UNITED STATES 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 March 31, 2000 Commission file number 1-6028
LINCOLN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1140070
(State of incorporation) (I.R.S. Employer Identification No.)
1500 Market Street, Suite 3900,
Philadelphia, Pennsylvania 19102-2112
(Address of principal executive offices)
Registrant's telephone number (215) 448-1400
As of April 28, 2000 LNC had 191,724,724 shares of Common Stock outstanding.
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 27.
Page 1 of 44
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
<TABLE>
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LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31 December 31
(000s omitted) 2000 1999
ASSETS (Unaudited)
<S> <C> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (cost 2000 - $28,294,666;
1999 - $28,357,057) $ 27,744,534 $ 27,688,613
Equity (cost 2000 - $474,780;
1999 - $481,531) 587,724 603,954
Mortgage loans on real estate 4,833,859 4,735,397
Real estate 283,354 256,202
Policy loans 1,896,312 1,892,392
Other investments 428,833 401,826
--------------- ---------------
Total Investments 35,774,616 35,578,384
Investment in unconsolidated affiliates -- 25,825
Cash and invested cash 1,510,100 1,895,883
Property and equipment 207,746 203,753
Deferred acquisition costs 2,870,415 2,800,290
Premiums and fees receivable 190,225 259,630
Accrued investment income 575,020 533,183
Assets held in separate accounts 56,907,626 53,654,223
Federal income taxes 300,396 345,010
Amounts recoverable from reinsurers 3,850,967 3,954,345
Goodwill 1,349,620 1,423,039
Other intangible assets 1,705,490 1,746,499
Other assets 1,097,778 675,669
--------------- ---------------
Total Assets $ 106,339,999 $ 103,095,733
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Insurance and Investment Contract Liabilities:
Insurance policy and claim reserves $ 20,953,915 $ 20,924,768
Contractholder funds 19,508,917 20,228,753
Liabilities related to separate accounts 56,907,626 53,654,223
--------------- ---------------
Total Insurance and Investment Contract Liabilities 97,370,458 94,807,744
Short-term debt 474,151 460,153
Long-term debt 712,030 711,963
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated debentures 745,000 745,000
Other liabilities 2,697,926 2,107,005
--------------- ---------------
Total Liabilities 101,999,565 98,831,865
Shareholders' Equity:
Series A preferred stock - 10,000,000 shares authorized
(3/31/00 liquidation value - $2,273) 933 948
Common stock - 800,000,000 shares authorized 987,228 1,007,099
Retained earnings 3,740,670 3,691,470
Accumulated Other Comprehensive Income (Loss):
Foreign currency translation adjustment 22,794 30,049
Net unrealized loss on securities available-for-sale (411,191) (465,698)
--------------- ---------------
Total Accumulated Other Comprehensive Loss (388,397) (435,649)
Total Shareholders' Equity 4,340,434 4,263,868
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 106,339,999 $ 103,095,733
See notes to consolidated financial statements on pages 7 - 13.
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<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
(000s omitted, except per share amounts) 2000 1999
(Unaudited)
Revenue:
<S> <C> <C>
Insurance premiums $ 389,598 $ 439,063
Insurance fees 408,337 378,001
Investment advisory fees 53,954 58,790
Net investment income 711,148 709,538
Equity in earnings of unconsolidated affiliates 1,037 1,606
Realized gain (loss) on investments (977) 1,927
Other revenue and fees 106,128 86,433
--------------- ---------------
Total Revenue 1,669,225 1,675,358
Benefits and Expenses:
Benefits 865,991 886,795
Underwriting, acquisition, insurance and other expenses 535,910 550,974
Interest and debt expense 36,339 33,104
--------------- ---------------
Total Benefits and Expenses 1,438,240 1,470,873
--------------- ---------------
Net Income Before Federal Income Taxes 230,985 204,485
Federal income taxes 60,993 59,423
--------------- ---------------
Net Income Before Minority Interest In Consolidated Subsidiary 169,992 145,062
Minority interest in consolidated subsidiary (228) --
--------------- ---------------
Net Income $ 170,220 $ 145,062
Net Income Per Common Share-Basic $0.88 $0.72
Net Income Per Common Share-Diluted $0.87 $0.71
See notes to consolidated financial statements on pages 7 - 13.
</TABLE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended March 31
Number of Shares Amounts
(000s omitted from dollar amounts) 2000 1999 2000 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Series A Preferred Stock:
Balance at beginning-of-year 28,857 32,959 $948 $1,083
Conversion into common stock (450) (1,128) (15) (37)
------------- ------------- ------------- -------------
Balance at March 31 28,407 31,831 933 1,046
Common Stock:
Balance at beginning-of-year 195,494,898 202,111,174 1,007,099 994,472
Conversion of series A preferred stock 7,200 18,048 15 37
Issued for benefit plans 127,483 352,132 (7,077) 3,811
Issued for acquisition of subsidiaries 40,843 89,070 1,595 3,664
Retirement of common stock (2,795,981) (1,235,000) (14,404) (6,077)
------------- ------------- ------------- -------------
Balance at March 31 192,874,443 201,335,424 987,228 995,907
Retained Earnings:
Balance at beginning-of-year 3,691,470 3,790,038
Comprehensive income (loss) 217,472 (172,523)
Less other comprehensive income (loss):
Foreign currency translation (7,255) (19,856)
Net unrealized gain (loss) on
securities available-for-sale 54,507 (297,729)
------------- -------------
Net Income 170,220 145,062
Retirement of common stock (65,643) (54,227)
Dividends declared:
Series A preferred ($0.75 per share) (21) (24)
Common stock (2000-$0.290; 1999-$0.275) (55,356) (55,144)
------------- -------------
Balance at March 31 3,740,670 3,825,705
Foreign Currency Translation Adjustment:
Accumulated adjustment at
beginning-of-year 30,049 49,979
Change during the period (7,255) (19,856)
------------- -------------
Balance at March 31 22,794 30,123
Net Unrealized Gain (Loss) on
Securities Available-for-Sale:
Balance at beginning-of-year (465,698) 552,369
Change during the period 54,507 (297,729)
------------- -------------
Balance at March 31 (411,191) 254,640
------------- -------------
Total Shareholders' Equity
at March 31 $ 4,340,434 $ 5,107,421
Common Stock at End of Quarter:
Assuming conversion of preferred stock 193,328,955 201,844,720
Diluted basis 195,110,710 203,225,020
See notes to consolidated financial statements on pages 7 - 13.
</TABLE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
(000s omitted) 2000 1999
Cash Flows from Operating Activities: (Unaudited)
<S> <C> <C> <C>
Net income $ 170,220 $ 145,062
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred acquisition costs (86,221) (81,808)
Premiums and fees receivable 69,406 4,385
Accrued investment income (41,838) (57,111)
Policy liabilities and accruals (47,466) 26,238
Contractholder funds (142,988) 194,333
Amounts recoverable from reinsurers 103,379 2,596
Federal income taxes 65,322 75,138
Equity in earnings of unconsolidated affiliates (1,037) (1,606)
Minority interest in consolidated subsidiary 289 --
Provisions for depreciation 21,735 25,153
Amortization of goodwill and other intangible assets 48,020 41,387
Realized gain on investments 977 (1,927)
Other (13,091) 165,810
------------- -------------
Net Adjustments (23,513) 392,588
------------- -------------
Net Cash Provided by Operating Activities 146,707 537,650
Cash Flows from Investing Activities:
Securities-available-for-sale:
Purchases (1,044,795) (2,589,991)
Sales 683,618 1,031,446
Maturities 415,650 573,102
Purchase of other investments (505,925) (380,397)
Sale or maturity of other investments 357,650 449,699
Sale of unconsolidated affiliates 85,000 --
Increase in cash collateral on loaned securities 276,773 802,334
Other (109,956) (295,665)
------------- -------------
Net Cash Provided by (Used in) Investing Activities 158,015 (409,472)
Cash Flows from Financing Activities:
Decrease in long-term debt (includes payments and
transfer to short-term debt) (299) (91)
Net increase (decrease) in short-term debt 13,998 (32,767)
Universal life and investment contract deposits 229,258 528,355
Universal life and investment contract withdrawals (789,832) (629,274)
Common stock issued for benefit plans (7,077) 3,811
Retirement of common stock (80,047) (49,180)
Dividends paid to shareholders (56,506) (55,336)
------------- -------------
Net Cash Used in Financing Activities (690,505) (234,482)
------------- -------------
Net Decrease in Cash and Invested Cash (385,783) (106,304)
------------- -------------
Cash and Invested Cash at Beginning-of-Year 1,895,883 2,433,350
------------- -------------
Cash and Invested Cash at March 31 $ 1,510,100 $ 2,327,046
See notes to consolidated financial statements on pages 7 - 13.
</TABLE>
LINCOLN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include Lincoln National
Corporation ("LNC") and its majority-owned subsidiaries. Through
subsidiary companies, LNC operates multiple insurance and investment
management businesses. The collective group of companies uses "Lincoln
Financial Group" as its marketing identity. Operations are divided into
five business segments. 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 accounting
principles generally accepted in the United States, 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 audited consolidated financial statements and the
accompanying notes included in LNC's latest annual report on Form 10-K for
the year ended December 31, 1999.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full
year ending December 31, 2000.
2. Changes in Accounting Principle
In June 1998, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). In July 1999,
the FASB issued Statement of Financial Accounting Standard No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No. 133" ("FAS 137"), which delays the
effective date of FAS 133 one year (i.e., adoption required no later than
the first quarter of 2001). On March 3, 2000, the FASB issued a proposed
statement that would amend FAS 133. This proposed statement would not
delay the effective date of FAS 133, but would address issues that have
caused difficulty in the implementation process. Due to the complexity of
FAS 133 and the uncertainty of authoritative guidance relative to several
issues including assessing the effectiveness of a hedge, LNC has not been
able to finalize the analysis necessary to provide a reliable estimate of
the effects of implementing the Standard. Management is in the process of
evaluating the various hedge programs and will finalize the analysis when
final authoritative guidance becomes available. Because these ongoing
changes to implementation guidance have required LNC to re-assess several
complex implementation decisions, it is not likely that LNC will adopt the
standard prior to the first quarter of 2001.
3. Federal Income Taxes
The effective tax rate on net income is lower than the prevailing corporate
federal income tax rate. The difference for both 2000 and 1999 resulted
principally from tax-preferred investment income.
4. Supplemental Financial Data
Details underlying the income statement caption, "Underwriting,
Acquisition, Insurance and Other Expenses," are as follows:
Three Months Ended
March 31
(in millions) 2000 1999
Commissions $194.2 $214.8
Other volume related expenses 52.8 53.1
Operating and administrative expenses 297.3 270.9
Deferred acquisition costs amortized less
acquisition costs deferred (86.2) (71.3)
Restructuring charges -- 16.9
Other 77.8 66.6
------- -------
Total $535.9 $551.0
5. Common Stock Split
On May 13, 1999, LNC's Board of Directors approved a two-for-one stock
split for its common stock. The record date for the stock split was June
4, 1999 and the additional shares were distributed to shareholders on June
21, 1999. All shares and per share amounts in the consolidated financial
statements have been adjusted to reflect the effects of the common stock
split for the periods presented. Following this common stock split, the
conversion rate of LNC's preferred stock series A changed from eight shares
of common stock to sixteen shares of common stock for each series A
preferred stock.
