consolidated financial statements on page 7.
</TABLE>
<PAGE> -6-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
(000's omitted) 1996 1995
<S> <C> <C>
Operating Activities:
Net income ---------------------------------------- $ 370,777 $ 407,050
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred acquisition costs -------------------- 35,960 (44,458)
Premiums and fees receivable ------------------ (248,480) (143,065)
Accrued investment income --------------------- (3,078) (36,746)
Policy liabilities and accruals --------------- (207,315) 904,160
Contractholder funds -------------------------- 1,187,301 751,652
Amounts recoverable from reinsurers ----------- (42,846) (335,104)
Federal income taxes -------------------------- (7,764) 133,580
Equity in undistributed earnings of
unconsolidated affiliates ------------------- (1,265) (11,493)
Minority interest ----------------------------- 10,767 --
Provisions for depreciation ------------------- 38,941 46,365
Amortization of goodwill and other
intangible assets ---------------------------- 58,465 47,412
Realized (gain) loss on investments ----------- (102,614) (174,473)
(Gain) loss on sale of affiliate/
operating property -------------------------- -- --
Other ----------------------------------------- (125,096) 81,537
Net Adjustments ----------------------------- 592,976 1,219,367
Net Cash Provided by Operating Activities --- 963,753 1,626,417
Investing Activities:
Securities-available-for-sale:
Purchases -------------------------------------- (10,736,299)(12,647,232)
Sales ------------------------------------------ 9,816,116 10,913,583
Maturities ------------------------------------- 805,018 688,757
Purchase of other investments -------------------- (1,830,913) (1,072,918)
Sale or maturity of other investments ------------ 1,587,218 952,208
Sale of affiliates/operating property ------------ -- --
Purchase of affiliates --------------------------- -- (772,000)
Increase (decrease) in cash collateral
on loan securities ----------------------------- 159,774 132,016
Other -------------------------------------------- (294,994) 27,018
Net Cash Used in Investing Activities ------ (494,080) (1,778,568)
Financing Activities:
Principal payments on long-term debt ------------- (9,766) (399)
Issuance of long-term debt ----------------------- 1,715 202,790
Net increase (decrease) in short-term debt ------- (197,576) 85,019
Issuance of preferred securities of
subsidiary companies --------------------------- 315,000 --
Universal life and investment contract deposits -- 853,982 1,854,514
Universal life and investment
contract withdrawals --------------------------- (1,646,479) (1,578,373)
Common stock issued for benefit plans ------------ 3,997 20,931
Proceeds from sale of minority interest
in subsidiary ----------------------------------- 215,481 --
Dividends paid to shareholders ------------------- (143,373) (134,207)
Net Cash Provided by (used by) Financing
Activities -------------------------------- (607,019) 450,275
Net Increase (Decrease) in Cash------------- (137,346) 298,124
Cash at Beginning of Year -------------------------- 1,572,855 1,041,583
Cash at September 30 ----------------------- $1,435,509 $1,339,707
See notes to consolidated financial statements on page 7.
</TABLE>
<PAGE> -7-
LINCOLN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements include Lincoln National
Corporation ("LNC") and its majority-owned subsidiaries. Less than majority-
owned entities in which LNC has at least a 20% interest are reported on the
equity basis. These unaudited consolidated statements have been prepared in
conformity with generally accepted accounting principles, except that they do
not contain complete notes. However, in the opinion of management, these
statements include all normal recurring adjustments necessary for a fair
presentation of the results. These financial statements should be read in
conjunction with the financial statements and the related notes included in
LNC's latest annual report to shareholders for the year ended December 31,
1995.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1996.
2. Federal Income Taxes
The effective tax rate on net income is lower than the prevailing corporate
federal income tax rate. The difference for both 1995 and 1996 resulted
principally from tax-exempt investment income.
3. Earnings Per Share
Earnings per share are computed based on the average number of common shares
outstanding (104,587,473 and 103,986,236 for the first nine months of 1996 and
1995, respectively) after assuming conversion of the series A, E and F
preferred stock.
4. Sale of Minority Interest in Subsidiary
During the first quarter of 1996, LNC announced that it would be offering a
minority interest position in its principal subsidiary within its Property-
Casualty segment (American States Financial Corporation) to the public in the
form of an initial public offering of common stock. During the second quarter
of 1996 1) a registration statement was filed with the Securities and Exchange
Commission, 2) the shares were marketed and 3) the transaction closed. As a
result of this offering, American States Financial Corporation received $215.4
million in cash on May 29, 1996, net of expenses, for the sale of 16.7% of its
common stock. LNC recorded a non-taxable realized gain of $15.3 million
after expenses associated with the sale, directly in shareholders' equity.
LNC continues to fully consolidate this operation within its financial
statements and tax reporting.
5. Subsequent Event
In October 1996, LNC closed the transaction initially announced in January
1996 that resulted in the acquisition of the group tax-qualified annuity
business of UNUM Corporation's affiliates. This transaction will increase
LNC's assets and policy liabilities and accruals by approximately $3.2
billion.
<PAGE> -8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION
REVIEW OF CONSOLIDATED OPERATIONS
The pages to follow review LNC's results of consolidated operations and
financial condition. Historical financial information is presented and
analyzed. Where appropriate, factors that may affect future financial
performance are identified and discussed. Actual results could differ
materially from those indicated in forward-looking statements due to, among
other specific changes currently not known, subsequent significant changes in:
the company (e.g. acquisitions and divestitures), financial markets (e.g.
interest rates and securities markets), legislation (e.g. taxes and product
taxation), regulations (e.g. insurance and securities regulations), acts of
God (e.g. hurricanes, earthquakes and storms), other insurance risks (e.g.
policyholder mortality and morbidity) and competition.
The discussion that follows focuses on the results for the nine months
ended September 30, 1996 compared to the results for the nine months ended
September 30, 1995. The factors affecting the current quarter to prior year
quarter comparisons are essentially the same as the year-to-date factors
except as noted.
Insurance Premiums
Total insurance premiums increased $53.9 million or when 2.3% compared
with the first nine months of 1995. Life and annuity premiums for the first
nine months of 1996 increased $53.2 million or 10% compared with the first
nine months of 1995. This increase is the result of increases in business
volume from the Reinsurance and Life Insurance and Annuities segments. Health
premiums increased $61.9 million or 12% for the first nine months of 1996
compared with the first nine months of 1995 as a result of increased volumes
of business in the Reinsurance segment. Property-casualty premiums decreased
by $61.2 million or 5% compared with the nine months ended September 30, 1995
due to reduced volumes of business primarily from workers compensation
coverages.
Insurance Fees
Insurance fees in the Life Insurance and Annuities segment from universal
life, other interest-sensitive life insurance contracts and variable life
insurance contracts increased $67.6 million or 17% compared to the first nine
months of 1995. This increase was the result of increases in the volume of
transactions and a market-driven increase in the value of existing customer
accounts upon which some of the fees are based.
Investment Advisory Fees
This line was added to the statements of income in the second quarter of
1995 following LNC's purchase of Delaware Management Holdings, Inc. This
acquisition also led to the formation of a new business segment entitled
"Investment Management." Investment advisory fees for the six months ended
September 30, 1996 were $9.3 million or 10% higher than the comparable period
of 1995 due to increased volumes of business.
Net Investment Income
Net investment income increased $61.7 million or 4% when compared with
the first nine months of 1995. This increase is the net result of a 4.8%
increase in mean invested assets and a decrease in the overall yield on
investments from 7.72% to 7.52% (all calculations on a cost basis). Net
investment income for the first nine months of 1996 included a charge of $4.1
million versus a benefit of $17.5 million in the first nine months of 1995
from the recurring adjustment of discount on mortgage-backed securities. The
increase in mean invested assets is the result of increased volumes of
business in the Life Insurance and Annuities and Reinsurance segments.
