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: October 6, 1997
Date of earliest
event reported: October 1, 1997
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)
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Item 2 Acquisition or Disposition of Assets
Lincoln National Corporation ("LNC") sold its remaining 83.3%
ownership in AmericanStates Financial Corporation ("ASFC") to SAFECO
Corporation on October 1, 1997 for $2.65 billion (includes repayment of
intercompany debt of $300 million). The Agreement and Plan of Merger
dated as of June 6, 1997, was filed by LNC on Form 8-K on June 17, 1997.
The sales price was determined through the solicitation of companies that had
expressed interest in acquiring ASFC.
Through its subsidiary companies, ASFC provided personal lines
insurance (auto, homeowners, multi-peril and other) and commercial lines
insurance (business owners policies, auto, multiple-peril, workers'
compensation, general liability and other) in most states of the United
States. As a result of this sale LNC will no longer be in the
property-casualty insurance business on a direct basis.
Pro Forma Condensed Consolidated Financial Statements are shown in
Item 7 of this document.
<page 3>
Item 7 Financial Statements and Exhibits
(a) Financial statements of business acquired
Not applicable
(b) Pro forma condensed consolidated financial information (unaudited)
The following pro forma condensed consolidated balance sheet of LNC and its
subsidiaries as of June 30, 1997 and the pro forma condensed consolidated
statements of income for the six months ended June 30, 1997 and years ended
December 31, 1996, 1995 and 1994 have been prepared based on the historical
results of operations and financial condition of LNC and includes the
divestiture of LNC's 83.3% interest in ASFC. 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. Other acquisition/disposition activities completed by
LNC during 1997 which are not related to the transaction described above 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 as defined within the
regulatory guidelines.
The pro forma condensed consolidated balance sheet assumes that LNC's
divestiture of ASFC had been consummated as of June 30, 1997. The pro forma
condensed consolidated statements of income assume that LNC's divestiture of
ASFC had been consummated on January 1, 1994. The actual disposition date was
October 1, 1997.
LNC believes that the following pro forma statements may not be indicative of
the results that actually would have occurred if the divestiture described in
this document had been in effect on the dates indicated or indicative of the
results which may be achieved in the future. For example, on July 28, 1997 LNC
announced that it had signed an agreement with CIGNA Corporation to purchase a
block of individual life insurance and annuity business for approximately $1.4
billion. Exhibit 02 to LNC's Form 10-Q for the quarter ended June 30, 1997
includes a copy of that agreement. That acquisition is expected to close in
the fourth quarter of 1997. Following the closing of that transaction, LNC
expects to prepare an additional Form 8-K with pro forma statements.
The pro forma financial statements on page 4 through 10 of this filing should
be read in conjunction with the audited financial statements of LNC.
(c) Exhibits
Exhibit 2.1 Agreement and Plan of Merger dated as of June 6, 1997 by
and among ASFC and SAFECO Corporation is incorporated by
reference to LNC's Form 8-K filed with the Commission on
June 17, 1997.
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<TABLE>
LINCOLN NATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 1997
(in millions)
<CAPTION>
Pro Forma
As
Previously Disposition
Reported of ASFC Adjustments Consolidated
<S> <C> <C> <C> <C>
ASSETS:
Investments $29,729.6 $ $ $29,729.6
Cash and invested cash 1,272.8 1,362.8(a) 2,635.6
Other 40,202.3 40,202.3
Discontinued operations 5,589.3 (5,589.3) --
Total Assets 76,794.0 (5,589.3) 1,362.8 72,567.5
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Insurance and
investment contract
liabilities 65,015.9 65,015.9
Short and long-term debt 1,185.8 (370.7)(b) 815.1
Other liabilities 1,967.5 52.1 (c) 2,019.6
Discontinued operations 4,140.1 (4,140.1) --
Total Liabilities 72,309.3 (4,140.1) (318.6) 67,850.6
Preferred stock 1.2 1.2
Common stock 984.3 (304.5) 273.4 (d) 953.2
Retained earnings 3,024.5 (1,001.9) 1,408.0 (d) 3,430.6
Net unrealized gain
(loss) on securities
available-for-sale 427.7 (142.8) 284.9
Other shareholders'
equity 47.0 47.0
Total Shareholders'
Equity 4,484.7 (1,449.2) 1,681.4 4,716.9
Total Liabilities and
Shareholders' Equity $76,794.0 $(5,589.3) $1,362.8 $72,567.5
See notes to unaudited pro forma condensed consolidated financial statements.