6. Restrictions, Commitments and Contingencies
Statutory Restriction. LNC's primary insurance subsidiary, Lincoln
National Life Insurance Company ("Lincoln Life") acquired a block of
individual life insurance and annuity business from CIGNA Corporation in
January 1998 and a block of individual life insurance from Aetna Inc. in
October 1998. These acquisitions were structured as indemnity reinsurance
transactions. The statutory accounting regulations do not allow goodwill to
be recognized on indemnity reinsurance transactions and therefore, the
related statutory ceding commission flows through the statement of
operations as an expense resulting in a reduction of statutory earned
surplus. As a result of these acquisitions, Lincoln Life's statutory earned
surplus is negative. It is necessary for Lincoln Life to obtain the prior
approval of the Indiana Insurance Commissioner before paying any dividends
to LNC until such time as statutory earned surplus is positive. The time
frame for statutory earned surplus to return to a positive position is
dependent upon future statutory earnings and dividends paid by Lincoln
Life. Although no assurance can be given that additional dividends to LNC
will be approved, during the first quarter of 2000 and during the year
ended December 31, 1999, Lincoln Life received regulatory approval and paid
extraordinary dividends totaling $105 million and $530 million,
respectively, to LNC. In the event such approvals are not obtained in the
future, management believes that LNC can obtain the funds required to
satisfy its obligations from its existing credit facilities and other
sources.
Net income for the year ended December 31, 1999 and shareholder's equity
as of December 31, 1999 as determined in accordance with statutory
accounting practices for LNC's insurance subsidiaries were $0.579 billion
and $3.006 billion, respectively.
Disability Income Claims. The liabilities for disability income claims net
of the related asset for amounts recoverable from reinsurers at March 31,
2000 and December 31, 1999 were $1.318 billion and $1.316 billion,
respectively, excluding deferred acquisition costs. The liability is based
on the assumption that recent experience will continue in the future. If
incidence levels and/or claim termination rates fluctuate significantly
from the assumptions underlying the reserves, adjustments to reserves could
be required in the future. Accordingly, this liability may prove to be
deficient or excessive. However, it is management's opinion that such
future developments will not materially affect the consolidated financial
position of LNC.
United Kingdom Pension Products. Operations in the United Kingdom ("UK")
include the sale of pension products to individuals. Regulatory agencies
have raised questions as to what constitutes appropriate advice to
individuals who bought pension products as an alternative to participation
in an employer sponsored plan. In cases of inappropriate advice, an
extensive investigation may have to be done and the individual put in a
position similar to what would have been attained if the individual had
remained in the employer sponsored plan. At March 31, 2000 and December
31, 1999, liabilities of $257.3 million and $294.4 million, respectively,
were carried on the books for this issue. The decrease in the level of
the reserve reflects the settlement payouts that have occurred during the
three months ended March 31, 2000. These liabilities, which are net of
expected recoveries, have been established for the estimated cost of this
issue following regulatory guidance as to activities to be undertaken.
The expected recoveries from previous owners of companies acquired in
past years as specified in the indemnification clauses of the purchase
agreements were $113.6 million and $99.7 million at March 31, 2000 and
December 31, 1999, respectively. These liabilities and recoveries are
based on various estimates that are subject to considerable uncertainty.
Accordingly, these liabilities may prove to be deficient or excessive.
However, it is management's opinion that such future developments will
not materially affect the consolidated financial position of LNC.
United Kingdom Strategic Review
Trends in the UK for pension and life insurance businesses are changing
rapidly, due in large part to government mandated product design changes
that are expected to be imposed upon the industry within the next year or
two. The ever changing regulatory environment has and is continuing to
cause great volatility in the Lincoln UK segment. In anticipation of these
marketplace changes, a review of strategic alternatives for Lincoln UK was
initiated in 1999. In the fourth quarter of 1999, as a result of this
review and in response to this current business environment, management
decided to explore the exit of the UK market. This analysis continued
through the first quarter of 2000. The range of strategic options being
explored includes the potential sale of the Lincoln UK insurance business.
Personal Accident Programs. In the past, LNC's Reinsurance segment
accepted personal accident reinsurance programs from other insurance
companies. Most of these programs are presented to the Reinsurance segment
by independent brokers who represent the ceding companies. Certain
excess-of-loss personal accident reinsurance programs created in the London
market from 1993 to 1996 have produced and have potential to produce
significant losses. The liabilities for these programs, net of related
assets recoverable from reinsurers, were $173.7 million and $174.7 million
at March 31, 2000 and December 31, 1999, respectively.
Settlement activities relating to LNC's participation in workers'
compensation carve-out (i.e., life and health risks associated with
workers' compensation coverage) programs managed by Unicover Managers, Inc.
have allowed LNC to evaluate the possibility of settlements and to estimate
its potential costs to settle Unicover-related exposures. As of December
31, 1999, a liability of $62.2 million was established for the settlement
of LNC's exposure to the Unicover programs. On March 30, 2000, LNC reached
settlement with regard to one portion of the Unicover programs. The costs
of this settlement were in line with earlier estimated costs to settle this
portion of LNC's participation in these programs.
The liabilities for both the personal accident reinsurance programs and the
worker's compensation carve-out programs managed by Unicover Managers, Inc.
are based on various estimates that are subject to considerable
uncertainty. Accordingly, the liabilities may prove to be deficient or
excessive. However, it is management's opinion that future developments in
these programs will not materially affect the consolidated financial
position of LNC.
HMO Excess-of-Loss Reinsurance Programs. The liability for HMO claims, net
of the related assets for amounts recoverable from reinsurers, was $87.4
million and $101.9 million at March 31, 2000 and December 31, 1999,
respectively. LNC reviews reserve levels on an ongoing basis. The
liability is based on the assumption that recent experience will continue
in the future. If claims and loss ratios fluctuate significantly from the
assumptions underlying the reserves, adjustments to reserves could be
required in the future. Accordingly, the liability may prove to be
deficient or excessive. However, it is management's opinion that such
future developments will not materially affect the consolidated financial
position of LNC.
Marketing and Compliance Issues. Regulators continue to focus on market
conduct and compliance issues. Under certain circumstances, companies
operating in the insurance and financial services markets have been held
responsible for providing incomplete or misleading sales materials and for
replacing existing policies with policies that were less advantageous to
the policyholder. LNC's management continues to monitor the company's
sales materials and compliance procedures and is making an extensive effort
to minimize any potential liability. Due to the uncertainty surrounding
such matters, it is not possible to provide a meaningful estimate of the
range of potential outcomes at this time; however, it is management's
opinion that such future developments will not materially affect the
consolidated financial position of LNC.
UK regulators continue to focus on industry-wide marketing and compliance
issues. Under certain circumstances, companies operating in the insurance
and financial services markets may be held responsible for providing
incomplete or misleading sales materials and information. As a consequence
of low interest and inflation rates, the projected maturity values of
mortgage endowment policies are, in many cases, expected to fall short of
the original illustration.
UK regulators have required companies to review the assumptions used in
calculating future investment growth on policies and inform existing
clients of the progress of their policies. For LNC, the additional costs
associated with this administrative process have been immaterial, because
LNC's policyholders have been receiving regular updates on the progress of
their policies. No further action has been required by regulators to date,
but the possibility of additional administrative or remedial action remains.
As no official pronouncement regarding mortgage endowments has been made, it
is not possible to provide a meaningful estimate of the potential outcome of
this matter at the present time. However, it is management's opinion that
the resolution of this matter will not materially affect the consolidated
financial position of LNC.
Group Pension Annuities. The liabilities for guaranteed interest and group
pension annuity contracts are supported by a single portfolio of assets
that attempts to match the duration of these liabilities. Due to the
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. Accordingly, these liabilities may prove to be deficient or
excessive. However, it is management's opinion that such future
developments will not materially affect the consolidated financial position
of LNC.
Other Contingency Matters. LNC and its subsidiaries are involved in
various pending or threatened legal proceedings arising from the conduct of
business. Most of this litigation is routine in the ordinary course of
business. In some instances, these proceedings include claims for
compensatory and punitive damages and similar types of relief in addition
to amounts for alleged contractual liability or requests for equitable
relief. After consultation with legal counsel and a review of available
facts, it is management's opinion that the ultimate liability, if any,
under these suits will not have a material adverse effect on the
consolidated financial position of LNC.
Lincoln Life now has three lawsuits against it alleging fraud in the sale
of interest-sensitive universal and whole life insurance policies. While
each of these lawsuits seeks class action status, the court has not
certified a class in any of them. In each of these lawsuits, plaintiffs
seek unspecified damages and penalties for themselves and on behalf of the
putative class. While the relief sought in these lawsuits is substantial,
they are in the discovery stages of litigation, and it is premature to
make assessments about potential loss, if any. In a fourth lawsuit, a
settlement has been preliminarily approved by the court and a class has
been conditionally certified for settlement purposes. Two similar lawsuits
were previously resolved and dismissed. A third such lawsuit will proceed
as an individual action after plaintiff's counsel agreed to have class
action allegations stricken from his complaint. In addition, a lawsuit
has been filed against Lincoln Life by an annuity contractholder. In that
case, plaintiff seeks class certification on behalf of all contractholders
who have acquired a variable annuity from Lincoln Life to fund a tax-
deferred qualified retirement plan. Plaintiff claims that marketing
variable annuities for use in such plans is inappropriate. Management
intends to defend these lawsuits vigorously. The amount of liability,
if any, which may arise as a result of these lawsuits cannot be reasonably
estimated at this time.
State guaranty funds assess insurance companies with fees to cover losses
to policyholders of insolvent or rehabilitated companies. Mandatory
assessments may be partially recovered through a reduction in future
premium taxes in some states. LNC has accrued for expected assessments net
of estimated future premium tax deductions.
7. Segment Disclosures
In December 1999, management initiated a plan to change the structure of
LNC's internal organization in a manner that caused the composition of its
reportable segments to change beginning in 2000. During the first quarter
of 2000, execution of the planned changes were finalized so that for the
quarter ending March 31, 2000, decisions about resource allocation and
performance assessment were made separately for an Annuities segment and a
Life Insurance segment. As of and for the quarter ended March 31, 2000,
financial reporting for the two separate segments is presented and the
corresponding information for earlier periods is presented on a basis
consistent with the new segment reporting structure. Most of the lines of
business previously included in the Life Insurance and Annuities segment
are now reported within either the Annuities segment or the Life Insurance
segment based on how the lines of business are being managed.
As a result of current management structures, the life and annuity results
for First Penn-Pacific are now reported in the Life Insurance segment,
Legacy Life results are now reported in the Annuities segment and results
for Lincoln Financial Advisors are now reported in "Other Operations".
Also, net investment income and related unrealized and realized gain/loss
on surplus investments and certain unallocated expenses previously reported
in the Life Insurance and Annuities segment are now allocated to the
Annuities, Life Insurance, Reinsurance and Investment Management segments
and Other Operations based on various methodologies.