Equity in Earnings of Unconsolidated Affiliates
This line was added to the statements of income in 1994 following LNC's
sale of 71% of its direct writer of health coverages. Most of the amount
shown for the nine months ended September 30, 1995 represents LNC's share of
the total earnings of this company. Due to the October 11, 1995 sale of the
remaining 29% ownership in this company, minimal activity is shown in this
account for the nine months ended September 30, 1996.
<PAGE> -9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED OPERATIONS (continued)
Realized Gain on Investments
The first nine months of 1996 and 1995 had pre-tax realized gain on
investments of $102.6 million and $174.5 million, respectively. The pre-tax
realized gain on investments for the three months ended September 30, 1996 and
1995 were $1.8 million and $68.1 million, respectively. During the third
quarter of 1996 select investment losses were taken in order to recover
capital gains taxes paid in prior years. These gains, which are net of
related deferred acquisition costs and amounts needed to satisfy policyholder
commitments, were the result of net gains on sales of investments, less some
modest write-downs and provisions for losses. Securities available-for-sale,
mortgage loans on real estate and real estate holdings that were deemed to
have declines in fair value that were other than temporary were written down.
In addition to the write-downs, LNC established allowances for losses on
select mortgage loans on real estate, real estate investments and other
investments where the carrying value was determined not to be recoverable.
The pre-tax write-down of securities available-for-sale for the first
nine months of 1996 and 1995 was $10.3 million and $17.3 million,
respectively. With the exception of interest only mortgage-backed securities,
the fixed maturity securities to which these write-downs apply were generally
of investment grade quality at the time of purchase, but were classified as
"below investment grade" at the time of the write-downs. The net pre-tax
write-downs and additions to the allowances for losses on real estate and
mortgage loans on real estate for the first nine months of 1996 and 1995 were
$2.6 million and $5.2 million, respectively. The pre-tax addition (reduction)
to the allowance for losses for other investments for the first nine months of
1996 and 1995 was $(.2) million and $(4.1) million, respectively.
Other Revenue
Other revenue increased $13.2 million when compared to the first nine
months of 1995 as the net result of an increase in the volume of transactions
within the Life Insurance and Annuities business segment being partially
offset by the absence of revenues from the investment management companies
that were being recorded in this account until the start of the new business
segment in the second quarter of 1995.
Insurance Benefits and Settlement Expenses
Insurance benefits and settlement expenses increased $50.0 million or
$1.7% when compared to the first nine months of 1996. Life and annuity
benefits and settlement expenses increased $27.0 million or 2% when compared
to the first nine months of 1995. This increase is the net result of
increases in business volume from the Life Insurance and Annuities segment and
Reinsurance segment. Health benefits increased by $51.7 million or 12% when
compared to the first nine months of 1995 as a net result of increased volumes
of business and decreased claims in the Reinsurance segment.
Property-casualty benefits decreased by $28.7 million or 3% when compared with
the first nine months of 1995 as a result of a decrease in business volume.
Underwriting, Acquisition, Insurance and Other Expenses
This expense increased $137.2 million or 10% for the nine months ended
September 30, 1996 compared to the first nine months of 1995. The primary
driver behind this increase, beyond the general inflation rate, was the higher
volume related expenses in the Life Insurance and Annuity segment and
Reinsurance segment due to the increase in business volumes and the addition
of the operating expenses of the companies acquired early in the second
quarter of 1995. These expenses for the Property-Casualty segment decreased
$30.9 million or 8% compared with a year ago as the impact of consolidating 20
divisional offices into four regional offices started to be realized and the
adjusting of staff levels to the current level of business continued.
<PAGE> -10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED OPERATIONS (continued)
Interest and Debt Expense
Interest and debt expense increased $7.2 million or 13.5% when compared
with the first nine months of 1995. This was the result of increases in the
average debt outstanding and increases in short-term interest rates. Overall
debt levels were higher due to debt related to the acquisitions of additional
companies in the second quarter of 1995. The interest and debt expense in the
third quarter of 1996 compared with the third quarter of 1995 was impacted by
the issuance of Minority Interest-Preferred Securities of Subsidiary Companies
(see page 15) to replace a portion of the short-term debt.
Federal Income Taxes
Federal income taxes increased $1.9 million or 1.4% when compared to the
first nine months of 1995. The increase in federal income taxes is a net
result of the increase in taxes due to permanent tax adjustments being greater
than the decrease in taxes resulting from lower pre-tax earnings.
Minority Interest in Consolidated Subsidiaries
This line was added to the income statement to record the earnings
applicable to the minority shareholders following the sale of 16.7% of LNC's
principal subsidiary within its Property-Casualty segment (see note 4 on page
7).
Summary
Net income for the first nine months of 1996 was $370.8 million or $3.55
per share compared with $407.1 million or $3.91 per share in the first nine
months of 1995. Excluding realized gain on investments, affiliates and
operating property, LNC earned $307.0 million for the first nine months of
1996 compared with $297.1 million for the first nine months of 1995. This
increase was the net result of increases in earnings in the Life Insurance and
Annuities, Reinsurance and Investment Management segments being partially
offset by reductions in earnings from the Property-Casualty segment and
Corporate and Other.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION
Investments
The total investment portfolio decreased $723.6 million in the first nine
months of 1996. This decrease is the net result of decreases in the fair
value of securities available-for-sale during the first nine months of 1996
being partially offset by increases from the purchases of investments from
cash flow generated by the business segments.
The quality of LNC's fixed maturity securities portfolio as of September
30, 1996 was as follows:
Treasuries and AAA 33.2% BBB 22.3%
AA 10.5% BB 2.8%
A 27.8% Less than BB 3.4%
As of September 30, 1996, $1.6 billion or 6.2% of fixed maturity
securities was invested in below investment grade securities (less than BBB).
This represents 5.0% of the total investment portfolio. The interest rates
available on these below investment grade securities are significantly higher
than are available on other corporate debt securities. Also, the risk of loss
due to default by the borrower is significantly greater with respect to such
below investment grade securities, because these securities are generally
unsecured, often subordinated to other creditors of the issuer and issued by
companies that usually have high levels of indebtedness. LNC attempts to
minimize the risks associated with these below investment grade securities by
limiting the exposure to any one issuer and by closely monitoring the credit
worthiness of such issuers. During the nine months ended September 30, 1996,
the aggregate cost of such investments purchased was $872.7 million.
Aggregate proceeds from such investments sold were $894.6 million, resulting
in a net realized pre-tax gain of $18.0 million.
<PAGE> -11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
LNC's entire fixed maturity and equity securities portfolio is classified
as "available-for-sale" and is carried at fair value. Changes in fair value,
net of related deferred acquisition costs, amounts required to satisfy
policyholder commitments and taxes, are charged or credited directly to
shareholders' equity.
As of September 30, 1996, mortage loans on real estate and real estate
represented 10.8% and 2.5% of LNC's total investment portfolio. As of
September 30, 1996, the underlying properties supporting the mortgage loans on
real estate consisted of 21.4% in commercial office buildings, 28.3% in retail
stores, 20.4% in apartments, 14.6% in industrial buildings, 5.9% in
hotels/motels and 9.4% in other. In addition to the dispersion by property
type, the mortgage loan portfolio is geographically diversified throughout the
United States.
<TABLE>
<CAPTION>
Impaired loans included along with the related allowance for losses are
as follows: September 30 December 31
(in millions) 1996 1995
<S> <C> <C>
Impaired loans with allowance for losses --------- $159.2 $150.9
Allowance for losses ----------------------------- (30.1) (29.6)
Impaired loans with no allowance for losses ------ 2.3 2.2
Net Impaired Loans ----------------------------- $131.4 $123.5
</TABLE>
Impaired loans with no allowance for losses are a result of 1)direct
write-downs or 2)collateral dependent loans where the fair value of the
collateral is greater than the recorded investment in the loan.
