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 June 30, 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 July 21, 2000 LNC had 190,752,900 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 28.
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
(000s omitted) 2000 1999
-------------- ---- -----
ASSETS (Unaudited)
<S> <C> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (cost 2000 - $27,788,438;
1999 - $28,357,057) $27,078,374 $27,688,613
Equity (cost 2000 - $446,373;
1999 - $481,531) 560,014 603,954
Mortgage loans on real estate 4,783,803 4,735,397
Real estate 282,128 256,202
Policy loans 1,914,739 1,892,392
Other investments 438,158 401,826
------------ ------------
Total Investments 35,057,216 35,578,384
Investment in unconsolidated affiliates -- 25,825
Cash and invested cash 1,619,312 1,895,883
Property and equipment 205,549 203,753
Deferred acquisition costs 2,967,973 2,800,290
Premiums and fees receivable 247,759 259,630
Accrued investment income 543,975 533,183
Assets held in separate accounts 54,924,205 53,654,223
Federal income taxes 246,063 345,010
Amounts recoverable from reinsurers 3,775,299 3,954,345
Goodwill 1,335,436 1,423,039
Other intangible assets 1,646,657 1,746,499
Other assets 1,279,050 675,669
------------ ------------
Total Assets $103,848,494 $103,095,733
See notes to consolidated financial statements on pages 7 - 13.
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
-CONTINUED-
June 30 December 31
(000s omitted) 2000 1999
-------------- ---- -----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Liabilities:
Insurance and Investment Contract Liabilities:
Insurance policy and claim reserves $20,998,314 $20,924,768
Contractholder funds 19,028,295 20,228,753
Liabilities related to separate accounts 54,924,205 53,654,223
Total Insurance and Investment Contract Liabilities 94,950,814 94,807,744
Short-term debt 355,682 460,153
Long-term debt 712,097 711,963
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated debentures 745,000 745,000
Other liabilities 2,861,176 2,107,005
------------ ------------
Total Liabilities 99,624,769 98,831,865
Shareholders' Equity:
Series A preferred stock-10,000,000 shares authorized
(6/30/00 liquidation value - $2,169) 894 948
Common stock - 800,000,000 shares authorized 974,428 1,007,099
Retained earnings 3,783,109 3,691,470
Accumulated Other Comprehensive Income (Loss):
Foreign currency translation adjustment 21,861 30,049
Net unrealized loss on securities available-for-sale (556,567) (465,698)
------------ ------------
Total Accumulated Other Comprehensive Loss (534,706) (435,649)
------------ ------------
Total Shareholders' Equity 4,223,725 4,263,868
------------ ------------
Total Liabilities and Shareholders' Equity $103,848,494 $103,095,733
See notes to consolidated financial statements on pages 7 - 13.
</TABLE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended Three Months Ended
June 30 June 30
(000s omitted, except per share amounts) 2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Insurance premiums $870,697 $ 873,379 $481,099 $434,316
Insurance fees 819,203 758,828 410,866 380,827
Investment advisory fees 106,135 115,100 52,182 56,310
Net investment income 1,384,966 1,410,376 673,819 700,838
Equity in earnings (loss) of
unconsolidated affiliates (2,604) 2,719 (3,640) 1,113
Realized loss on investments (11,360) (2,122) (10,383) (4,049)
Other revenue and fees 194,850 195,406 88,720 108,973
------------ ------------ ------------ ------------
Total Revenue 3,361,887 3,353,686 1,692,663 1,678,328
Benefits and Expenses:
Benefits 1,742,983 1,788,469 876,992 901,674
Underwriting, acquisition,
insurance and other expenses 1,089,571 1,093,283 553,661 542,309
Interest and debt expense 71,720 65,736 35,381 32,632
------------ ------------ ------------ ------------
Total Benefits and Expenses 2,904,274 2,947,488 1,466,034 1,476,615
------------ ------------ ------------ ------------
Net Income Before Federal Income Taxes 457,613 406,198 226,629 201,713
Federal income taxes 123,775 112,786 62,783 53,363
------------ ------------ ------------ ------------
Net Income Before Minority Interest In
Consolidated Subsidiary 333,838 293,412 163,846 148,350
Minority interest in consolidated subsidiary 10 -- 238 --
------------ ------------ ------------ ------------
Net Income $333,828 $293,412 $163,608 $148,350
Net Income Per Common Share-Basic $1.74 $1.47 $0.86 $0.74
Net Income Per Common Share-Diluted $1.72 $1.45 $0.84 $0.73
See notes to consolidated financial statements on pages 7 - 12.