<TABLE>
<CAPTION>
The following tables show financial data by segment:
Three Months Ended Year Ended
March 31 December 31
(in millions) 2000 1999 1999 1998
Revenue:
<S> <C> <C> <C> <C> <C>
Annuities $ 511.1 $ 485.6 $ 1,958.4 $ 1,912.6
Life Insurance 486.4 469.1 1,945.3 1,558.9
Lincoln UK 112.8 119.1 446.6 439.7
Reinsurance 395.5 421.6 1,833.9 1,580.3
Investment Management 116.5 117.3 461.0 467.3
Other Operations (includes consolidating adjustments) 46.9 62.7 158.5 128.3
------------- ------------- ------------- -------------
Total $ 1,669.2 $ 1,675.4 $ 6,803.7 $ 6,087.1
Net Income (Loss) before Federal Income Taxes:
Annuities $ 111.1 $ 90.5 $ 348.9 $ 312.6
Life Insurance 101.2 82.6 368.9 245.5
Lincoln UK 20.0 26.9 (100.1) 106.9
Reinsurance 47.3 54.6 65.1 160.6
Investment Management 8.1 (2.7) 39.0 37.6
Other Operations (includes interest expense) (56.7) (47.4) (151.8) (165.8)
------------- ------------- ------------- -------------
Total $ 231.0 $ 204.5 $ 570.0 $ 697.4
Federal Income Taxes (Credits):
Annuities $ 23.0 $ 16.9 $ 70.5 $ 57.0
Life Insurance 36.8 30.0 133.3 87.4
Lincoln UK 4.5 8.9 (81.9) 35.2
Reinsurance 13.3 19.3 21.0 55.9
Investment Management 2.9 0.9 15.4 16.4
Other Operations (19.5) (16.6) (48.7) (64.3)
------------- ------------- ------------- -------------
Total $ 61.0 $ 59.4 $ 109.6 $ 187.6
Net Income (Loss):
Annuities $ 88.1 $ 73.6 $ 278.4 $ 255.6
Life Insurance 64.4 52.6 235.6 158.1
Lincoln UK 15.5 18.0 (18.2) 71.7
Reinsurance 34.0 35.3 44.1 104.7
Investment Management 5.2 (3.6) 23.6 21.2
Other Operations (includes interest expense) (37.2) (30.8) (103.1) (101.5)
------------- ------------- ------------- -------------
Net Income Before Minority Interest
In Consolidated Subsidiary 170.0 145.1 460.4 509.8
Minority Interest In Consolidated Subsidiary (0.2) -- -- --
------------- ------------- ------------- -------------
Net Income $170.2 $145.1 $460.4 $509.8
<CAPTION>
March 31 December 31 December 31
(in millions) 2000 1999 1998
<S> <C> <C> <C> <C>
Assets:
Annuities $ 63,194.3 $ 60,414.0 $ 53,382.4
Life Insurance 20,300.9 19,941.3 19,355.6
Lincoln UK 9,482.9 9,712.8 8,757.3
Reinsurance 6,500.5 6,757.7 6,556.1
Investment Management 1,467.1 1,483.1 1,648.0
Other Operations 5,394.3 4,786.8 4,136.9
------------- ------------- -------------
Total $ 106,340.0 $ 103,095.7 $ 93,836.3
Select data shown above for the Investment Management segment, Annuities segment, Life Insurance segment and Other
Operations for the year ended December 31, 1998 has been reclassified due to a change in the reporting relationship
for LNC's internal investment advisor and 401(k) pension operations which occurred in the first quarter of 1999.
</TABLE>
8. Earnings Per Share
Per share amounts for net income are shown in the income statement using 1)
an earnings per common share basic calculation and 2) an earnings per
common share-assuming dilution calculation. Reconciliations of the
factors used in the two calculations are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
2000 1999
Numerator: [in millions]
<S> <C> <C>
Net income
as used in basic calculation $ 170.2 $ 145.1
Dividends on convertible preferred stock * *
------- -------
Net income, as used in diluted calculation $170.2 $145.1
* Less than $100,000.
Denominator: [number of shares]
Weighted-average shares, as used in basic calculation 193,817,547 201,185,474
Shares to cover conversion of preferred stock 460,058 516,258
Shares to cover restricted stock 2,302 516,540
Average stock options outstanding during the period 5,299,861 6,043,768
Assumed acquisition of shares with assumed proceeds
and tax benefits from exercising stock options
(at average market price during the period) (4,375,304) (4,631,810)
Average deferred compensation shares 590,108 --
------------- -------------
Weighted-average shares, as used in diluted calculation 195,794,572 203,630,230
</TABLE>
In the event the average market price of LNC's common stock exceeds the
issue price of stock options, such options would be dilutive to LNC's
earnings per share and will be shown in the table above. During 1999, LNC
changed its deferred compensation plans so that participants selecting LNC
stock for measuring the investment return attributable to their deferral
amounts will be paid out in LNC stock. The obligation to satisfy these
deferred compensation plan liabilities is dilutive and is shown in the
table above. Also, LNC has purchase contracts outstanding which require
the holder to purchase LNC common stock by August 16, 2001. These purchase
contracts were issued in conjunction with the FELINE PRIDES financing. The
common shares involved are not currently dilutive to LNC's earnings per
share and will not be dilutive in the future except during periods when the
average market price of LNC's common stock exceeds a stated threshold price
of $55.725 per share.
9. Comprehensive Income
<TABLE>
<CAPTION>
Three Months Ended
March 31
(in millions) 2000 1999
<S> <C> <C>
Net income $170.2 $ 145.1
Foreign currency translation (7.2) (19.9)
Net unrealized gain (loss) on securities 54.5 (297.7)
------ ------
Comprehensive Income (Loss) $217.5 $(172.5)
</TABLE>
10. Divestiture
On March 30, 2000, LNC transferred its 49% share of Seguros Serfin Lincoln
to its partner, Grupo Financiero Serfin S.A., for $100.5 million. The
proceeds included the recovery of LNC's investment which freed up
approximately $90.0 million of capital and included interest of $14.1
million ($9.2 million after-tax).
11. Restructuring Charges
During 1998, LNC implemented a restructuring plan related to the
integration of existing life and annuity operations with the new business
operations acquired from CIGNA, and a second restructuring plan related to
downsizing LNC's corporate center operations. The aggregate charges
associated with these two unrelated restructuring plans totaled $34.3
million after-tax ($52.8 million pre-tax). The aggregate pre-tax costs
include $19.6 million for employee severance and termination benefits
related to the elimination of 211 positions and 143 positions for the two
plans, respectively, $9.9 million for asset impairments and $23.3 million
for costs relating to exiting business activities. As of March 31, 2000,
actual pre-tax costs of $52.9 million have been expended or written-off and
313 positions have been eliminated under these restructuring plans. All
expenditures under the restructuring plan related to the integration of
the existing life and annuity operations with the new business operations
acquired from CIGNA were completed by the first quarter of 2000. A balance
of $3.9 million pre-tax related to the downsizing of LNC's corporate center
operations remains in the restructuring reserve for this 1998 plan.
In 1999, LNC implemented three different restructuring plans related to 1)
the downsizing and consolidation of the operations of Lynch & Mayer, Inc.
("Lynch & Mayer"), 2) the discontinuance of HMO excess-of-loss reinsurance
programs and 3) the streamlining of Lincoln UK's operations. The aggregate
charges associated with these three unrelated restructuring plans totaled
$21.8 million after-tax ($31.8 million pre-tax). These aggregate pre-tax
costs include $8.3 million for employee severance and termination benefits
related to the eliminations of 34, 71 and 119 positions for the three
plans, respectively, $9.8 million for asset impairments and $13.7 million
for costs relating to exiting business activities. As of March 31, 2000,
actual pre-tax costs of $17.6 million have been expended or written-off
and 117 positions have been eliminated under these restructuring plans.
During the fourth quarter of 1999, LNC determined that part of rent expense
related to abandoned office space included in the costs related to
downsizing and consolidation of operations for Lynch & Mayer would not be
incurred due to the landlord allowing Lynch & Mayer to surrender the lease
rather than to sublease the space. As a result, the original estimate was
reduced by $3.0 million pre-tax. This reduction was recorded in the fourth
quarter of 1999 as a reversal to the restructuring charge and related
reserve. In addition, during the fourth quarter of 1999, $1.5 million
pre-tax associated with lease terminations was released into income. As of
March 31, 2000, a balance of $11.2 million pre-tax remains in the
restructuring reserves for these 1999 plans.
Item 2 Management's Discussion and Analysis of Financial Information
Forward Looking Statements - Cautionary Language
The pages that follow review the results of operations of LNC consolidated,
LNC's five business segments and "Other Operations"; LNC's consolidated
investments; and consolidated financial condition including liquidity, cash
flow and capital resources. Historical financial information is presented
and analyzed. Where appropriate, factors that may affect future financial
performance are identified and discussed. Certain statements made in this
report are "forward-looking statements" within the meaning of the
Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking
statements include, without limitation, any statement that may predict,
forecast, indicate or imply future results, performance or achievements,
and may contain words like: "believe", "anticipate", "expect", "estimate",
"project", "will", "shall" and other words or phrases with similar meaning.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from the forward-looking statements.
These risks and uncertainties include, among others: 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), accounting principles generally accepted in
the United States, regulations (e.g., insurance and securities
regulations), debt and claims paying ratings issued by nationally
recognized rating organizations, acts of God (e.g., hurricanes, earthquakes
and storms), stability of foreign governments in countries that LNC does
business, other insurance risks (e.g., policyholder mortality and
morbidity) and competition.
The risks included here are not exhaustive. Other sections of this report
may include additional factors which could adversely impact LNC's business
and financial performance. Moreover, LNC operates in a rapidly changing and
competitive environment. New risk factors emerge from time to time and it
is not possible for management to predict all such risk factors. Further,
it is not possible to assess the impact of all risk factors on LNC's
business or the extent to which any factor or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties, investors
should not place undo reliance on forward-looking statements as a
prediction of actual results. In addition, LNC disclaims any obligation to
update any forward-looking statements to reflect events or circumstances
that occur after the date of this report.
The discussion that follows focuses on the results of operations for the
three months ended March 31, 2000 compared to the results for the three
months ended March 31, 1999.
Within the discussion of the results of operations, reference is made to
"Income from Operations". This alternative measure of earnings is defined
as "Net income less realized gain (loss) on sale of investments, gain
(loss) on sale of subsidiaries and restructuring charges, all net of
taxes".
RESULTS OF CONSOLIDATED OPERATIONS
Summary Financial Results
Three Months Ended
March 31
(in millions) 2000 1999
Operating Revenue (1) $1,670.2 $1,673.4
Expenses (including taxes) 1,499.8 1,517.7
-------- --------
Income from Operations before Minority Interest (2) 170.4 155.7
Minority Interest (0.2) --
-------- --------
Income from Operations 170.6 155.7
Realized Gain (Loss) on Investments (after-tax) (0.4) 1.5
Restructuring Charge (after-tax) -- (12.1)
-------- --------
Net Income $ 170.2 $ 145.1
(1) Operating revenue excludes realized gain/(loss) on investments.
(2) Expenses exclude any restructuring charge.
LNC has the following business segments: Annuities, Life Insurance, Lincoln
UK, Reinsurance and Investment Management. LNC reports operations not
directly related to the business segments and unallocated corporate items
(i.e., corporate investment income, interest expense on corporate debt,
unallocated overhead expenses, and the operations of Lincoln Financial
Advisors Corporation ("LFA") and AnnuityNet) in "Other Operations". See
"Reorganization of Reporting Segments" below for further discussion of
LNC's segment reporting structure.
Net income for the first three months of 2000 was $170.2 million as
compared to $145.1 million for the first three months of 1999. Net income
for the first quarter of 1999 excluding the restructuring charge of $12.1
million after-tax was $157.2 million. Income from operations for the first
three months of 2000 was $170.6 million, an increase of $14.9 million or
10% over the results for the comparable period in 1999. The increase in
net income excluding the restructuring charge and income from operations
was the result of increased earnings in the Annuities and Life Insurance
segments. Consolidated operating revenues decreased slightly ($3.2 million
or 0.2%) due primarily to decreased business volume in the Reinsurance
segment related to exited businesses in run-off and decreased investment
advisory fees in the Investment Management segment. These revenue
decreases were partially offset by increased individual life premiums in
the Reinsurance segment and increased fee income and net investment income
in both the Annuities segment and the Life Insurance segment. Consolidated
expenses decreased by $17.9 million or 1% due primarily to decreased
expenses in the Reinsurance segment resulting from the decrease in business
volume in exited businesses noted above. Expenses also decreased due to
lower Year 2000 information technology costs. For further discussion of
the results of operations see the discussion of the results of operations
by segment starting on page 15.
Reorganization of Reporting Segments
In December 1999, management initiated a plan to change the structure of
LNC's internal organization in a manner that caused the composition of its
reportable segments to change beginning in 2000. During the first quarter
of 2000, execution of the planned changes were finalized so that for the
quarter ending March 31, 2000, decisions about resource allocation and
performance assessment were made separately for an Annuities segment and a
Life Insurance segment. As of and for the quarter ended March 31, 2000,
financial reporting for the two separate segments is presented and the
corresponding information for earlier periods is presented on a basis
consistent with the new segment reporting structure. Most of the lines of
business previously included in the Life Insurance and Annuities segment
are now reported within either the Annuities segment or the Life Insurance
segment based on how the lines of business are being managed.