<TABLE>
<CAPTION>
A reconciliation of the mortgage loan allowance for losses for these
impaired mortgage loans is as follows:
Nine Months Ended September 30 (in millions) 1996 1995
<S> <C> <C>
Balance at beginning of year --------------------- $29.6 $ 62.7
Provisions for losses ---------------------------- 2.5 12.9
Releases due to sales ---------------------------- (1.6) (24.0)
Releases due to foreclosures --------------------- (.4) (8.3)
Balance at End of Quarter ---------------------- $30.1 $43.3
</TABLE>
<TABLE>
<CAPTION>
The average recorded investment in impaired loans and the interest
income recognized on impaired loans were as follows:
Nine Months Ended September 30 (in millions) 1996 1995
<S> <C> <C>
Average recorded investment in impaired loans ---- $161.4 $201.9
Interest income recognized on impaired loans ----- 11.2 12.8
</TABLE>
All interest income on impaired loans was recognized on the cash basis
of income recognition.
As of September 30, 1996 and 1995, LNC had restructured loans of $62.5
million and $61.9 million, respectively. LNC recorded $4.2 million and $4.4
million interest income on these restructured loans for the nine months ended
September 30, 1996 and 1995, respectively, as compared to interest income of
$4.9 million and $4.9 million that would have been recorded according to their
original terms. The $4.4 million recorded for 1995 included $1.0 million in
interest income that was due LNC prior to January 1, 1995.
As of September 30, 1996, LNC did not have any future commitments to lend
funds for non-accrual, restructured or other problem loans.
Fixed maturity securities available-for-sale, mortgage loans on real
estate and real estate with a combined carrying value at September 30, 1996 of
$8.2 million were non-income producing for the nine months ended September 30,
1996.
<PAGE> -12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
Cash and Invested Cash
Cash and invested cash decreased by $137.3 million in the first nine
months of 1996. This decrease is the result of investing a portion of the
operating cash flow that had previously been invested in short-term
investments pending the placement of funds in longer term investments.
Deferred Acquisition Costs
Deferred acquisition costs increased $523.1 million during the nine
months ended September 30, 1996. A portion of this increase ($215.3 million)
was the result of a balance sheet reclassification between deferred
acquisitions costs and policy liabilities and accruals by LNC's United Kingdom
subsidiary. This reclassification was made in order to more closely conform
the United Kingdom classifications to the classifications used by LNC's U.S.
life operations. The remainder of the increase is the result of the growth in
business and increases related to the reduction in the unrealized gain on
securities available-for-sale during the nine months ended September 30, 1996.
Premiums and Fee Receivable
Premiums and fees receivable increased $248.3 million in the first nine
months of 1996 as the result of increased volumes of business in the
Reinsurance segment.
Assets Held in Separate Accounts
This asset account as well as the corresponding liability account
increased by $3.9 billion in the first nine months of 1996, reflecting an
increase in annuity funds under management.
Goodwill and Other Intangible Assets
The decreases in the amounts during the nine months ended September 30, 1996
represent amortization for the period.
Other Assets
The increase in other assets of $144.8 million is the result of having a
higher receivable related to investment securities sold in the last few days
of the third quarter of 1996 versus the end of 1995.
Total Liabilities
Total liabilities increased by $3.8 billion in the first nine months of
1996. This increase is the result of increases of $3.9 billion in the
liabilities related to separate accounts and $211.3 million minority interest
in consolidated subsidiaries being partially offset by a reduction in federal
income taxes payable and contractholder funds. An increase in policy
liabilities and accruals related to increased levels of business in the Life
Insurance and Annuities and Reinsurance segments were mostly offset by the
reclassification discussed above under the deferred acquisition costs heading.
The slight reduction in contractholder funds is the net result of new deposits
being more than offset by 1) decreases in account values related to decreases
in the fair value of securities available-for-sale and 2) the withdrawal of
guaranteed interest contract funds because of the decision to exit this
business. During the second quarter of 1996, a new liability line entitled
"Minority Interest in Consolidated Subsidiaries" was established (see note 4
on page 7).
Total property-casualty liabilities for unpaid claims and claims expenses
were $2.5 billion and $2.6 billion at September 30, 1996 and December 31,
1995, respectively. These liabilities include liabilities for environmental
claims of $254 million and $256 million at September 30, 1996 and December 31,
1995, respectively. Because of the limited coverages that have been written
by LNC, these reserves represent only 10% of LNC's total property-casualty
liabilities and only 1.9% of LNC's total policy liabilities. On a claims
<PAGE> -13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
count basis these environmental losses represent only 3% of the direct
property-casualty business. These percentages and amounts are at these levels
due to LNC's concentration on writing coverages for small to medium size
companies rather than the larger companies that tend to incur most of the
environmental and product liability claims. LNC's management challenges
environmental claims in cases of questionable liability and reviews the level
of environmental liability on an on-going basis to help insure that the
liability maintained is adequate. Nonetheless, establishing reserves for
environmental losses is subject to significant uncertainties because of the
long reporting delays, lack of historical data and the unresolved complex
legal and regulatory issues that are involved. While it is management's
judgement that, based on available information, the appropriate level of
liabilities have been recorded, it is reasonably possible that a change in
estimate of the required liability level could occur in the near term.
The liability for disability income claims net of the related assets for
amounts recoverable from reinsurers was $1.5 billion at both September 30,
1996 and December 31, 1995. LNC reviews and updates the level of these
reserves on an on-going basis. These reserves were established on the
assumption that recent experience will continue in the future. If incidence
levels or claim termination rates vary significantly from these assumptions,
further adjustments to reserves may be required in the future.
The liabilities for guaranteed interest and group pension annuity
contracts, which are no longer being sold, are supported by a single portfolio
of assets which attempts to match the duration of these liabilities. Due to
the very long-term nature of group pension annuities and the resulting
inability to exactly match cash flows, a risk exists that future cash flows
from investments will not be reinvested at rates as high as currently earned
by the portfolio. This situation could cause losses in excess of amounts
provided to be recognized at some future time.
Minority Interest - Preferred Securities of Subsidiary Companies
This line was added to the balance sheet to accommodate the financing
activity described within the Liquidity and Cash Flow section on page 15.
Shareholders' Equity
Total shareholders' equity decreased $90.2 million in the first nine
months of 1996. Excluding the decrease of $337.5 million related to a decline
in the unrealized gains on securities available-for-sale, shareholders' equity
increased $247.3 million. This increase was the net result of $370.8 million
from net income, $15.3 million from the gain on sale of a minority interest in
a subsidiary, $.7 million related to an increase in the accumulated foreign
exchange gain and $4.0 million from the issuance of common stock related to
benefit plans, being partially offset by the declaration of dividends to
shareholders of $143.4 million.
Derivatives
As discussed in note 7 to the consolidated financial statements for the
year ended December 31, 1995 (see page 58 of LNC's Form 10-K), LNC has entered
into derivative transactions to reduce its exposure to fluctuations in
interest rates, the widening of bond yield spreads over comparable maturity
U.S. Government obligations and foreign exchange risks (hedged transactions).
Changes in the value of these derivatives are generally offset by changes in
the value of the items being hedged. Modifications to LNC derivative strategy
are initiated periodically upon review of the company's overall risk
assessments. During the first nine months of 1996, LNC has made modifications
in its derivative positions as follows:
1. Added $400 million notional of interest rate caps to protect its
annuity line of business from the effect of fluctuating interest rates.
LNC also added $80 million notional of interest rate caps to hedge a
portfolio of interest rate sensitive assets. As a result, LNC has increased
its interest rate cap position from $5.1 billion to $5.6 billion.
<PAGE> -14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
2. Terminated $600 million notional of spread-lock agreements. Gains
totaling $1.6 million resulting from these transactions are being
deferred over the lives of the hedged assets.
3. Entered into a foreign currency spread-lock agreement with $15 million
notional to hedge against a widening of the spread on two currencies.
A loss of $.2 million was recorded in the third quarter of 1996 as the
result of the termination of this agreement.