</TABLE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months Ended June 30
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 (1,745) (2,168) (54) (71)
------------ ------------ ------------ ------------
Balance at June 30 27,112 30,791 894 1,012
Common Stock:
Balance at beginning-of-year 195,494,898 202,111,174 1,007,099 994,472
Conversion of series A preferred stock 27,920 34,688 54 71
Issued for benefit plans 259,274 626,953 (7,874) 27,169
Issued for acquisition of subsidiaries 34,688 86,228 1,392 3,547
Retirement of common stock (5,109,081) (4,090,000) (26,243) (20,199)
------------ ------------ ------------ ------------
Balance at June 30 190,707,699 198,769,043 974,428 1,005,060
Retained Earnings:
Balance at beginning-of-year 3,691,470 3,790,038
Comprehensive income (loss) 234,771 (289,398)
Less other comprehensive loss:
Foreign currency translation loss (8,188) (29,318)
Net unrealized loss on
securities available-for-sale (90,869) (553,492)
------------ ------------
Net Income 333,828 293,412
Retirement of common stock (132,042) (182,489)
Dividends declared:
Series A preferred ($1.50 per share) (42) (47)
Common stock (2000-$0.58; 1999-$0.55) (110,105) (109,146)
------------ ------------
Balance at June 30 3,783,109 3,791,768
Foreign Currency Translation Adjustment:
Accumulated adjustment at
beginning-of-year 30,049 49,979
Change during the period (8,188) (29,318)
------------ ------------
Balance at June 30 21,861 20,661
Net Unrealized Gain (Loss) on
Securities Available-for-Sale:
Balance at beginning-of-year (465,698) 552,369
Change during the period (90,869) (553,492)
------------ ------------
Balance at June 30 (556,567) (1,123)
------------ ------------
Total Shareholders' Equity
at June 30 $4,223,725 $4,817,378
Common Stock at End of Quarter:
Assuming conversion of preferred stock 191,141,491 199,261,699
Diluted basis 193,655,396 200,914,470
See notes to consolidated financial statements on pages 7 - 13.
</TABLE>
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
(000s omitted) 2000 1999
-------------- ---- -----
Cash Flows from Operating Activities: (Unaudited)
<S> <C> <C> <C>
Net income $333,828 $293,412
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred acquisition costs (181,190) (152,619)
Premiums and fees receivable 11,872 (22,781)
Accrued investment income (10,792) (40,562)
Policy liabilities and accruals (72,355) (101,683)
Contractholder funds (11,429) 503,208
Amounts recoverable from reinsurers 179,047 5,750
Federal income taxes 46,271 22,029
Equity in earnings of unconsolidated affiliates (2,604) (2,719)
Minority interest in consolidated subsidiary 10 --
Provisions for depreciation 34,467 35,046
Amortization of goodwill and other intangible assets 96,218 68,892
Realized loss on investments 11,360 2,122
Other (41,208) 54,093
------------ ------------
Net Adjustments 59,667 370,776
Net Cash Provided by Operating Activities 393,495 664,188
Cash Flows from Investing Activities:
Securities-available-for-sale:
Purchases (1,716,137) (3,978,743)
Sales 1,405,737 1,989,395
Maturities 869,559 1,176,673
Purchase of other investments (833,475) (952,583)
Sale or maturity of other investments 683,104 838,791
Sale of unconsolidated affiliates 85,000 --
Increase in cash collateral on loaned securities 320,502 541,447
Other (66,419) (142,049)
------------ ------------
Net Cash Provided by (Used in) Investing Activities 747,871 (527,069)
Cash Flows from Financing Activities:
Decrease in long-term debt (includes payments and
transfer to short-term debt) (477) (240)
Net increase (decrease) in short-term debt (103,994) 65,584
Universal life and investment contract deposits 429,089 1,014,832
Universal life and investment contract withdrawals (1,464,155) (1,218,444)
Common stock issued for benefit plans (7,874) 27,052
Retirement of common stock (158,285) (197,773)
Dividends paid to shareholders (112,241) (110,391)
------------ ------------
Net Cash Used in Financing Activities (1,417,937) (419,380)
------------ ------------
Net Decrease in Cash and Invested Cash (276,571) (282,261)
Cash and Invested Cash at Beginning-of-Year 1,895,883 2,433,350
------------ ------------
Cash and Invested Cash at June 30 $1,619,312 $2,151,089
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 six months ended June 30, 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 delayed
the effective date of FAS 133 one year (i.e., adoption required no later
than the first quarter of 2001). In June 2000, the FASB issued Statement
of Financial Accounting Standard No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" ("FAS 138"), which
addresses a limited number of implementation issues arising from FAS 133.