</TABLE>
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<TABLE>
LINCOLN NATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Six Months Ended June 30, 1997
(in millions, except per share amounts)
<CAPTION>
Pro Forma
As
Previously Disposition
Reported of ASFC Adjustments Consolidated
<S> <C> <C> <C> <C>
REVENUE:
Premiums and other
considerations $1,194.3 $ $ $1,194.3
Net investment income 1,117.2 -- (e) 1,117.2
Realized gain on
investments 14.6 14.6
Gain (loss) on sale of
subsidiaries -- --
Total Revenue 2,326.1 2,326.1
BENEFITS AND EXPENSES:
Benefits and settlement
expenses 1,419.2 1,419.2
Underwriting,
acquisition, insurance
and other expenses 836.9 836.9
Interest expense 45.5 (13.6)(f) 31.9
Total Benefits
and Expenses 2,301.6 (13.6) 2,288.0
Net Income from
Continuing Operations
before Federal Income
Taxes 24.5 13.6 38.1
Federal Income Taxes (credit) (10.6) 4.7(g) (5.9)
Net Income from
Continuing Operations 35.1 8.9 44.0
Discontinued Operations 88.5 (88.5) --
Net Income $ 123.6 $(88.5) $ 8.9 $ 44.0(h)
Net Income Per Share $1.19 $.47(I)
See notes to unaudited pro forma condensed consolidated financial statements.
</TABLE>
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<TABLE>
LINCOLN NATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Year Ended December 31, 1996
(in millions, except per share amounts)
<CAPTION>
Pro Forma
As
Previously Disposition
Reported of ASFC Adjustments Consolidated
<S> <C> <C> <C> <C>
REVENUE:
Premiums and other
considerations $ 4,227.3 $(1,674.1) $ $2,553.2
Net investment income 2,365.9 (278.0) -- (e) 2,087.9
Realized gain on
investments 128.1 (35.6) 92.5
Gain (loss) on sale of
subsidiaries -- --
Total Revenue 6,721.3 (1,987.7) 4,733.6
BENEFITS AND EXPENSES:
Benefits and settlement
expenses 3,921.3 (1,253.6) 2,667.7
Underwriting,
acquisition, insurance
and other expenses 2,003.0 (525.9) 1,477.1
Interest expense 84.7 -- (27.1)(f) 57.6
Total Benefits
and Expenses 6,009.0 (1,779.5) (27.1) 4,202.4
Income before
Federal Income Taxes
and Minority Interest 712.3 (208.2) 27.1 531.2
Federal Income Taxes 179.2 (31.5) 9.5(g) 157.2
Net Income before
Minority Interest 533.1 (176.7) 17.6 374.0
Minority Interest 19.5 (19.5) --
Net Income $ 513.6 $(157.2) $ 17.6 $374.0(h)
Net Income Per Share $4.91 $4.01(I)
See notes to unaudited pro forma condensed consolidated financial statements.
</TABLE>
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<TABLE>
LINCOLN NATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Year Ended December 31, 1995
(in millions, except per share amounts)
<CAPTION>
Pro Forma
As
Previously Disposition
Reported of ASFC Adjustments Consolidated
<S> <C> <C> <C> <C>
REVENUE:
Premiums and other
considerations $ 4,112.2 $(1,745.6) $ $2,366.6
Net investment income 2,251.3 (271.6) -- (e) 1,979.7
Realized gain (loss)
on investments 215.6 (58.0) 157.6
Gain (loss) on sale of
subsidiaries 54.2 28.4 82.6
Total Revenue 6,633.3 (2,046.8) 4,586.5
BENEFITS AND EXPENSES:
Benefits and settlement
expenses 4,113.2 (1,261.8) 2,851.4
Underwriting,
acquisition, insurance
and other expenses 1,821.0 (572.8) 1,248.2
Interest expense 72.5 -- (27.1)(f) 45.4
Total Benefits
and Expenses 6,006.7 (1,834.6) (27.1) 4,145.0
Income before
Federal Income Taxes 626.6 (212.2) 27.1 441.5
Federal Income Taxes 144.4 (31.4) 9.5(g) 122.5
Net Income $ 482.2 $(180.8) $ 17.6 $ 319.0(h)
Net Income Per Share $4.63 $3.44(I)
See notes to unaudited pro forma condensed consolidated financial statements.
</TABLE>
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<page 8>
<TABLE>
LINCOLN NATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Year Ended December 31, 1994
(in millions, except per share amounts)
<CAPTION>
Pro Forma
As
Previously Disposition
Reported of ASFC Adjustments Consolidated
<S> <C> <C> <C> <C>
REVENUE:
Premiums and other
considerations $ 4,267.2 $(1,763.1) $ $2,504.1
Net investment income 1,994.7 (270.6) -- (e) 1,724.1
Realized gain (loss)
on investments (130.8) (20.4) (151.2)
Gain (loss) on sale of
subsidiaries 48.8 48.8
Total Revenue 6,179.9 (2,054.1) 4,125.8
BENEFITS AND EXPENSES:
Benefits and settlement
expenses 4,195.3 (1,309.7) 2,885.6
Underwriting,
acquisition, insurance
and other expenses 1,558.8 (548.0) 1,010.8
Interest expense 49.5 (.1) (27.1)(f) 22.3
Total Benefits
and Expenses 5,803.6 (1,857.8) (27.1) 3,918.7
Income before
Federal Income Taxes 376.3 (196.3) 27.1 207.1
Federal Income Taxes 26.4 (11.9) 9.5(g) 24.0
Net Income $ 349.9 $ (184.4) $ 17.6 $ 183.1(h)
Net Income Per Share $3.37 $1.98(I)
See notes to unaudited pro forma condensed consolidated financial statements.