As a result of current management structures, the life and annuity results
for First Penn-Pacific are now reported in the Life Insurance segment,
Legacy Life results are now reported in the Annuities segment and results
for LFA are now reported in "Other Operations". Also, net investment
income and related unrealized and realized gain/loss on surplus investments
and certain unallocated expenses previously reported in the Life Insurance
and Annuities segment are now allocated to the Annuities, Life Insurance,
Reinsurance and Investment Management segments and Other Operations based
on various methodologies.
Restructuring Charges
For an update on the status of restructuring plans implemented in 1998 and
1999 refer to Note 11 to the consolidated financial statements.
Trends in the United Kingdom
As a result of trends in the UK for pension and life insurance businesses,
in the fourth quarter of 1999, management engaged outside advisors to
explore the exit of the UK insurance market. This analysis continued
through the first quarter of 2000. The range of strategic options being
explored includes the potential sale of the Lincoln UK business.
RESULTS OF OPERATIONS BY SEGMENT
Annuities
Results of Operations (1)
Three Months Ended March 31 (in millions) 2000 1999
- ------------------------------------------------------------------------
Income from Operations $85.0 $71.1
Net Income $88.1 $73.6
March 31 (in billions) 2000 1999
- ------------------------------------------------------------------------
Account Values
Annuities $58.9 $48.8
Variable Life Insurance 0.2 0.1
------ ------
Total Account Values $59.1 $48.9
(1) The 1999 data was restated from the prior year due to the
reorganization of the Life Insurance and Annuities segment into two
separate segments: an Annuities segment and a Life Insurance segment.
The Annuities segment reported net income of $88.1 million for the first
three months of 2000 as compared to $73.6 million for the first three
months of 1999. Income from operations for the first three months of 2000
was $85.0 million, an increase of $13.9 million or 20% over the results for
the comparable period in 1999. The increase in net income and income from
operations for the first quarter of 2000 as compared to the first quarter
of 1999 was driven primarily by growth in fee income from variable annuity
accounts and to a lessor extent favorable investment margins. These
increases were partially offset by increased expenses. Variable annuity
account values increased to $44.6 billion at March 31, 2000 from $34.1
billion on March 31, 1999. The growth in the variable annuity account
values was driven by stock market appreciation partially offset by net cash
outflow. The favorable investment margins resulted from participation in
investment partnerships. The increase in expenses was primarily related to
staffing costs for positions that were open at the end of the first quarter
of 1999. These expense increases were partially offset by lower Year 2000
information technology costs.
In the first quarter of 2000, the Annuities segment experienced a
continuation of the trend of net cash outflow that was noted in the 1999
Form 10-K. For the first quarter of 2000, total annuity deposits were $1.3
billion and withdrawals were $1.9 billion, resulting in net cash outflow of
$0.6 billion. For the first quarter of 1999, total annuity deposits were
$1.1 billion and withdrawals were $1.3 billion, resulting in net cash
outflow of $0.2 billion. The growth rate of deposits was 18% between
periods.
Although the trend of annuity net cash outflow has continued into the first
quarter of 2000, during the quarter, amounts by month were flat. It
remains to be seen if this stabilizing trend will continue into future
quarters. To reverse the trend of net cash outflow, LNC has initiated
various programs aimed at retention of current accounts and increasing
deposits.
Relative to retention, LNC is focusing on three initiatives: 1) Provide
user-friendly information to broker/dealers to assist them in monitoring
and managing retention and other aspects of their business with LNC. 2)
Expand incentives for managers within LNC's own broker/dealer, LFA, aimed
at the retention of individual annuities. 3) Design alternatives for
product upgrades to increase value to LNC's customers including the
potential for a bonus product conversion for current contractholders.
To increase annuity deposits, LNC is implementing another three
initiatives: 1) Expand product line breadth in order to meet
demands of the current marketplace. 2) Gain a strong position in the
financial planner distribution channel. To this end, LNC recently
announced that it will partner with SEI Investments ("SEI") to manufacture
a variable annuity product offering SEI funds as underlying investment
options. This variable annuity product is slated for roll out in August
2000. 3) Build and expand internal wholesaling capabilities. In the first
quarter of 2000, LNC reorganized the management structure of its wholesale
distribution operations that sell through intermediaries and strategic
alliances such as wirehouses, independent financial planners, banks and
insurance brokers. This alignment enables LNC to more effectively penetrate
and cross sell into the retail distribution operations that it serves.
The strengthened wholesaling capabilities of LNC resulting from this
reorganization are expected to greatly benefit the recently improved
Lincoln ChoicePlus SM annuity product, LNC's multi-manager variable
annuity product that is wholesaled by Delaware.
Life Insurance
Results of Operations (1)
Three Months Ended March 31 (in millions) 2000 1999
- ------------------------------------------------------------------------
Income from Operations $ 67.1 $ 54.5
Net Income $ 64.4 $ 52.6
Sales - Face Amount (in billions)
Term Insurance $ 11.3 $7.0
Universal Life and Other 2.6 2.1
First Year Premiums (in millions) $144.0 $119.0
March 31 (in billions) 2000 1999
- ------------------------------------------------------------------------
Account Values
Universal and Variable Life Insurance $ 8.5 $ 7.6
Interest-Sensitive Whole Life 2.0 1.9
------ ------
Total Life Insurance 10.5 9.5
Annuities 3.4 3.6
Reinsurance Ceded on Annuities (1.4) (1.6)
------ ------
Total Annuities 2.0 2.0
Total Account Values $ 12.5 $ 11.5
In-Force - Face Amount
Universal Life and Other $108.8 $105.1
Term Insurance 91.4 73.5
(1) The 1999 data was restated from the prior year due to the
reorganization of the Life Insurance and Annuities segment into two
separate segments: an Annuities segment and a Life Insurance segment.
The Life Insurance segment reported net income of $64.4 million for the
first three months of 2000 as compared to $52.6 million for the first three
months of 1999. Income from operations for the first three months of 2000
was $67.1 million, an increase of $12.6 million or 23% over the results for
the comparable period in 1999. The increase in net income and income from
operations for the first quarter of 2000 as compared to the first quarter
of 1999 was attributable to strong sales growth, favorable investment
margins and expense savings.
First year premiums for the first quarter of 2000 were $144 million or a
22% increase over the first quarter of 1999 and account values of universal
life, variable life and interest-sensitive life insurance products
increased to $10.5 billion at March 31, 2000 from $9.5 billion at March 31,
1999. The increase in account values contributed to increased fee income.
The two new variable universal life ("VUL") products introduced in 1999
contributed to over a 50% increase in VUL sales in the first quarter of
2000 over the comparable quarter of 1999. Also, a re-emphasis on the
corporate market contributed almost $13 million of first year premiums, an
increase of $11 million over the first three months of 1999.
Investment margins improved in the first quarter of 2000 due to increased
investment income. Despite the growth of in-force, expenses decreased
slightly in the first quarter of 2000 due to lower Year 2000 information
technology expenses and lower expenses resulting from continued integration
of the blocks of business acquired from CIGNA Corporation and Aetna Inc. in
1998.
Lincoln UK
Results of Operations
Three Months Ended March 31 (in millions) 2000 1999
- ------------------------------------------------------------------------
Income from Operations $15.7 $18.1
Net Income $15.5 $18.0
March 31 (in billions) 2000 1999
- ------------------------------------------------------------------------
Unit-Linked Assets $7.0 $6.3
Individual Life Insurance In-Force $26.5 $25.2
The Lincoln UK segment reported net income of $15.5 million for the first
three months of 2000 as compared to $18.0 million for the first three
months of 1999. Income from operations for the first three months of 2000
was $15.7 million, a decrease of $2.4 million or 13% from the results for
the comparable period in 1999. The decrease in net income and income from
operations was primarily attributable to lower margins on pension products
caused by an industry-wide decrease in demand for these products and also
product repricing. Product repricing was initiated in 1999 to provide more
value to the policyholder. In addition, net investment income decreased
due to increased investment management expenses relating to the outsourcing
of certain investment management with Goldman Sachs Asset Management
International. In the future, as the transition of the outsourcing is
complete and as assets grow, LNC is expecting net investment income and
relative investment performance to improve.
Reinsurance
Results of Operations (1)
Three Months Ended March 31 (in millions) 2000 1999
- -----------------------------------------------------------------------------
Financial Results by Source
Individual Markets $ 19.2 $ 25.4
Group Markets 1.0 0.9
Financial Reinsurance 7.2 7.3
Other (1.0) (0.3)
------- -------
Income from Operations, excluding Exited Businesses 26.4 33.3
Exited Businesses 6.4 1.3
------- -------
Income from Operations 32.8 34.6
Net Income $ 34.0 $ 35.3
Individual Life Sales - Face Amount (in billions) $ 30.0 $ 18.5
March 31 (in billions) 2000 1999
- -----------------------------------------------------------------------------
Individual and Group Life Insurance In-Force
Face Amount $ 358.4 $ 263.4
(1) The 1999 data was restated from the prior year due to the reallocation
of net investment income on surplus investments from "Other" in the former
Life Insurance and Annuities segment to all segments that have business in
Lincoln National Life Insurance Company.
The Reinsurance segment ("Lincoln Re") reported net income of $34.0 million
for the first three months of 2000 as compared to $35.3 million for the
first three months of 1999. Income from operations for the first three
months of 2000 was $32.8 million, a decrease of $1.8 million or 5% from the
results for the comparable period in 1999. The decrease in net income and
income from operations for the first quarter of 2000 as compared to the
first quarter of 1999 was attributable to unusually adverse mortality
experience in individual markets and increased reserve requirements in
exited businesses. These decreases were partially offset by earnings on a
larger block of business from strong sales in 1999 and interest received
upon the transfer of LNC's investment in Seguros Serfin Lincoln. Results for
group markets were flat between quarters. Although financial reinsurance
results were flat between quarters, both quarters reflected strong earnings
driven by international capital management agreements. These agreements
contributed over $4.0 million in after-tax earnings in both quarters.
The individual markets' actual to expected loss ratio was 99.5% for the
first quarter of 2000 as compared to 85.8% for the first quarter of 1999.
This change in mortality experience reduced income from operations by
approximately $8 million after-tax and was the result of significant large
case claims and lagged claims which are not expected to repeat during the
balance of 2000. The individual life insurance in-force face amount grew to
$325.9 billion at the end of the first quarter of 2000; a $100.8 billion or
45% increase from the end of the first quarter of 1999.
Exited businesses managed by the Reinsurance segment include group carrier
medical reinsurance, HMO excess-of-loss reinsurance, personal accident (which
also includes Unicover workers' compensation programs), direct and reinsurance
disability income businesses and, through the first quarter of 2000, Seguros
Serfin Lincoln ("SSL"). On March 30, 2000, LNC transferred its 49% share
of SSL to its partner, Grupo Financiero Serfin S.A., for $100.5 million.
The proceeds included the recovery of LNC's investment which freed
up approximately $90 million of capital and included interest of $14.1
million ($9.2 million after-tax). In exited businesses, the income from
the transfer of SSL was partially offset by claims losses recorded for the
group carrier medical reinsurance and HMO excess-of-loss reinsurance
programs related to the 1999 underwriting year.
Investment Management
Results of Operations (1)
Three Months Ended March 31 (in millions) 2000 1999
- -----------------------------------------------------------------------------
Total Investment Advisory Fees $69.5 $73.8
Income from Operations 5.3 8.4
Net Income $ 5.2 $(3.6)
March 31 (in billions) 2000 1999
- -----------------------------------------------------------------------------
Assets Under Management
Regular Operations:
Retail $31.1 $30.1
Institutional 27.2 29.9
At Cost Operations 35.5 38.5
------- -------
Total Assets Under Management $93.8 $98.5
(1) The 1999 data was restated from the prior year due to the reallocation
of net investment income on surplus investments and expenses from "Other"
in the former Life Insurance and Annuities segment to all segments that
have business in Lincoln National Life Insurance Company. Within this
segment, the reallocation relates to the 401(k) operations.