4. Terminated $106.7 million notional of long financial futures
that were being used to hedge interest rate risks.
5. Added $2.1 billion face amount of long financial futures to hedge the
anticipated purchase of a portfolio of assets to support the group tax-
qualified annuity business from UNUM Corporation's affiliates
(see note 5 on page 7). As of September 30, 1996, losses on these
long financial futures totaled $82.7 million. These losses have been
deferred and will become adjustments to the carrying value of the
assets being acquired in conjunction with this acquisition.
6. Increased the use of foreign exchange forward contracts in early 1996 to
$507.4 million notional from $398.8 million notional to hedge the
company's net investment in its foreign subsidiary, Lincoln National
(UK). A loss of $6.5 million resulting from the termination of these
contracts was recorded in the foreign currency translation adjustment
section of shareholders' equity in the third quarter of 1996.
7. Increased the use of foreign exchange forward contracts that were
hedging the foreign currency risk of its portfolio of foreign bonds
from $15.7 million notional to $173.8 million notional.
8. Increased the use of foreign currency options as a hedge of the currency
risk of foreign bonds. Various purchases and disposals during the nine
months has changed the December 31, 1995 position of $99.2 million
notional to $202.1 million notional as of September 30, 1996. The
termination transactions during the nine months ended September 30, 1996
have resulted in a net loss of $2.9 million.
9. Entered into an interest rate swap totaling $140 million notional to
hedge interest rate risk associated with a portfolio of assets.
10. Entered into $660.5 million notional of swaptions to hedge a
portfolio of interest rate sensitive assets.
11. Entered into $703 million notional of interest rate floors to hedge\
the interest rate risk associated with a portfolio of assets.
LNC generally limits its selection of couterparties that are obligated under
these derivative contacts to counterparties that have an A credit rating or
above.
Liquidity and Cash Flow
Liquidity refers to the ability of an enterprise to generate adequate
amounts of cash from its normal operations to meet cash requirements with a
prudent margin of safety. Because of the interval of time from receipt of a
deposit or premium until payment of benefits or claims, LNC and other insurers
employ investment portfolios as an integral element of operations. By
segmenting its investment portfolios along product lines, LNC enhances the
focus and discipline it can apply to managing the liquidity as well as the
interest rate and credit risk of each portfolio commensurate with the profile
of the liabilities. For example, portfolios backing products with less
certain cash flows and/or withdrawal provisions are kept more liquid than
portfolios backing products with more predictable cash flows.
<PAGE> -15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
The consolidated statements of cash flows on page 6, indicates that
operating activities provided cash of $962.0 million during the first nine
months of 1996. This statement also classifies the other sources and uses of
cash by investing activities and financing activities and discloses the total
amount of cash available to meet LNC's obligations.
Although LNC generates adequate cash flow to meet the needs of its normal
operations, periodically LNC may issue debt or equity securities to fund
internal expansion, acquisitions, investment opportunities and the retirement
of LNC's debt and equity. As of September 30, 1996 LNC has a shelf
registration with an unused balance of $600 million that would allow LNC to
issue debt or equity securities. In May 1996, LNC filed another shelf
registration with the Securities and Exchange Commission for $500 million
which included the right to offer various forms of hybrid securities. These
securities, which have a combination of both debt and equity characteristics,
utilize a series of three trusts, all of whose common securities are owned by
LNC (Lincoln National Capital I, II and III). Also, cash funds are available
from LNC's revolving credit agreement which provides for borrowing up to $750
million.
Transactions such as those described in the preceding paragraph that
occurred recently included a July 1996 transaction involving $215 million,
8.75% Quarterly Income Preferred Securities ("QUIPS") and an August 1996
transaction involving $100 million, 8.35% Trust Originated Preferred
Securities ("TOPrS"). Both issues are due in 2026 (callable in 2001). These
securities are shown on the accompanying balance sheet under a caption
entitled "Minority Interest-Preferred Securities of Subsidiary Companies."
This line item is located between the liability and shareholders' equity
sections of the balance sheet. The proceeds from these transactions were used
to pay down short-term debt.
As described in note 4 to the accompanying financial statements, LNC sold
16.7% of its principal subsidiary within the Property-Casualty segment to the
public in the form of an initial public offering of common stock. The net
cash proceeds after expenses from the sale of common stock of this subsidiary
of $215.4 million is being used to increase the capital base of the property
casualty operations and to meet working capital needs of the related holding
company. In conjunction with this offering this subsidiary issued $200
million of term debt payable to LNC plus $100 million, 7 1/8% debt due in
1999. Also, prior to closing, this subsidiary made a one-time, special
dividend distribution of $300 million to LNC. This dividend distribution
consisted primarily of tax-exempt municipal securities that were previously in
the subsidiary's investment portfolio. Following the completion of the
transaction, this subsidiary adopted a policy of declaring regular quarterly
cash dividends, commencing with $.21 per share in the third quarter of 1996.
As of September 30, 1996, LNC owns 50,000,000 of the 60,050,515 outstanding
shares of the common stock of this subsidiary.
<PAGE> -16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION (continued)
REVIEW OF CONSOLIDATED FINANCIAL CONDITION (continued)
PART II - OTHER INFORMATION AND EXHIBITS
Items 1, 2, 3, and 4 of this Part II are either inapplicable or are
answered in the negative and are omitted pursuant to the instructions to
Part II.
Item 5. Other Information
On August 8, 1996, LNC's Bylaws were amended to provide that shareholder
meetings could be called by those shareholders who held not less than
a majority (previously 25%) of the outstanding shares and that the shares
constituting such majority must have been held by those shareholders for
at least two years.
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits of the Registrant are included in this report.
(Note: The number preceding the exhibit corresponds to the specific
number within Item 601 of Regulation S-K.)
3(a) Bylaws of LNC as last amended August 8, 1996
11 Computation of Per Share Earnings
12 Historical Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September
30, 1996.
<PAGE> -17-
SIGNATURE PAGE
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,
Executive Vice President and
Chief Financial Officer
/S/ Donald L. Van Wyngarden
Donald L. Van Wyngarden,
Second Vice President and Controller
Date November 1, 1996
<PAGE> -18-
LINCOLN NATIONAL CORPORATION
Exhibit Index for the Report on Form 10-Q
for the Quarter Ended September 30, 1996
Exhibit Number Description Page Number
3(a) Bylaws of LNC as last amended
August 8, 1996 19
11 Computation of Per Share Earnings 30
12 Historical Ratio of Earnings to
Fixed Charges 31
27 Financial Data Schedule 32
EXHIBIT 3(a)
Adopted January 17, 1968; as Last Amended August 8, 1996
BYLAWS
OF
LINCOLN NATIONAL CORPORATION
ARTICLE I
Shareholders
Section 1. Annual Meeting. An annual meeting of the shareholders
shall be held at such hour and on such date as the board of directors may
select in each year for the purpose of electing directors for the terms
hereinafter provided and for the transaction of such other business as may
properly come before the meeting. (Amended January 9, 1991)
Section 2. Special Meetings. Special meetings of the shareholders
may be called by the chief executive officer, by the board of directors, or by
the holders of shares representing not less than a majority of all votes
entitled to be cast on any issue to be considered at the special meeting;
provided, that the shares comprising any such majority must have been
beneficially owned by the shareholders calling the meeting for at least two
years. Shareholders intending to call a special meeting must sign, date and
deliver to the secretary of the corporation one or more written demands for
the meeting describing the purpose or purposes for which it is to be held.