</TABLE>
<page 9>
LINCOLN NATIONAL CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet Items:
(a) Pro forma adjustment to reflect LNC's receipt of cash proceeds of
$2.65 billion on sale of ASFC and disbursements of 1) $460 million
in income taxes related to the sale, 2) $370.7 million to retire
short-term debt and 3) $456.5 million to buy back shares of its own
common stock.
(b) Pro forma adjustment to reflect LNC's repayment of $370.7 million of
short-term debt.
(c) Pro forma adjustment to restore net items designated as discontinued
perations within the June 30, 1997 balance sheet but subsequently
retained by LNC.
(d) Pro forma adjustment to common stock to reflect the net result of an
addition of $304.5 million consolidating adjustment for ASFC's
common stock and a reduction of $31.1 million for the buy-back of
LNC common stock.
Pro forma adjustments to retained earnings reflect the net result of
additions of 1) $1,001.9 million consolidating adjustment for ASFC's
retained earnings, 2) $46.5 million for estimated results of operations
less dividends from July 1, 1997 to October 1, 1997 and 3) $785.0 million
for the estimated gain on sale of ASFC and a reduction of $425.4 million
for the buy-back of LNC common stock.
A resolution passed on June 9, 1997 by the Board of Directors of LNC in
conjunction with the sale of ASFC authorized a buy-back of LNC common
stock totaling $500 million. Between June 9, 1997 and June 30, 1997
LNC disbursed $43.5 million to repurchase its common shares. This
amount, along with the amounts shown above ($31.1 million and $425.4
million) totals $500 million.
Income Statement Items:
(e) Although the pro forma rules prohibit showing such data within the
income statement, it is important to note that the net proceeds of
the sale less disbursements for debt and share buy-backs would have
generated some level of net investment income during the income
statement periods shown. Amounts to follow are calculated based
on an interest rate of 6.5% applied against a net cash balance
proceeds of sale of ASFC less disbursements for income taxes,
buy-back of common shares and retirement of short and long-term debt) or
$1.282 billion $1.742 billion for first three months due to available
delay in payment of Federal taxes of $460 million) plus interest on the
interest. Based on these assumptions, net investment income would have
been $51.6 million, $98.3 million, $92.1 million and $93.7 million for
the six months ended June 30, 1997, and the years ended December 31,
1996, 1995, 1994, respectively.
(f) Pro forma adjustment to reflect reduction in interest expense due to
pro forma repayment of $86.7 million of long-term debt and all short-
term debt outstanding as of January 1, 1994.
<page 10>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
(g) The tax expense shown in the income statement relates to the income
resulting from a reduction in interest expense as shown in "(f)" above.
The tax expense for the net investment income described in "(e)" above
would have been $18.1 million, $34.4 million, $32.2 million and $32.8
million for the six months ended June 30, 1997, and the years ended
December 31, 1996, 1995, 1994, respectively. All tax calculations are
based on a federal statutory rate of 35%.
(h) LNC recorded an estimated gain on the sale of ASFC of $785.0 million
($1.245 billion pre-tax) in October of 1997. This gain was not
reflected in the pro forma condensed statements of income. Also, the
statements of income do not include the net investment income
quantified in "(e)" above or the related tax expense quantified in
"(g)" above. If such amounts were included, net income would have been
$77.5 million ($.83 per share), $437.9 million ($4.70 per share),
$378.9 million ($4.08 per share) and $244.0 million ($2.64 per share)
for the six months ended June 30, 1997 and the years ended December 31,
1996, 1995 and 1994, respectively.
(I) Net income per share "as reported" is based on average shares of
103,938,421; 104,560,826; 104,115,650 and 103,863,196 for the six
months ended June 30, 1997, and the years ended December 31, 1996,
1995, 1994, respectively. Net income per share on a "pro forma" basis
is based on average shares of 93,622,037; 93,261,391; 92,816,215 and
92,563,761 for the six months ended June 30, 1997 and the years ended
December 31, 1996, 1995 and 1994, respectively. These reduced average
shares reflect the buy-back of shares as authorized by the Board of
Directors in conjunction with the sale of ASFC.
<page 11>
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
Executive Vice President and
Chief Financial Officer
By /s/ Donald L. Van Wyngarden
Donald L. Van Wyngarden
Second Vice President and
Controller
Date October 6, 1997