The Investment Management segment reported net income (loss) of $5.2
million for the first three months of 2000 as compared to $(3.6) million
for the first three months of 1999. Net income for the first quarter of
1999 excluding the restructuring charge of $12.1 million after-tax was $8.5
million. Income from operations for the first three months of 2000 was
$5.3 million, a decrease of $3.1 million or 37% from the comparable period
in 1999. The decrease in net income excluding the restructuring charge and
income from operations for the first quarter of 2000 as compared to the
first quarter of 1999 was attributable to decreased investment advisory
fees and increased expenses, which were partially offset by an increase in
other revenue.
Investment advisory fees relating to external assets under management
decreased $5.1 million due to a decrease in institutional assets under
management partially offset by an increase in retail assets under
management. Institutional assets under management were $27.2 billion at the
end of the first quarter of 2000 as compared to $29.9 billion at the end of
the first quarter of 1999. The decrease in institutional assets under
management was due to net cash outflows partially offset by market
appreciation. Retail assets under management were $31.1 billion at the end
of the first quarter of 2000 as compared to $30.1 billion at the end of the
first quarter of 1999. The increase in retail assets under management
between periods was due to market appreciation partially offset by net cash
outflows. The net cash outflows experienced by the institutional accounts
($2.6 billion) and to a lessor extent by the retail accounts ($0.9 billion)
in the first quarter of 2000 were due to continued performance issues
relating to the value investment style being out of favor.
Although there were net retail cash outflows for the first quarter of 2000,
retail sales were a record high $1.4 billion; a $0.2 billion increase over
the first quarter of 1999 sales of $1.2 billion. The increased retail
sales along with the mix of sales which was more heavily weighted in the
higher load growth equity funds contributed to an increase in distribution
income (included in other revenue) in the first quarter of 2000 as compared
to the first quarter of 1999. Other revenue also increased in the first
quarter of 2000 due to an increase in fees resulting from an increase in
accounts being serviced in the 401(k) and investment accounting groups.
Expenses increased for the first quarter of 2000 as compared to the first
quarter of 1999 due to increases in salaries and space costs resulting from
an increase in headcount. These increases were partially offset by lower
Year 2000 information technology costs.
Other Operations
Results of Operations (1)
Three Months Ended March 31 (in millions) 2000 1999
- -----------------------------------------------------------------------------
Financial Results by Source
LNC Financing $ (21.6) $ (20.9)
LFA (7.4) (8.4)
AnnuityNet (1.5) (0.6)
Other Corporate (4.7) (1.1)
------- -------
Income (Loss) from Operations (35.2) (31.0)
Net Income (Loss) $ (37.0) $ (30.8)
(1) The 1999 data was restated from the prior year due to the
reorganization of the Life Insurance and Annuities segment into two
separate segments: a Life Insurance segment and an Annuities segment.
Results for LFA and certain unallocated expenses previously reported in the
Life Insurance and Annuities segment are now reported in "Other
Operations".
Other Operations reported a net loss of $37.0 million for the first three
months of 2000 as compared to $30.8 million for the first three months of
1999. Loss from operations for the first three months of 2000 was $35.2
million, an increase of $4.2 million or 14% over the comparable period in
1999.
The increase in net loss and loss from operations for the first quarter of
2000 was partly attributable to higher short-term debt cost. These
increased financing costs related primarily to the funding of the fourth
quarter 1999 pension mis-selling reserve strengthening and the funding of
the on-going stock repurchase program. The increased loss from AnnuityNet
was due to higher distribution costs. The increase in the loss in the Other
Corporate line was due to the settlement of litigation matters (see below
for further discussion of these matters) and an increase in branding
expenses not allocated to the business segments. The decrease in the loss
from LFA was due to increased sales volumes of mutual funds and internally
manufactured life insurance and annuity products.
Litigation
During the first quarter of 2000, developments occurred on two separate
litigation matters involving LNC. The first occurred in February 2000,
when the appellate court upheld LNC's position in litigation relating to
the 1992 sale of the Employee Life-Health Benefit business segment. As a
result of this favorable decision, LNC's first quarter 2000 pre-tax
earnings increased by approximately $17.2 million.
The second event also occurred in February 2000 when the court
preliminarily approved a settlement, and conditionally certified a class
for settlement purposes, in a case alleging the mis-selling of
interest-sensitive universal life and whole life insurance policies. Under
the terms of this preliminary settlement, the estimated value of enhanced
benefits and options to be provided to affected policyholders, along with
estimated legal and administrative costs, total approximately $71.5 million
(pre-tax). After considering the anticipated costs to LNC for providing
these enhanced policyholder benefits and options, the related estimated
legal and administrative costs, and the reserves carried for these matters,
LNC's first quarter 2000 pre-tax earnings were reduced by approximately
$21.2 million.
The net effect of these litigation developments was a reduction in LNC's
first quarter 2000 pre-tax earnings of approximately $4.0 million.
CONSOLIDATED INVESTMENTS
March 31 (in billions) 2000 1999
- -----------------------------------------------------------------------------
Total Assets Managed $141.3 $133.5
Mean Invested Assets (cost basis) $38.24 $39.17
Three Months Ended March 31 (in millions) 2000 1999
- -----------------------------------------------------------------------------
Adjusted Net Investment Income (1) $712.6 $711.3
Investment Yield (ratio of net investment
income to mean invested assets) 7.45% 7.26%
(1) Includes tax-exempt income.
The total investment portfolio increased $196 million in the first three
months of 1999. This is the net result of purchases of investments from
cash flow generated by the business segments and the increase in the fair
value of securities available-for-sale being partially offset by fixed
annuity contractholders opting to transfer funds to variable annuity
contracts.
The quality of LNC's fixed maturity securities portfolio as of March 31,
2000 was as follows:
Treasuries and AAA 22.7% BBB 33.2%
AA 6.8% BB 4.0%
A 29.9% Less than BB 3.4%
As of March 31, 2000, $2.1 billion or 7.4% of fixed maturity securities was
invested in below investment grade securities (less than BBB). This
represents 5.8% 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 three months ended March 31, 2000, the aggregate cost of such
investments purchased was $24.8 million. Aggregate proceeds from such
investments sold were $30.6 million, resulting in a net realized pre-tax
loss at the time of sale of $12.0 million.
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 March 31, 2000, mortgage loans on real estate and real estate
represented 14% and 1% of LNC's total investment portfolio, respectively.
As of March 31, 2000, the underlying properties supporting the mortgage
loans on real estate consisted of 30.0% in commercial office buildings,
29.3% in retail stores, 16.8% in apartments, 13.5% in industrial buildings,
5.4% in hotels/motels and 5.0% in other. In addition to the dispersion by
property type, the mortgage loan portfolio is geographically diversified
throughout the United States.
The following summarizes key information on mortgage loans:
March 31 December 31
(in millions) 2000 1999
Total Portfolio (net of reserves) $4,833.9 $4,735.4
Mortgage loans two or more payments
delinquent (including in process of foreclosure) 5.1 5.1
Restructured loans in good standing 10.2 3.3
Reserve for mortgage loans 4.9 4.7
Fixed maturity securities available-for-sale, mortgage loans on real estate
and real estate that were non-income producing for the three months ended
March 31, 2000 were not significant.
Net Investment Income
Net investment income increased $1.6 million or 0.2% when compared with
the first three months of 1999. This increase was the result of interest
income recognized on the transfer of Seguros Serfin Lincoln and a slight
increase in the overall yield on investments from 7.26% to 7.31%
(exclusive of interest income on Seguros Serfin Lincoln) partially offset
by a 2% decrease in mean invested assets (all calculations on a cost
basis).
Realized Gain on Investments
The first three months of 2000 had realized losses on investments of $1.0
million compared to realized gains of $1.9 million for the first three
months of 1999. The losses for 2000 which are net of related deferred
acquisition costs and expenses, were the result of rising interest rates.
Securities available-for-sale that were deemed to have declines in fair
value that are other than temporary were written down. Also, when the
underlying value of the property is deemed to be less than the carrying
value, LNC records write-downs and allowances on select mortgage loans on
real estate, real estate and other investments.
The pre-tax write-downs of securities available-for-sale for the first
three months of 2000 and 1999 were $14.2 million and $12.4 million,
respectively. The fixed maturity securities to which 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.
During the first three months of 2000, LNC released $0.5 million in
reserves on real estate and mortgage loans on real estate compared to
reserves released of $0.2 million for the first three months of 1999. Net
write-downs and reserve releases for all investments for the three months
ended March 31, 2000 and 1999 were $13.7 million and $12.2 million,
respectively.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION
Liquidity, Cash Flow and Capital Resources
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.
The consolidated statements of cash flows on page 6, indicates that
operating activities provided cash of $146.7 million during the first three
months of 2000. 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 March 31, 2000, LNC has a shelf
registration with an unused balance of $825 million that would allow LNC to
issue a variety of securities, including debt, preferred stock, common
stock and hybrid securities. Finally, 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 have
occurred in the first three months of 2000 include the purchase and
retirement of 2,795,981 shares of common stock at a cost of $80.0 million.
At March 31, 2000, the remaining amount under the May 1999 board
authorization to repurchase $500 million of common stock was $183.3
million. As of April 28, 2000, the remaining amount under the board
authorization was $146.2 million.
LNC's insurance subsidiaries are subject to certain insurance department
regulatory restrictions as to the transfer of funds and payment of
dividends to the holding company. Generally, these restrictions pose no
short-term liquidity concerns for the holding company. However, as
discussed in detail within Note 6 to the consolidated financial statements,
the acquisition of two blocks of business in 1998 placed further
restrictions on the ability of LNC's primary insurance subsidiary, Lincoln
National Life Insurance Company ("Lincoln Life"), to declare and pay
dividends. As a result of these acquisitions and dividends declared,
Lincoln Life's statutory earned surplus is negative. It is necessary for
Lincoln Life to obtain the prior approval of the Indiana Insurance
Commissioner before paying any dividends to LNC until such time its
statutory earned surplus is positive. The time-frame for statutory earned
surplus to return to a positive position is dependent upon future statutory
earnings and dividends paid by Lincoln Life. Although no assurance can be
given that additional dividends to LNC will be approved, during the first
quarter of 2000 and during the year ended December 31, 1999, Lincoln Life
received regulatory approval and paid extraordinary dividends totaling $105
million and $530 million, respectively, to LNC. In the event such approvals
are not obtained, management believes that LNC can obtain the funds
required to satisfy its obligations from its existing credit facilities and
other sources.
Total shareholders' equity increased $76.6 million in the first three
months of 2000. Excluding the increase of $54.5 million related to a
decrease in the unrealized loss on securities available-for-sale,
shareholders' equity increased $22.1 million. This increase was the net
result of increases due to $170.2 million from net income and $1.6 million
from the issuance of common stock related to the acquisition of
subsidiaries offset by decreases of $7.1 million from the issuance of
common stock related to benefit plans, $7.2 million for the cumulative
foreign currency translation adjustment, $80.0 million for the repurchase
of common shares and $55.4 million for the declaration of dividends to
shareholders.
As of March 31, 2000, LNC's senior debt ratings included Moody's at A2
("Very Good, Strong or High"), Standard and Poor's A- ("Very Good, Strong
or High") and Duff & Phelps at A+ ("Very Good, Strong or High") and LNC's
commercial paper ratings included Moody's at P-1 ("Superior"), Standard and
Poor's at A-2 ("Strong") and Duff & Phelps at D-1 ("High Grade"). In
December 1999, Moody's put LNC's senior debt and commercial paper ratings
under review for possible downgrade. Although the short-term borrowing rate
on the issuance of commercial paper will increase approximately 0.10% per
annum as a result of the noted events, management believes that liquidity
will not be adversely impacted.