Only business within the purpose or purposes described in the meeting
notice may be conducted at a special shareholders meeting. (Last
amended August 8, 1996)
Section 3. Place of Meetings. All meetings of shareholders shall be
held at the principal office of the corporation in Fort Wayne, Indiana, or at
such other place, either within or without the State of Indiana, as may be
designated by the board of directors. (Amended November 6, 1986)
Section 4. Notice of Meetings. A written or printed notice, stating
the place, day and hour of the meeting, and in the case of a special
meeting or when required by law or by the articles of incorporation or these
bylaws, the purpose or purposes for which the meeting is called, shall be
delivered or mailed by or at the direction of the secretary no fewer than ten
nor more than sixty days before the date of the meeting, to each
shareholder of record entitled to vote at such meeting at such address as
appears upon the stock records of the corporation. (Last amended August
10, 1989)
Section 5. Quorum. Unless otherwise provided by the articles of
incorporation or these bylaws, at any meeting of shareholders the majority
of the outstanding shares entitled to vote at such meeting, represented in
person or by proxy, shall constitute a quorum. If less than a majority of such
shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time. The shareholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum. (Amended November 6, 1986)
Section 6. Adjourned Meetings. At any adjourned meeting at which
a quorum shall be represented any business may be transacted as might
have been transacted at the meeting as originally notified. If a new record
date is or must be established pursuant to law, notice of the adjourned
meeting must be given to persons who are shareholders as of the new
record date. (Added November 6, 1986)
Section 7. Proxies. At all meetings of shareholders, a shareholder
may vote either in person or by proxy executed in writing by the shareholder
or a duly authorized attorney in fact. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the
proxy.
Section 8. Voting of Shares. Except as otherwise provided by law,
by the articles of incorporation, or by these bylaws, every shareholder shall
have the right at every shareholders' meeting to one vote for each share
standing in his name on the books of the corporation on the date
established by the board of directors as the record date for determination of
shareholders entitled to vote at such meeting. (Amended May 7, 1987)
Section 9. Order of Business. The order of business at each
shareholders' meeting shall be established by the person presiding at the
meeting. (Amended March 16, 1972)
Section 10. Notice of Shareholder Business. At any meeting of the
shareholders, only such business may be conducted as shall have been
properly brought before the meeting, and as shall have been determined to
be lawful and appropriate for consideration by shareholders at the meeting.
To be properly brought before a meeting business must be (a) specified in
the notice of meeting given in accordance with Section 4 of this Article I, (b)
otherwise properly brought before the meeting by or at the direction of the
board of directors or the chief executive officer, or (c) otherwise properly
brought before the meeting by a shareholder. For business to be properly
brought before a meeting by a shareholder pursuant to clause (c) above,
the shareholder must have given timely notice thereof in writing to the
secretary of the corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal office of the corporation,
not less than fifty days nor more than ninety days prior to the meeting;
provided, however, that in the event that less than sixty days' notice of the
date of the meeting is given to shareholders, notice by the shareholder to
be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting
was given. A shareholder's notice to the secretary shall set forth as to each
matter the shareholder proposes to bring before the meeting (a) a brief
description of the business desired to be brought before the meeting, (b) the
name and address, as they appear on the corporation's stock records, of
the shareholder proposing such business, (c) the class and number of
shares of the corporation which are beneficially owned by the shareholder,
and (d) any interest of the shareholder in such business. Notwithstanding
anything in these bylaws to the contrary, no business shall be conducted at
a meeting except in accordance with the procedures set forth in this Section
10. The person presiding at the meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the bylaws, or that business
was not lawful or appropriate for consideration by shareholders at the
meeting, and if he should so determine, he shall so declare to the meeting
and any such business shall not be transacted. (Last amended January 11,
1987)
Section 11. Notice of Shareholder Nominees. Nominations of
persons for election to the board of directors of the corporation may be
made at any meeting of shareholders by or at the direction of the board of
directors or by any shareholder of the corporation entitled to vote for the
election of directors at the meeting. Shareholder nominations shall be made
pursuant to timely notice given in writing to the secretary of the corporation
in accordance with Section 10 of this Article I. Such shareholder's notice
shall set forth, in addition to the information required by Section 10, as to
each person whom the shareholder proposes to nominate for election or re-
election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person, (iv) any other information relating to
such person that is required to be disclosed in solicitation of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected),
and (v) the qualifications of the nominee to serve as a director of the
corporation. No shareholder nomination shall be effective unless made in
accordance with the procedures set forth in this Section 11. The person
presiding at the meeting shall, if the facts warrant, determine and declare to
the meeting that a shareholder nomination was not made in accordance
with the bylaws, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded. (Last amended
January 11, 1987)
Section 12. Control Share Acquisitions. As used in this Section 12,
the terms "control shares" and "control share acquisition" shall have the
same meanings as set forth in Indiana Code Section 23-1-42-1 et seq. (the
"Act"). Control shares of the corporation acquired in a control share
acquisition shall have only such voting rights as are conferred by the Act.
Control shares of the corporation acquired in a control share acquisition with
respect to which the acquiring person has not filed with the corporation the
statement required by the Act may, at any time during the period ending
sixty days after the last acquisition of control shares by the acquiring
person, be redeemed by the corporation at the fair value thereof pursuant to
procedures authorized by a resolution of the board of directors. Such
authority may be general or confined to specific instances. (Added May 7,
1987)
Section 13. Voting Procedures on Change of Control. In addition
to any other authority granted under Indiana law for the corporation to enter
into any arrangement, agreement or understanding with respect to the
voting of voting shares, pursuant to the authority granted in Indiana Code
Section 23-1-22-4, the corporation shall have the power to enter into any
arrangement, agreement or understanding of any nature whatsoever and for
any duration whereby the board of directors or any group of directors of the
corporation can specify or direct the voting by any other person of any
shares of any class or series beneficially owned by such person, or as to
which such person has the direct or indirect power to direct the voting, in
connection with a change of control of the corporation. As used in this
Section 13, the term "control" shall have the same meaning as set forth in
Indiana Code Section 23-1-22-4.
In the event that an arrangement, agreement or understanding is in
effect, and the voting shares of the corporation are not voted in accordance
with any such arrangement, agreement or understanding, neither such
voting shares nor such votes shall be counted in connection with any vote
of the corporation's shareholders relating to any aspect of a change of
control. (Added June 25, 1990)
ARTICLE II
Board of Directors
Section 1. General Powers, Number, Classes and Tenure. The
business of the corporation shall be managed by a board of directors. The
number of directors which shall constitute the whole board of directors of
the corporation shall be thirteen. The number of directors may be increased
or decreased from time to time by amendment of these bylaws, but no
decrease shall have the effect of shortening the term of any incumbent
director. The directors shall be divided into three classes, each class to
consist, as nearly as may be, of one-third of the number of directors then
constituting the whole board of directors, with one class to be elected
annually by shareholders for a term of three years, to hold office until their
respective successors are elected and qualified; except that
(1) the terms of office of directors initially elected shall be
staggered so that the term of office of one class shall expire in
each year;
(2) the term of office of a director who is elected by either the
directors or shareholders to fill a vacancy in the board of
directors shall expire at the end of the term of office of the
succeeded director's class or at the end of the term of office of
such other class as determined by the board of directors to be
necessary or desirable in order to equalize the number of
directors among the classes;
(3) the board of directors may adopt a policy limiting the time
beyond which certain directors are not to continue to serve,
the effect of which may be to produce classes of unequal size
or to cause certain directors either to be nominated for election
for a term of less than three years or to cease to be a director
before expiration of the term of the director's class.
In case of any increase in the number of directors, the additional directors
shall be distributed among the several classes to make the size of the
classes as equal as possible. (Last amended January 1, 1992)
Section 2. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting of shareholders. The
board of directors may provide, by resolution, the time and place, either
within or without the State of Indiana, for the holding of additional regular
meetings without other notice than such resolution.
Section 3. Special Meetings. Special meetings of the board of
directors may be called by the chief executive officer. The secretary shall
call special meetings of the board of directors when requested in writing to
do so by a majority of the members thereof. Special meetings of the board
of directors may be held either within or without the State of Indiana. (Last
amended August 10, 1989)
Section 4. Notice of Meetings. Except as otherwise provided in
these bylaws, notice of any meeting of the board of directors shall be given,
not less than two days before the date fixed for such meeting, by oral,
telegraphic, telephonic, electronic or written communication stating the time
and place thereof and delivered personally to each member of the board of
directors or telegraphed or mailed to him at his business address as it
appears on the books of the corporation; provided, that in lieu of such
notice, a director may sign a written waiver of notice either before the time
of the meeting, at the time of the meeting or after the time of the meeting.