As of March 31, 2000, Lincoln National (UK) PLC's commercial paper ratios
included Standard and Poor's at A-2 ("Strong") and Moody's at P-1
("Superior"). Management believes that given the reduced number of
investors for commercial paper with ratings below A-1 and the current
liquidity problems in the United Kingdom, it will on occasion be difficult
for Lincoln National (UK) PLC to issue commercial paper and it will
therefore have to draw upon alternative short-term borrowing facilities in
the form of bank loans. When this occurs, it is likely to cause an increase
in its borrowing rate of approximately 0.20% per annum, but management
believes that liquidity will not be adversely impacted.
Contingencies
See Note 6 to the consolidated financial statements for information
regarding claims for disability income coverages, liabilities and
recoveries related to inappropriate selling of products in the UK,
liabilities for personal accident reinsurance programs, liabilities for
marketing and compliance issues, the reserve for the run-off of group
pension annuities and other contingency matters.
Item 3 Quantitative and Qualitative Disclosure of Market Risk
In Item 7A, Part II of LNC's Form 10-K for the year ended December 31, 1999
(see page 29 of LNC's 1999 Form 10-K), LNC provided a discussion of its
market risk. During the first quarter of 2000, there was no substantive
change to LNC's market risk. The following is a discussion of changes to
LNC's derivative positions.
Derivatives
As discussed in Note 7 to the consolidated financial statements for the
year ended December 31, 1999 (see page 65 of LNC's 1999 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, credit risk, foreign
exchange risk and fluctuations in the FTSE and S&P indexes. In addition,
LNC is subject to risks associated with changes in the value of its
derivatives; however, such changes in value are generally offset by changes
in the value of the items being hedged by such contracts. Modifications to
LNC's derivative strategy are initiated periodically upon review of the
Company's overall risk assessment. During the first three months of 2000,
the more significant changes in LNC's derivative positions are as follows:
1. Decreased its use of interest rate cap agreements that are used to hedge
its annuity business from the effect of fluctuating interest rates from
$2.5 billion notional to $2.4 billion notional. The decrease in notional
is a result of expirations and, therefore, no gain or loss has been
recognized.
2. Decreased its use of swaptions by $28.5 million notional, resulting in a
remaining balance of $1.8 billion notional. The decrease in notional of
the swaptions is a result of expirations and no gain or loss has been
recognized. LNC uses swaptions to hedge various portfolios of interest
rate sensitive assets.
3. Increased its use of interest rate swaps hedging variable rate bonds by
$32.7 million notional, resulting in a total notional of $403.2 million.
These interest rate swap agreements convert floating rate bond coupon
payments into a fixed rate of return. In addition, $0.4 million notional
of interest rate swaps expired. No gain or loss was recognized as a result
of the expirations. LNC also increased its use of forward starting
interest rate swaps to hedge the anticipated purchase of assets by $584.0
million notional, resulting in a total notional of $633.5 million notional.
In addition, $210.5 million notional was terminated resulting in a $3.3
million loss used to adjust the basis of purchased assets. These swap
agreements protect LNC from falling interest rates.
4. Entered into $399.7 million notional of foreign exchange forward
contracts. These foreign exchange forward contracts are hedging the
foreign currency risk of LNC's net investment in Lincoln UK. In addition,
LNC entered into foreign exchange forward contracts in the amount of $211.2
million notional that are hedging LNC's exposure to currency fluctuation
associated with its issuance of non-Sterling commercial paper in Europe. A
total of $40.0 million notional was terminated resulting in no gain or
loss.
5. Increased its use of S&P 500 index call options from $129.6 million
notional to $146.4 million notional. New options in the amount of $21.2
million were entered into during the quarter. A total of $4.4 million
notional were terminated, resulting in a $0.1 million gain. These call
options continue to offset LNC's increased liabilities resulting from
certain reinsurance agreements which guarantee payment for a specified
portion of the appreciation of the S&P 500 index on certain underlying
annuity products.
6. Entered into 0.5 million call options on an equal number of shares of
LNC stock. These call options are hedging the expected increase in
liabilities arising from stock appreciation rights granted on LNC stock.
The stock appreciation rights were granted to LNC agents during
the first quarter 2000.
7. Entered into $100.0 million notional of spread lock agreements. These
spread lock agreements protect a portion of fixed maturity securities and
mortgage loans against widening spreads. The entire $100.0 million
notional was terminated resulting in a $2.4 million loss used to adjust the
basis of purchased assets.
LNC is exposed to credit loss in the event of non-performance by
counterparties on various derivative contracts. However, LNC does not
anticipate non-performance by any of the counterparties. The credit risk
associated with such agreements is minimized by purchasing such agreements
from financial institutions with long-standing superior performance
records.
PART II - OTHER INFORMATION AND EXHIBITS
Items 1, 2, 3, 4 and 5 of this Part II are either inapplicable or are
answered in the negative and are omitted pursuant to the instructions to
Part II.
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.)
10(u) Fourth Amendment to The Lincoln National Life Insurance Company
Agents' Savings and Profit-Sharing Plan dated December 22, 1999
10(v) Third Amendment of the Lincoln National Life Insurance Company
Agents' Money Purchase Pension Plan dated December 8, 1999
10(w) Second Amendment to the Lincoln National Corporation Employees'
Retirement Plan dated December 22, 1999
10(x) Fourth Amendment to the Lincoln National Corporation Employees'
Savings and Profit-Sharing Plan dated October 15, 1998
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 March 31,
2000.
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
By /S/ Casey J. Trumble
Casey J. Trumble,
Senior Vice President and Chief Accounting Officer
Date May 4, 2000
LINCOLN NATIONAL CORPORATION
Exhibit Index for the Report on Form 10-Q
for the Quarter Ended March 31, 2000
Exhibit Number Description Page Number
10(u) Fourth Amendment to The Lincoln National Life
Insurance Company Agents' Savings and
Profit-Sharing Plan dated December 22, 1999 28
10(v) Third Amendment of the Lincoln National Life
Insurance Company Agents' Money Purchase
Pension Plan dated December 8, 1999 29
10(w) Second Amendment to the Lincoln National
Corporation Employees' Retirement Plan
dated December 22, 1999 37
10(x) Fourth Amendment to the Lincoln National
Corporation Employees' Savings and Profit-
Sharing Plan dated October 15, 1998 39
12 Historical Ratio of Earnings to
Fixed Charges 43
27 Financial Data Schedule 44
Exhibit 10(u)
Fourth Amendment
The Lincoln National Life Insurance Company
Agents' Savings and Profit-Sharing Plan
The Lincoln National Life Insurance Company Agents' Savings and
Profit-Sharing Plan (the "Plan") is amended, effective January 1, 2000
(unless a different date is specified below) by deleting the following from
the end of subparagraph 4.1(b)(iii):
"; except that the multiplier under this subparagraph shall not exceed
$0.50 for Participants who (A) were formerly agents with CIGNA Corporation
on December 31, 1997 who became agents of the Company as of January 1,
1998, (B) on or after January 1, 1998, became agents of the Company at any
office formerly associated with CIGNA Corporation or (C) are Regional Chief
Executive Officers (RCEOs), second line managers, or account managers at
any office formerly associated with CIGNA Corporation and whose
compensation during the plan year equals or exceeds $100,000."
IN WITNESS WHEREOF, the President of the Company has executed this Fourth
Amendment this 22nd day of December 1999.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/s/JON A. BOSCIA
- ----------------
By: Jon A. Boscia
Its: President
Exhibit 10(v)
THIRD AMENDMENT OF
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
AGENTS' MONEY PURCHASE PENSION PLAN
The Lincoln National Life Insurance Company Agents' Money Purchase Pension
Plan (the "Plan") is amended effective December 31, 1999 (unless a
different date is specified below) by:
1. Renaming the Plan (title and in subsection 1.1) as "The Lincoln National
Life Insurance Company Money Purchase Pension Plan";
2. Adding the following at the end of subsection 1.3: "The Committee and
the LNC Benefits Appeals and Operations Committee are fiduciaries under the
Plan and each has complete authority and discretion to interpret and
administer the Plan. As part of such authority, the LNC Benefits Appeals
and Operations Committee resolves all questions relating to eligibility,
participation, coverage and the availability and payment of benefits under
the Plan. Decisions of the LNC Benefits Appeals and Operations Committee
are final and binding on Plan Participants. In addition, each Committee
may delegate any of its authority to any person or persons it selects."
3. Deleting the last two sentences of subsection 10.2 and substituting
therefor: "The term "Disability" means "totally disabled" as defined under
the applicable Lincoln long-term disability plan (even if the individual
shall have declined or not elected coverage under such plan). The
permanence and degree of such impairment shall be supported by medical
evidence."
4. Deleting Supplement A and substituting therefor the attached Supplement A
(for the 1999 Plan Year);
5. Effective January 1, 2000, deleting Supplement A (for the 1999 Plan Year).
6. Adding the following new paragraph at the end of subsection 2.1:
"Effective January 1, 2000, employees at field office locations who were
covered by this Plan but shall have become eligible for participation in
the LNC Employees' Retirement Plan shall no longer be eligible for
contributions under this Plan, notwithstanding any provision of this Plan
to the contrary."
7. Effective January 1, 2000, inserting "and life brokerage employee" after
the word "Agent" in subsections 2.1 and 2.2, substituting "individual" for
"Agent" in the last paragraph of 2.1 and, in subsection 2.4, deleting from
the lead-in "Agent's or Participant's" and "Agent" and substituting in both
places "individual".
8. Effective January 1, 2000, deleting paragraph 3.2(a) and substituting
therefor the following:
"Compensation" means commissions paid by Lincoln due to the sale of Lincoln
products, manager draw, staff draw, staff associate draw, account manager
compensation, management bonus, previous year bonus paid in current
calendar year, staff bonus, brokerage bonus, staff short-term disability
and amounts deferred under any tax-favored flexible spending account or
401(k) plan sponsored by Lincoln or Lincoln National Corporation; but such
term excludes commissions paid by companies other than Lincoln (including
affiliates and subsidiaries of Lincoln and of Lincoln National
Corporation); amounts paid under any long-term disability plan sponsored by
the Company or Lincoln National Corporation; amounts paid after termination
of employment even though earned while employed; expense reimbursements or
allowances; payments and awards for suggestions, employment referrals,
relocation, educational achievements or similar awards; commissions from
national brokerage arrangements (Lincoln Associates, Inc.) or paid through
the broker/dealer; cash or cash values paid under long-term executive
compensation plans, including (but not limited to) stock grants, stock
options and stock appreciation rights and awards under any long-term
performance unit plan; cash value of merchandise or similar awards; imputed
taxable value of merchandise or employee fringe benefits; lump-sum payments
for unused time off; severance pay or related continuity bonuses, even
tough paid while employed; compensation that is eligible earnings for
benefits accrued in another pension plan sponsored by the Company or
Lincoln National Corporation other than such a 401(k) plan; and
compensation commonly referred to as "company credits" under Customized
Security.
The annual Compensation of each Participant taken into account for
determining all benefits provided under the Plan for any Plan Year shall
not exceed $170,000, as adjusted for increases in the cost-of-living in
accordance with Section 401(a)(17)(B) of the Code. The cost-of-living
adjustment in effect for a calendar year applies to the Plan Year beginning
in such calendar year."
9. Effective January 1, 2000, deleting subsection 4.1 and substituting
therefor the following:
"Subject to the terms and conditions of the Plan, the Company shall pay
into the Trust (on behalf of Participants, for each Plan Year and after
such Plan Year) an amount equal to the greater of (a) and (b) below;
provided, however, that a Participant shall be entitled to receive a
Company Contribution (which contribution shall be made on an annual basis
on or before the April 1 immediately following the Plan Year) only if (i)
his remuneration for such Plan Year is less than $100,000 and (ii) he is in
the active employment of the Company on the last day of such Plan Year
(unless his termination of employment occurred by reason of his death or
Disability; or after his attainment of age 60). For these purposes,
"remuneration" shall mean a Participant's compensation as defined by IRC
Section 415 and regulations thereunder plus amounts deferred under any
tax-favored flexible spending account or 401(k) plan sponsored by Lincoln
or Lincoln National Corporation. To the extent permitted by ERISA Section
403, each contribution made by Company hereunder shall be conditioned upon
the deductibility of the contribution under Section 404 of the Code.
(1) Agents shall receive a Company contribution equal to the sum of (A) 2%
of the Participant's Compensation for such Plan Year; plus (B) (i) .5% of
Participant's eligible annuity and non-life commissions for such Plan Year,
and 3% of Participant's eligible life commissions for such Plan Year, if he
meets President's Club production requirements during such year; or (ii) 1%
of Participant's eligible annuity and non-life commissions for such Plan
Year, and 6% of Participant's eligible life commissions for such Plan Year,
if he meets President's Cabinet production requirements during such year;
or (iii) 2% of Participant's eligible annuity and non-life commissions for
such Plan Year, and 9% of Participant's eligible life commissions for such
Plan Year, if he meets Chairman's Council production requirements during
such year;
(2) Life brokerage employees shall receive either the Company contribution
described in (A) or (B), as applicable: (A) 6% of the Participant's
Compensation for such Plan Year if not described as follows (B) 8% of the
Participant's commissions for such Plan Year if his first week of service
commenced prior to January 1, 1989 and the Participant was a Financial
Institutions Wholesaler, Life Brokerage Support Associate, or Life
Brokerage Regional Director prior to January 1, 1996; and
(b) in the case of a Participant who is totally disabled and one hundred
percent (100%) vested in his account balance, the applicable amount
determined under (a) above for the calendar year prior to the onset of such
disability. The term "totally disabled" shall have the same meaning as
under the applicable Lincoln long-term disability plan (even if the
individual shall have declined or not elected coverage under such plan).
An individual shall be considered totally disabled under this Plan for a
Plan Year only if he shall have received benefits under such long-term
disability plan during that Plan Year (or would have received such benefits
during that Plan Year had he been covered under such plan). The permanence
and degree of such impairment shall be supported by medical evidence."
IN WITNESS WHEREOF, the Chief Executive Officer of the Company has executed
this Third Amendment this 8th day of December 1999.
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
/S/GABRIEL L. SHAHEEN
- -----------------------------
By: Gabriel L. Shaheen
Its: Chief Executive Officer
SUPPLEMENT A
(FOR PLAN YEAR 1999) TO
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
MONEY PURCHASE PENSION PLAN ("PLAN")
Purpose and A-1. The purpose of this Supplement A is to
Application modify and supplement the provisions of the
Plan as such provisions apply to the
following-described individuals (hereinafter
sometimes referred to as "Eligible Individual"
or as "Eligible Individuals"): (i) those
individuals who were formerly employed by
CIGNA Corporation on December 31, 1997 and
who were also participants in the Connecticut
General Life Field Retirement Plan ("CIGNA
Plan") and who became employed by The Lincoln
National Life Insurance Company ("Lincoln")
effective as of January 1, 1998, together with
(ii) those individuals who are employed or
engaged as employees or agents by Lincoln
after January 1, 1998 with respect to the five
types of job classifications described in
paragraph A-4 below and who work at former
CIGNA Field Office locations. This Supplement A
is to set forth the manner in which Eligible
Individuals will participate and benefit in this
Plan. The CIGNA Plan was not merged into this Plan.
Definitions A-2. Unless the context of the Plan or this
Supplement A clearly implies or indicates the
contrary, a word, term or phrase used or defined
in the Plan is similarly used or defined in this
Supplement A.
Eligibility A-3. Eligible Individuals who previously
participated in the CIGNA Plan shall not be
required to attain age 21 nor to complete one
year of service prior to participating in the
Plan as such individuals shall commence
participation in the Plan as of January 1, 1998.
All other Eligible Individuals will be required
to attain age 21 and to complete one year of
service prior to participating in the Plan and
such Eligible Individuals will enter the Plan as
of the first day of the month following the
completion of such requirements.
Eligible
Associates A-4. Eligible Individuals employed by Lincoln in
the following job classifications (as such terms
are defined in the CIGNA Plan) and who are employed
to work at former CIGNA Field Office locations are
eligible to participate in the Plan: (i)
Salary-Based Associates; (ii) Financial Institutions
Wholesalers, Life Brokerage Support Associates, or
Life Brokerage Regional Directors; (iii) Second-Line
Management Associates; (iv) Regional CEOs; and (v)
Producers.
The following individuals are not eligible: (i) a
salary-based employee who is employed as a Core Staff
Associate or Designated Staff Associate whose
original hire date, or rehire date following five or
more one-year breaks in service, for that position
was on or after January 1, 1989 and before January 1,
1996; or (ii) a salary-based employee who is employed
as a LFA Field Administrative Associate whose original
hire date, or rehire date following five or more
one-year breaks in service, for that position was
before January 1, 1996.
Compensation A-5. Compensation for Eligible Individuals shall be
defined as the following:
(i) manager draw, staff draw, staff associate draw,
commissions paid by Lincoln due to the sale of
Lincoln products, account manager compensation,
management bonus, previous year bonus paid in
current calendar year, staff bonus, brokerage bonus,
staff short-term disability and amounts deferred
under any tax-favored flexible spending account or
401(k) plan sponsored by Lincoln or Lincoln National
Corporation; but
(ii) specifically excluding commissions paid by
companies other than Lincoln (including affiliates
and subsidiaries of Lincoln and of Lincoln National
Corporation); amounts paid after termination of
employment even though earned while employed;
expense reimbursements or allowances; payments and
awards for suggestions, employment referrals,
relocation, educational achievements or similar
awards; commissions from national brokerage
arrangements (Lincoln Associates, Inc.) or paid
through the broker/dealer; cash or cash values paid
under long-term executive compensation plans,
including (but not limited to) stock grants, stock
options and stock appreciation rights and awards
under any long-term performance unit plan; cash value
of merchandise or similar awards; imputed taxable
value of merchandise or employee fringe benefits;
lump-sum payments for unused time off; severance pay
or related continuity bonuses, even tough paid while
employed; compensation that is eligible earnings for
benefits accrued in another pension plan sponsored by
Lincoln or Lincoln National Corporation other than
such a 401(k) plan; and compensation commonly referred
to as "company credits" under Customized Security.
Company
Contribution A-6. Company Contributions shall be made as follows
for Eligible Individuals in the following-described
job classifications:
(i) Salary-Based Associates shall receive a Company
contribution equal to the sum of (A) and (B):
(A) (1) 3% of participant's eligible compensation,
excluding commissions, if participant has
not completed 5 years of benefit service; or
(2) 5% of participant's eligible compensation,
excluding commissions, if participant has
completed at least 5 years but fewer than 10
years of benefit service; or
(3) 6% of participant's eligible compensation,
excluding commissions, if participant has
completed 10 or more years of service; plus
(B) Participant's commissions for the plan year
multiplied by the percentage determined under
sub-paragraph (v) below.
(ii) Financial Institutions Wholesalers; Life Brokerage
Support Associates; or Life Brokerage Regional
Directors shall receive either the Company
contribution described in (A) or (B), as applicable:
(A) 8% of participant's commissions for the plan
year if his first week of service commenced prior
to January 1, 1989 and the participant was a
Financial Institutions Wholesaler, Life Brokerage
Support Associate, or Life Brokerage Regional
Director prior to January 1, 1996; or
(B) 6% of participant's eligible compensation for
the plan year if not described in (A) above.
(iii) Second-Line Management Associates shall receive a
Company contribution equal to the sum of (A), (B)
and (C):
(A) 2% of participant's eligible compensation,
excluding commissions, for the plan year;
(B) (1) 1% of participant's eligible compensation,
excluding commissions, if participant
achieves PSM or Managing Bronze or UVP
Bronze SHARP award status; or
(2) 4% of participant's eligible compensation,
excluding commissions, if participant
achieves Managing Silver or UVP Silver
SHARP award status; or
(3) 7% of participant's eligible compensation,
excluding commissions, if participant
achieves Managing Gold or UVP Gold SHARP
award status; plus
(C) Participant's commissions for the plan year
multiplied by the percentage determined under
sub-paragraph (v) below.
(iv) Regional CEOs shall receive a Company contribution
equal to the sum of (A) and (B):
(A) 2% of participant's eligible compensation,
excluding commissions, for such plan year; plus
(B) Participant's commissions for the plan year
multiplied by the percentage determined under
sub-paragraph (v) below.
(v) Producers shall receive a Company contribution
equal to the sum of (A) and (B):
(A) 2% of participants eligible compensation for
such plan year; plus
(B) (1) 1% of participant's eligible compensation if
he meets second time President's Conference
production requirements during such year; or
(2) 3% of participant's eligible compensation if
he meets third time President's Conference
production requirements during such year; or
(3) 6% of participant's eligible compensation if
he meets Honor's Table qualification
requirements during such year; or
(4) 8% of participant's eligible compensation if
he meets Excalibur production requirements
during such year.
Requirement to Receive
Company Contribution A-7. An Eligible Individual shall be entitled
to receive a Company Contribution (which
contribution shall be made on an annual basis
on or before the April 1 immediately following
the Plan Year) only if (i) his remuneration
for such Plan Year is less than $100,000 and
(ii) he is in the active employment of the
Company on the last day of the Plan Year
(unless his termination of employment occurred
by reason of his death or Disability; or after
his attainment of age 60). For these purposes,
"remuneration" shall mean such individual's
compensation as defined by IRC Section 415 and
regulations thereunder plus amounts deferred
under any tax-favored flexible spending
account or 401(k) plan sponsored by Lincoln or
Lincoln National Corporation.
Disability
Definition A-8. The term "totally disabled" shall have
the same meaning as under the applicable
Lincoln long-term disability plan (even if the
individual shall have declined or not elected
coverage under such plan). An individual
shall be considered totally disabled under
this Plan for a Plan Year only if he shall
have received benefits under such long-term
disability plan during that Plan Year (or
would have received such benefits during that
Plan Year had he been covered under such plan).
The permanence and degree of such impairment shall
be supported by medical evidence.
Exhibit 10(w)
Second Amendment
Lincoln National Corporation
Employees' Retirement Plan
By virtue and in exercise of the power granted to the Chief Executive
Officer of Lincoln National Corporation by resolution of its Board of
Directors, the Lincoln National Corporation Employees' Retirement Plan (the
"Plan") is amended effective January 1, 2000 (unless a different date is
specified below) by:
1. Deleting the lead-in from paragraph (c) of subsection 8.1 of the Plan
and substituting therefor:
"With respect to a Participant who (i) is notified of his job elimination
on or before October 1, 2000 and whose employment is terminated before
January 1, 2001; (ii) is entitled to severance benefits on account of job
elimination under the terms of the Lincoln National Corporation Severance
Pay Plan; and (iii) has at least ten (10) Vesting Years of Service, then
the following schedule shall apply:"
2. Deleting the lead-in from paragraph (e) of subsection 8.1 of the Plan
and substituting therefor:
"With respect to a Participant who (i) is notified of his job elimination
on or before October 1, 2000 and whose employment is terminated before
January 1, 2001; (ii) is entitled to severance benefits on account of job
elimination under the terms of the Lincoln National Corporation Severance
Pay Plan; and (iii) has at least ten (10) Vesting Years of Service, then
the following schedule shall apply:"
3. Adding the following new subsection 10.4:
"10.4 Subsection 415(e). Effective as of the first day of the first
limitation year beginning on or after January 1, 2000 (the "Effective
Date"), and notwithstanding any other provision of the Plan, the accrued
benefit for any Participant shall be determined by applying the terms of
the Plan implementing the limitations of Section 415 of the Code as if the
limitations of Section 415 of the Code continued to include the limitations
of subsection 415(e) of the Code as in effect on the day immediately prior
to the Effective Date. For this purpose, the defined contribution fraction
is set equal to the defined contribution fraction as of the day immediately
prior to the Effective Date."