(Last amended November 6, 1986)
Section 5. Quorum. A majority of the whole board of directors shall
be necessary to constitute a quorum for the transaction of any business
except the filling of vacancies, but if less than such majority is present at a
meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 6. Manner of Acting. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
board of directors, unless the act of a greater number is required by law or
by the articles of incorporation or these bylaws. Unless otherwise provided
by the articles of incorporation, any action required or permitted to be taken
at any meeting of the board of directors may be taken without a meeting, if
a written consent to such action is signed by all members of the board of
directors and such written consent is filed with the minutes of proceedings
of the board of directors. Unless otherwise provided by the articles of
incorporation, any or all members of the board of directors may participate
in a meeting of the board of directors by means of a conference telephone
or similar communications equipment by which all persons participating in
the meeting can communicate with each other, and participation in this
manner constitutes presence in person at the meeting. (Last amended
effective March 14, 1991)
Section 7. Vacancies. Except as otherwise provided in the articles of
incorporation, any vacancy occurring in the board of directors may be filled
by a majority vote of the remaining directors, though less than a quorum of
the board of directors, or, at the discretion of the board of directors, any
vacancy may be filled by a vote of the shareholders. (Amended November
6, 1986)
Section 8. Notice to Shareholders. Shareholders shall be notified of
any increase in the number of directors and the name, address, principal
occupation and other pertinent information about any director elected by the
board of directors to fill any vacancy. Such notice shall be given in the next
mailing sent to shareholders following any such increase or election, or
both, as the case may be.
ARTICLE III
Officers
Section 1. Elected Officers. The elected officers of the corporation
shall be a president, a secretary, and a treasurer, and may also include a
chairman of the board, one or more vice presidents of a class or classes as
the board of directors may determine, and such other officers as the board
of directors may determine. The chairman of the board and the president
shall be chosen from among the directors. Any two or more offices may be
held by the same person. (Last amended November 6, 1986)
Section 2. Appointed Officers. The appointed officers of the
corporation shall be one or more second vice presidents, assistant vice
presidents, assistant treasurers, and assistant secretaries. (Added
November 6, 1986)
Section 3. Election or Appointment and Term of Office. The
elected officers of the corporation shall be elected annually by the board of
directors at the first meeting of the board of directors held after each annual
meeting of the shareholders. The appointed officers of the corporation shall
be appointed annually by the chief executive officer immediately following
the first meeting of the board of directors held after each annual meeting of
the shareholders. Additional elected officers may be elected at any regular
or special meeting of the board of directors, to serve until the regular
meeting of the board held after the next annual meeting of shareholders,
and additional appointed officers may be appointed by the chief executive
officer at any time to serve until the next annual appointment of officers.
Each officer shall hold office until his successor shall have been duly
elected or appointed and shall have qualified or until his death or until he
shall resign or retire or shall have been removed. (Amended November 6,
1986)
Section 4. Removal. Any officer may be removed by the board of
directors and any appointed officer may be removed by the chief executive
officer, whenever in their judgment the best interests of the corporation will
be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. (Last amended August 13,
1987)
Section 5. Vacancies. A vacancy in the office of president or
secretary or treasurer because of death, resignation, retirement, removal or
otherwise, shall be filled by the board of directors, and a vacancy in any
other elected office may be filled by the board of directors.
Section 6. Chief Executive Officer. If the elected officers of the
corporation include both a chairman of the board and a president, the board
of directors shall designate one of such officers to be the chief executive
officer of the corporation. If the office of chairman of the board be vacant,
the president shall be the chief executive officer of the corporation. The
chief executive officer of the corporation shall be, subject to the board of
directors, in general charge of the affairs of the corporation. (Amended
March 7, 1968)
Section 7. Chairman of the Board. The chairman of the board shall
preside at all meetings of the shareholders and of the board of directors at
which he may be present and shall have such other powers and duties as
may be determined by the board of directors.
Section 8. President. The president shall have such powers and
duties as may be determined by the board of directors. In the absence of
the chairman of the board, or if such office be vacant, the president shall
have all the powers of the chairman of the board and shall perform all his
duties.
Section 9. Vice Presidents. A vice president shall perform such
duties as may be assigned by the chief executive officer or the board of
directors. In the absence of the president and in accordance with such order
of priority as may be established by the board of directors, he may perform
the duties of the president, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the president. (Amended
September 14, 1972)
Section 10. Second Vice Presidents and Assistant Vice
Presidents. A second vice president and an assistant vice president shall
perform such duties as may be assigned by the chief executive officer or
the board of directors. (Added November 6, 1986)
Section 11. Secretary. The secretary shall (a) keep the minutes of
the shareholders' and board of directors' meetings in one or more books
provided for that purpose, (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law, (c) be
custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents the execution
of which on behalf of the corporation under its seal is duly authorized, and
(d) in general perform all duties incident to the office of secretary and such
other duties as may be assigned by the chief executive officer or the board
of directors. (Amended September 14, 1972)
Section 12. Assistant Secretaries. In the absence of the secretary,
an assistant secretary shall have the power to perform his duties including
the certification, execution and attestation of corporate records and
corporate instruments. Assistant secretaries shall perform such other duties
as may be assigned to them by the chief executive officer or the board of
directors. (Last amended November 6, 1986)
Section 13. Treasurer. The treasurer shall (a) have charge and
custody of all funds and securities of the corporation, (b) receive and give
receipts for monies due and payable to the corporation from any source
whatsoever, (c) deposit all such monies in the name of the corporation in
such depositories as are selected by the board of directors, and (d) in
general perform all duties incident to the office of treasurer and such other
duties as may be assigned by the chief executive officer or the board of
directors. If required by the board of directors, the treasurer shall give a
bond for the faithful discharge of his duties in such form and with such
surety or sureties as the board of directors shall determine. (Amended
September 14, 1972)
Section 14. Assistant Treasurers. In the absence of the treasurer,
an assistant treasurer shall have the power to perform his duties. Assistant
treasurers shall perform such other duties as may be assigned to them by
the chief executive officer or the board of directors. (Last amended
November 6, 1986)
ARTICLE IV
Committees
Section 1. Board Committees. The board of directors may, by
resolution adopted by a majority of the whole board of directors, from time
to time designate from among its members one or more committees each of
which, to the extent provided in such resolution and except as otherwise
provided by law, shall have and exercise all the authority of the board of
directors. Each such committee shall serve at the pleasure of the board of
directors. The designation of any such committee and the delegation thereto
of authority shall not operate to relieve the board of directors, or any
member thereof, of any responsibility imposed by law. Each such committee
shall keep a record of its proceedings and shall adopt its own rules of
procedure. It shall make such reports to the board of directors of its actions
as may be required by the board. (Amended March 16, 1972)
Section 2. Advisory Committees. The board of directors may, by
resolution adopted by a majority of the whole board of directors, from time
to time designate one or more advisory committees, a majority of whose
members shall be directors. An advisory committee shall serve at the
pleasure of the board of directors, keep a record of its proceedings and
adopt its own rules of procedure. It shall make such reports to the board of
directors of its actions as may be required by the board. (Amended March
16, 1972)
Section 3. Manner of Acting. Unless otherwise provided by the
articles of incorporation, any action required or permitted to be taken at any
meeting of a committee established under this Article IV may be taken
without a meeting, if a written consent to such action is signed by all
members of the committee and such written consent is filed with the
minutes of proceedings of the committee. Unless otherwise provided by the
articles of incorporation, any or all members of such committee may
participate in a meeting of the committee by means of a conference
telephone or similar communications equipment by which all persons
participating in the meeting can communicate with each other, and
participation in this manner constitutes presence in person at the meeting.