IN WITNESS WHEREOF, the Chief Executive Officer of the Company has executed
this Second Amendment this 22nd day of December 1999.
LINCOLN NATIONAL CORPORATION
/S/ JON A. BOSCIA
--------------------------------------
By: Jon A. Boscia
Its: President and Chief Executive Officer
Exhibit 10(x)
Fourth Amendment
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
The Lincoln National Corporation Employees' Savings and Profit-Sharing Plan
(the "Plan") is amended, effective January 1, 1998 (unless a different date
is specified below) by:
1. Deleting the proviso from the second sentence of subsection 3.1 and
substituting therefor:
"provided, however, that such rate for any Highly Compensated Participant
shall not exceed the greater of six (6) percent or the percentage allowed
and authorized by the Committee."
2. Effective April 1, 1998, adding the following new subparagraph 4.1(b)(iv):
"(iv) effective April 1, 1998, the multiplier under this subsection shall
be $0.25 for every $1.00 of a Participant's Pre-Tax Contributions not
exceeding six (6) percent of compensation per pay day; provided, however,
that for each Participant whose Period of Service as defined in paragraph
10(d) shall have equaled one year or more, the multiplier shall be
increased by an additional amount as shall be determined in the sole
discretion of the LNC Board of Directors. Such additional amount shall be
paid for every $1.00 of such Participant's Pre-Tax Contributions, not
exceeding six (6) percent of compensation per pay day, that shall have been
contributed after such Period of Service shall have equaled one year or
more."
3. Deleting subsection 6.3 and substituting therefor the following:
"6.3. Investment of Participant Contributions. Each Participant shall elect
the percentage (in whole multiples of one percent) of his Pre-tax
Contributions, After-tax Contributions, and Rollover Contributions that are
to be invested in each of the Investment Funds (except the Loan Fund).
Subject to the provisions of subsection 1.11, each Participant may elect
prospectively to change how such contributions shall be invested and, to
the extent there is no effective investment direction on file with respect
to such contributions, they shall be invested in the Short Term Fund."
4. Deleting subsection 7.2 and substituting therefor the following:
"7.2. Crediting of Employer Contributions. Subject to the terms and
conditions of the Plan:
(a) On or as soon as practicable after the date on which any Participant's
contributions are credited to him under subsection 7.3, the Employer
Contributions (including Forfeitures and amounts from a Suspense Account
treated as Employer Contributions under subsections 10.1 and 8.4) made on
behalf of such Participant which are attributable to the $0.25 multiplier
under paragraph 4.1(b) shall be credited to his Employer Contribution
Account.
(b) The additional Employer Contributions (if any, for a Plan Year) that
are attributable to amounts in excess of the $0.25 multiplier under
subparagraph 4.1(b)(iii) or (iv) and are made on behalf of a Qualifying
Participant shall be credited to his Employer Contribution Account as of
the Accounting Date coincident with or next following the date such
contributions are paid to the Trustee (after the end of such Plan Year).
For purposes of this paragraph, a "Qualifying Participant" is a Participant
whose Employment Relationship with the Employers or Affiliates as of the
end of such Plan Year (i) shall have not terminated other than on account
of death, Disability or retirement, (ii) shall have terminated as an
employee in information services but such Participant either had a Period
of Service of at least 25 years or became employed by International
Business Machines Corp (IBM) or Computer Science Corporation (CSC) or (iii)
shall have terminated because his job shall have been eliminated."
5. Deleting the proviso from the first sentence of subsection 9.3 and
substituting therefor the following:
"provided, however, that the amount of a partial withdrawal may not be less
than $500."
6. Deleting paragraph (b) from subsection 9.4 and relettering paragraph 9.4(c)
as 9.4(b).
7. Deleting paragraph (a) from subsection 9.6 and relettering paragraphs 9.6(b)
and 9.6(c) as paragraphs 9.6(a) and 9.6(b), respectively.
8. Effective April 1, 1998, deleting the first paragraph of subsection 10.1 and
substituting therefor the following:
"Subject to the following provisions of this subsection, the vested balance
in any Participant's Employer Contribution Account for a Plan Year shall be
transferred to his Matured Company Contribution Account as of the earlier
of (i) the first business day of the month following the date that is two
years after the date on which Company Contributions in excess of $0.25 (for
every $1.00 of Pre-Tax Contributions) were made for such Plan Year and (ii)
the first business day in June of the third year after such Plan Year. A
Participant shall have a nonforfeitable interest in his Matured Company
Contribution Account balance."
9. Deleting "or dies" from the second paragraph of subsection 10.1 and
substituting therefor the following:
"; dies; terminates employment as an employee in information services and
either becomes employed by International Business Machines Corp (IBM) or
Computer Science Corporation (CSC) or whose Period of Service is at least
25 years; or terminates employment because his job with the Employers and
Affiliates shall have been eliminated. Any such Participant shall be a
"Qualifying Participant" for purposes of this subsection."
10. Effective April 1, 1998, deleting the lead-in to the sixth paragraph of
subsection 10.1 and substituting therefor the following:
"If any Participant who is not a Qualifying Participant (as defined in the
second paragraph of this subsection) incurs a Termination Date, the
nonvested balance in his Employer Contribution Account shall not be
distributable under this Section 10 but instead shall be forfeited by him
unless:"
11. Effective March 16, 1998, deleting "$3,500" from the ninth paragraph of
subsection 10.1 of the Plan and substituting therefor "$5,000".
12. Effective March 16, 1998, deleting subparagraph 10.3A(b) of the Plan and
substituting therefor the following:
"(b) a Participant who has attained age 55 and completed at least five (5)
years of service as of his Termination Date (as defined in subsection 2.3)
even if on account of Disability, may make up to five (5) annual
withdrawals of an amount at least equal to the greater of 20% of his
Account balances and $5,000, with the fifth and final withdrawal equal to
100% of his Account balances, provided such distribution shall be made in
accordance with the requirements of Section 401(a)(9) of the Code and
regulations thereunder."
13. Effective March 16, 1998, deleting subparagraph 10.3B(b) of the Plan and
substituting therefor the following:
"(b) a Beneficiary may make up to five (5) annual withdrawals of amounts,
up to five (5) years after the death of the Participant, at least equal to
the greater of 20% of the Account and $5,000 with the fifth and final
withdrawal equal to 100% of the Account Balance, provided such distribution
shall be made in accordance with the requirements of Section 401(a)(9) of
the Code and regulations thereunder."
14. Effective March 16, 1998, deleting the first paragraph of subsection 10.6
of the Plan and substituting therefor the following:
"10.6. Time of Distribution. Distribution of a Participant's Account
balances as provided under this Section 10 shall be made as soon as
practicable after he has consented to such distribution (or a distribution
is required by law); provided, however, that if the total amount of the
distribution is less than $5,000, distribution shall be made as soon as
practicable regardless of whether he has consented to such distribution.
Furthermore, a distribution to an alternate payee may be permitted if such
distribution is authorized by such qualified domestic relations order, even
if the Participant has not reached age 55 and has not had a Termination
Date."
15. Effective March 16, 1998, deleting "$3,500" from subsection 10.7 of the
Plan and substituting therefor "$5,000".
IN WITNESS WHEREOF, the Chief Executive Officer of the Company has executed
this Fourth Amendment this 15th day of October 1998.
LINCOLN NATIONAL CORPORATION
/S/JON A. BOSCIA
- -----------------------------------------
By: Jon A. Boscia
Its: President & Chief Executive Officer
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT 12 - HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
Three Months
Ended March 31 Year Ended December 31,
(millions of dollars) 2000 1999 1999 1998(4) 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income before Federal
Income Taxes 231.0 $204.5 $ 570.0 $ 697.4 $ 1,427.1 $ 692.7 $ 626.6
Equity Loss (Earnings) in
Unconsolidated Affiliates (1.0) (1.6) (5.8) (3.3) (2.1) (1.4) (12.4)
Sub-total of Fixed Charges 43.1 39.9 160.9 144.1 113.3 108.6 94.4
--------- --------- --------- --------- --------- --------- ---------
Sub-total of Adjusted
Net Income 273.1 242.8 725.1 838.2 1,538.3 799.9 708.6
Interest on Annuities &
Financial Products 373.9 375.1 1,510.4 1,446.2 1,253.5 1,185.6 1,147.1
--------- --------- --------- --------- --------- --------- ---------
Adjusted Income Base 647.0 617.9 2,235.5 2,284.4 2,791.8 1,985.5 1,855.7
Rent Expense 20.4 20.3 81.5 81.3 62.5 71.6 65.6
Fixed Charges:
Interest and Debt Expense 36.3 33.1 133.7 117.1 92.5 84.7 72.5
Rent (Pro-rated) 6.8 6.8 27.2 27.0 20.8 23.9 21.9
--------- --------- --------- --------- --------- --------- ---------
Sub-total of Fixed Charges 43.1 39.9 160.9 144.1 113.3 108.6 94.4
Interest on Annuities &
Financial Products 373.9 375.1 1,510.4 1,446.2 1,253.5 1,185.6 1,147.1
--------- --------- --------- --------- --------- --------- ---------
Sub-total of Fixed Charges 417.0 $ 415.0 1,671.3 1,590.3 1,366.8 1,294.2 1,241.5
Preferred Dividends (Pre-tax) * * 0.1 0.1 0.2 0.2 13.4
--------- --------- --------- --------- --------- --------- ---------
Total Fixed Charges $ 417.0 $ 415.0 $ 1,671.4 $ 1,590.4 $ 1,367.0 $ 1,294.4 $ 1,254.9
*Less than $100,000
Ratio of Earnings to Fixed Charges:
Excluding Interest on
Annuities and Financial
Products (1) 6.34 6.09 4.51 5.82 13.57 7.37 7.51
Including Interest on
Annuities and Financial
Products (2) 1.55 1.49 1.34 1.44 2.04 1.53 1.49
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends (3) 1.55 1.49 1.34 1.44 2.04 1.53 1.48
(1) For purposes of determining this ratio, earnings consist of income before federal income taxes 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 1) interest and debt expense on short and long-term debt and distributions
to minority interest-preferred securities of subsidiary companies and 2) the portion of operating leases that are
representative of the interest factor.
(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.
(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.
(4) The coverage ratios for the year 1997 are higher than the other periods shown due to the inclusion of the gain on sale
of a major subsidiary in net income.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
LINCOLN NATIONAL CORPORATION AND SUBSIDIARIES
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
condensed consolidated financial statements of Lincoln National Corporation
and is qualified in its entirety by reference to such condensed
consolidated financial statements.
</LEGEND>
<CIK> 0000059558
<NAME> Lincoln National Corporation
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<DEBT-HELD-FOR-SALE> 27,744,534,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 587,724,000
<MORTGAGE> 4,833,859,000
<REAL-ESTATE> 283,354,000
<TOTAL-INVEST> 35,774,616,000
<CASH> 1,510,100,000
<RECOVER-REINSURE> 3,850,967,000
<DEFERRED-ACQUISITION> 2,870,415,000
<TOTAL-ASSETS> 106,339,999,000
<POLICY-LOSSES> 20,953,915,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 19,508,917,000
<NOTES-PAYABLE> 1,931,181,000
0
933,000
<COMMON> 987,228,000
<OTHER-SE> 3,352,273,000
<TOTAL-LIABILITY-AND-EQUITY> 106,339,999,000
797,935,000
<INVESTMENT-INCOME> 711,148,000
<INVESTMENT-GAINS> (977,000)
<OTHER-INCOME> 161,119,000
<BENEFITS> 865,991,000
<UNDERWRITING-AMORTIZATION> 127,910,000
<UNDERWRITING-OTHER> 408,000,000
<INCOME-PRETAX> 231,213,000
<INCOME-TAX> 60,993,000
<INCOME-CONTINUING> 170,220,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,220,000
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.87
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