(Last amended effective March 14, 1991)
ARTICLE V
Corporate Instruments and Loans
Section 1. Corporate Instruments. The board of directors may
authorize any officer or officers to execute and deliver any instrument in the
name of or on behalf of the corporation, and such authority may be general
or confined to specific instances. (Amended September 14, 1972)
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the board of directors. Such authority
may be general or confined to specific instances.
ARTICLE VI
Stock Certificates, Transfer of Shares, Stock Records
Section 1. Certificates for Shares. Each shareholder shall be
entitled to a certificate, signed by the president or a vice president and the
secretary or any assistant secretary of the corporation, certifying the number
of shares owned by him in the corporation. If such certificate is
countersigned by the written signature of a transfer agent other than the
corporation or its employee, the signatures of the officers of the corporation
may be facsimiles. If such certificate is countersigned by the written
signature of a registrar other than the corporation or its employee, the
signatures of the transfer agent and the officers of the corporation may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
weresuch officer, transfer agent, or registrar at the date of its issue.
Certificates representing shares of the corporation shall be in such form
consistent with the laws of the State of Indiana as shall be determined by
the board of directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the person to
whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer records of
the corporation. (Amended May 28, 1969)
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made on the stock transfer records of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the corporation, and, except
as otherwise provided in these bylaws, on surrender for cancellation of the
certificates for such shares. (Amended May 28, 1969)
Section 3. Lost, Destroyed or Wrongfully Taken Certificates. Any
person claiming a certificate of stock to have been lost, destroyed or
wrongfully taken, and who requests the issuance of a new certificate before
the corporation has notice that the certificate alleged to have been lost,
destroyed or wrongfully taken has been acquired by a bona fide purchaser,
shall make an affidavit of that fact and shall give the corporation and its
transfer agents and registrars a bond of indemnity with unlimited liability, in
form and with one or more corporate sureties satisfactory to the chief
executive officer or treasurer of the corporation (except that the chief
executive officer or treasurer may authorize the acceptance of a bond of
different amount, or a bond with personal surety thereon, or a personal
agreement of indemnity), whereupon in the discretion of the chief executive
officer or the treasurer and except as otherwise provided by law a new
certificate may be issued of the same tenor and for the same number of
shares as the one alleged to have been lost, destroyed or wrongfully taken.
In lieu of a separate bond of indemnity in each case, the chief executive
officer of the corporation may accept an assumption of liability under a
blanket bond issued in favor of the corporation and its transfer agents and
registrars by one or more corporate sureties satisfactory to him. (Amended
September 14, 1972)
Section 4. Transfer Agent and Registrars. The board of directors
by resolution may appoint a transfer agent or agents or a registrar or
registrars of transfer, or both. All such appointments shall confer such
powers, rights, duties and obligations consistent with the laws of the State
of Indiana as the board of directors shall determine. The board of directors
may appoint the treasurer of the corporation and one or more assistant
treasurers to serve as transfer agent or agents. (Amended May 28, 1969)
Section 5. Record Date. For the purposes of determining
shareholders entitled to vote at any meeting of shareholders or any
adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors shall fix in advance a date as a
record date for any such determination of shareholders, such date in any
case to be not more than seventy days before the meeting or action
requiring a determination of shareholders. (Amended November 6, 1986)
ARTICLE VII
Liability
No person or his personal representatives shall be liable to the
corporation for any loss or damage suffered by it on account of any action
taken or omitted to be taken by such person in good faith as an officer or
employee of the corporation, or as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, whether for
profit or not, which he serves or served at the request of the corporation, if
such person (a) exercised and used the same degree of care and skill as a
prudent man would have exercised and used under like circumstances,
charged with a like duty, or (b) took or omitted to take such action in
reliance upon advice of counsel for the corporation or such enterprise or
upon statements made or information furnished by persons employed or
retained by the corporation or such enterprise upon which he had
reasonable grounds to rely. The foregoing shall not be exclusive of other
rights and defenses to which such person or his personal representatives
may be entitled under law. (Last amended November 6, 1986)
ARTICLE VIII
Indemnification
Section 1. Actions by a Third Party. The corporation shall
indemnify any person who is or was a party, or is threatened to be made a
defendant or respondent, to a proceeding, including any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than actions by or in the right of the
corporation), and whether formal or informal, who is or was a director,
officer, or employee of the corporation or who, while a director, officer, or
employee of the corporation, is or was serving at the corporation's request
as a director, officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise, whether for profit or not, against:
(a) any reasonable expenses (including attorneys' fees) incurred with
respect to a proceeding, if such person is wholly successful on the
merits or otherwise in the defense of such proceeding, or
(b) judgments, settlements, penalties, fines (including excise taxes
assessed with respect to employee benefit plans) and reasonable
expenses (including attorneys' fees) incurred with respect to a
proceeding where such person is not wholly successful on the merits
or otherwise in the defense of the proceeding if:
(i) the individual's conduct was in good faith; and
(ii) the individual reasonably believed:
(A) in the case of conduct in the individual's capacity as
a director, officer or employee of the corporation, that
the individual's conduct was in the corporation's best
interests; and
(B) in all other cases, that the individual's conduct was
at least not opposed to the corporation's best interests;
and
(iii) in the case of any criminal proceeding, the individual
either:
(A) had reasonable cause to believe the individual's
conduct was lawful; or
(B) had no reasonable cause to believe the individual's
conduct was unlawful.
The termination of a proceeding by a judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director, officer, or employee did not meet the
standard of conduct described in this section. (Last amended November 6,
1986)
Section 2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who is or was a party or is
threatened to be made a defendant or respondent, to a proceeding,
including any threatened, pending or completed action, suit or proceeding,
by or in the right of the corporation to procure a judgment in its favor, by
reason of the fact that such person is or was a director, officer, or employee
of the corporation or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise, whether for profit or not, against any reasonable
expenses (including attorneys' fees):
(a) if such person is wholly successful on the merits or otherwise in
the defense of such proceeding, or
(b) if not wholly successful:
(i) the individual's conduct was in good faith; and
(ii) the individual reasonably believed:
(A) in the case of conduct in the individual's capacity as
a director, officer, or employee of the corporation, that
the individual's conduct was in the corporation's best
interests; and
(B) in all other cases, that the individual's conduct was
at least not opposed to the corporation's best interests,
except that no indemnification shall be made in respect of any claim, issue,
or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine upon application, that despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which such court shall deem proper. (Last amended November 6, 1986)
Section 3. Methods of Determining Whether Standards for
Indemnification Have Been Met. Any indemnification under Sections 1 or 2
of this Article (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, or employee is proper in the
circumstances because he has met the applicable standards of conduct set
forth in Section 1 or 2. In the case of directors of the corporation such
determination shall be made by any one of the following procedures:
(a) by the board of directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(b) if a quorum cannot be obtained under (a), by majority vote of a
committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to the
proceeding;
(c) by special legal counsel:
(i) selected by the board of directors or a committee thereof in
the manner prescribed in (a) or (b); or
(ii) if a quorum of the board of directors cannot be obtained
under (a) and a committee cannot be designated under (b),
selected by a majority vote of the full board of directors (in
which selection directors who are parties may participate).
In the case of persons who are not directors of the corporation, such
determination shall be made (a) by the chief executive officer of the
corporation or (b) if the chief executive officer so directs or in his absence,
in the manner such determination would be made if the person were a
director of the corporation. (Last amended November 6, 1986)
Section 4. Advancement of Defense Expenses. The corporation
may pay for or reimburse the reasonable expenses incurred by a director,
officer, or employee who is a party to a proceeding described in Section 1
or 2 of this Article in advance of the final disposition of said proceeding if:
(a) the director, officer, or employee furnishes the corporation a
written affirmation of his good faith belief that he has met the
standard of conduct described in Section 1 or 2; and
(b) the director, officer, or employee furnishes the corporation a
written undertaking, executed personally or on his behalf, to repay
the advance if it is ultimately determined that the director, officer or
employee did not meet the standard of conduct; and
(c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under
Section 1 or 2.
The undertaking required by this Section must be an unlimited general
obligation of the director, officer, or employee but need not be secured and
may be accepted by the corporation without reference to the financial ability
of such person to make repayment. (Last amended November 6, 1986)
Section 5. Non-Exclusiveness of Indemnification. The
indemnification and advancement of expenses provided for or authorized by
this Article does not exclude any other rights to indemnification or
advancement of expenses that a person may have under:
(a) the corporation's articles of incorporation or bylaws;
(b) any resolution of the board of directors or the shareholders of the
corporation;
(c) any other authorization adopted by the shareholders; or
(d) otherwise as provided by law, both as to such person's actions in
his capacity as a director, officer, or employee of the corporation and
as to actions in another capacity while holding such office.
Such indemnification shall continue as to a person who has ceased to be a
director, officer, or employee, and shall inure to the benefit of the heirs and
personal representatives of such person. (Last amended November 6,
1986)
ARTICLE IX
Amendments
These bylaws may be altered, amended or repealed and new bylaws
may be made by a majority of the whole board of directors at any regular or
special meeting of the board of directors. (Amended effectiveMay 11, 1978)
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT (11) - COMPUTATION OF PER SHARE EARNINGS
Nine Months Three Months
Ended September 30 Ended September 30
1996 1995 1996 1995
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding
(assuming conversion of
series A, E and F
preferred stock) -------------- 104,587,473 103,986,236 104,635,177 104,264,528
Net effect of dilutive
stock options (based on
the treasury stock method
using average market price) --- 852,924 696,562 627,055 656,614
Total shares
outstanding ------------ 105,440,397 104,682,798 105,262,232 104,921,142
</TABLE>
<TABLE>
<CAPTION>
FULLY DILUTED
<S> <C> <C> <C> <C>
Average shares outstanding
(assuming conversion of
series A, E and F
preferred stock) -------------- 104,587,473 103,986,236 104,635,177 104,264,528
Net effect of dilutive
stock options (based on
the treasury stock method
using the end of period
market price, if higher than
average market price) --------- 852,924 862,617 627,055 836,759
Total shares
outstanding ------------ 105,440,397 104,848,853 105,262,177 105,101,287
</TABLE>
<TABLE>
<CAPTION>
DOLLAR INFORMATION (000's omitted)
<S> <C> <C> <C> <C>
Net Income --------------- 370,777 $407,050 $119,310 $154,325
</TABLE>
<TABLE>
<CAPTION>
PER SHARE INFORMATION
Primary:
<S> <C> <C> <C> <C>
Net Income --------------- $3.52 $3.89 $1.13 $1.47
Fully Diluted:
Net Income --------------- $3.52 $3.89 $1.13 $1.47
<FN>
<F1>
Notes: 1. Earnings per share are computed based on the average number of
common shares outstanding during each period after assuming
conversion of the series A, E and F preferred stock.
<F2>
2. LNC does not include the dilutive effect of stock options in the
computation of the earnings per share information appearing on
the consolidated statements of income since it is immaterial.
</FN>
</TABLE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT 12 - HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
Nine Months
Ended
September 30 Year Ended December 31,
(millions of dollars) 1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income before Federal
Income Taxes, Minority
Interest and Accounting
Change --------------------- 514.2 537.9 626.6 376.3 587.8 424.7 198.8
Less: Equity Earnings in
Unconsolidated Affiliates -- 1.3 13.5 12.4 14.6 -- (.2) (.3)
Plus: Sub-total of Fixed
Charges -------------------- 75.7 69.9 94.4 66.6 62.9 74.6 90.9
Sub-total of Adjusted
Net Income -------------- 588.6 594.3 708.6 428.3 650.7 499.5 290.0
Interest on Annuities &
Financial Products --------- 1060.0 1058.0 1400.0 1359.0 1315.8 1261.7 1207.6
Adjusted Income Base ---- 1648.6 1652.3 2108.6 1787.3 1966.5 1761.2 1497.6
Rent Expense ---------------- 45.0 49.5 65.7 51.3 55.8 67.4 59.1
Fixed Charges:
Interest and Debt Expense --- 60.7 53.4 72.5 49.5 44.3 53.8 71.2
Rent (Pro-rated) ------------ 15.0 16.5 21.9 17.1 18.6 20.8 19.7
Sub-total of Fixed Charges 75.7 69.9 94.4 66.6 62.9 74.6 90.9
Interest on Annuities &
Financial Products --------- 1060.0 1058.0 1400.0 1359.0 1315.8 1261.7 1207.6
Sub-total of Fixed Charges 1135.7 1127.9 1494.4 1425.6 1378.7 1336.3 1298.5
Preferred Dividends (Pre-tax) .1 8.7 8.7 24.2 24.2 20.3 13.4
Total Fixed Charges ------ 1135.8 1136.6 1503.1 1449.8 1402.9 1356.6 1311.9
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding Interest on
Annuities and Financial
Products (1) -------------- 7.78 8.50 7.51 6.43 10.35 6.69 3.20
Including Interest on
Annuities and Financial
Products (2) -------------- 1.45 1.46 1.41 1.25 1.43 1.32 1.15
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends (3) ------------- 1.45 1.45 1.40 1.23 1.40 1.30 1.14
<FN>
<F1>
(1) For purposes of determining this ratio, earnings consist of income before federal income taxes, minority
interest and cumulative effect of accounting change adjusted for the difference between income or losses
from unconsolidated equity investments and cash distributions from such investments, plus fixed charges.
Fixed charges consist of interest and debt expense on short and long-term debt and the portion of
operating leases that are representative of the interest factor.
<F2>
(2) Same as the ratio of earnings to fixed charges, excluding interest on annuities and financial products,
except fixed charges and earnings include interest on annuities and financial products.
<F3>
(3) Same as the ratio of earnings to fixed charges, including interest on annuities and financial products,
except that fixed charges include the pre-tax earnings required to cover preferred stock dividend
requirements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements of Lincoln National Corporation and
subsidiaries and is qualified in its entirety by reference to such condensed
consolidated financial statements.
</LEGEND>
<CIK> 0000059558
<NAME> LINCOLN NATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 25,062,943,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,004,143,000
<MORTGAGE> 3,379,861,000
<REAL-ESTATE> 775,863,000
<TOTAL-INVEST> 31,212,796,000
<CASH> 1,435,509,000
<RECOVER-REINSURE> 2,476,289,000
<DEFERRED-ACQUISITION> 1,959,767,000
<TOTAL-ASSETS> 67,237,857,000
<POLICY-LOSSES> 13,040,715,000
<UNEARNED-PREMIUMS> 824,954,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 18,590,556,000
<NOTES-PAYABLE> 880,607,000
315,000,000 <F1>
1,235,000
<COMMON> 893,573,000
<OTHER-SE> 3,393,065,000
<TOTAL-LIABILITY-AND-EQUITY> 67,237,857,000 <F2>
2,379,108,000
<INVESTMENT-INCOME> 1,721,296,000
<INVESTMENT-GAINS> 102,614,000
<OTHER-INCOME> 161,480,000
<BENEFITS> 2,942,242,000
<UNDERWRITING-AMORTIZATION> 528,589,000
<UNDERWRITING-OTHER> 923,561,000
<INCOME-PRETAX> 503,479,000
<INCOME-TAX> 132,702,000
<INCOME-CONTINUING> 370,777,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 370,777,000
<EPS-PRIMARY> 3.55
<EPS-DILUTED> 3.55
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Consists of Preferred Stock Issued by Subsidiary Companies.
<F2> In addition to Liabilities and Shareholders' Equity this amount
includes Preferred Stock Issued by Subsidiary Companies.
</TABLE>