In addition, during the second quarter of 2000, the FASB cleared several
Derivatives Implementation Group ("DIG") issues impacting LNC. Management
is currently reviewing FAS 138 and the recently cleared DIG issues along
with the applicable released issues. Management has continued its
implementation efforts, including review of investments and other financial
instruments for potential embedded derivatives, development of models for
use in the assessment of hedge effectiveness and analysis of existing
accounting processes in anticipation of required changes. However, due to
the complexity of FAS 133 and the uncertainty of authoritative guidance
relative to several remaining issues, management has not finalized the
analysis necessary to provide a reliable estimate of the effects of
implementing the Standard. Because these ongoing changes to implementation
guidance have required LNC to re-assess several complex implementation
decisions, LNC has decided not to 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:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
(in millions) 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Commissions $ 446.1 $ 437.5 $251.9 $222.6
Other volume related expenses 109.2 118.7 56.4 65.6
Operating and administrative expenses 563.8 554.6 266.5 283.7
Deferred acquisition costs net of
amortization (181.2) (152.6) (95.0) (81.3)
Restructuring charges 4.1 16.9 4.1 --
Other 147.6 118.2 69.8 51.7
------------ ------------ ------------ ------------
Total $1,089.6 $1,093.3 $553.7 $542.3
</TABLE>
5. 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 six months ended June 30, 2000 and during the
year ended December 31, 1999, Lincoln Life received regulatory approval and
paid extraordinary dividends totaling $210 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.
Disability Income Claims. The liabilities for disability income claims net
of the related assets for amounts recoverable from reinsurers at June 30,
2000 and December 31, 1999 were $1.309 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 June 30, 2000 and December 31, 1999, liabilities of $258.0
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 six months ended June 30, 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 $111.0 million and $99.7 million at
June 30, 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 second 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 were presented to the Reinsurance
segment by independent brokers who represented 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 $170.6 million and $174.7
million at June 30, 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 and Group Carrier Medical Reinsurance Programs. The
liabilities for HMO and group carrier medical claims, net of the related
assets for amounts recoverable from reinsurers, were $103.8 million and
$132.6 million at June 30, 2000 and December 31, 1999, respectively. LNC
reviews reserve levels on an ongoing basis. The liabilities are 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 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.
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 illustrations.
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.
6. 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 beginning
with 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 six months and quarter
ended June 30, 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:
Six Months Three Months
Ended June 30 Ended June 30
(in millions) 2000 1999 2000 1999
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Annuities $1,004.8 $978.0 $493.7 $492.3
Life Insurance 974.5 941.5 488.1 472.5
Lincoln UK 221.0 232.3 108.2 113.1
Reinsurance 853.9 848.7 458.4 427.1
Investment Management 227.7 232.1 111.2 114.8
Other Operations (includes consolidating adjustments) 80.0 121.1 33.1 58.5
------------ ------------ ------------ ------------
Total $3,361.9 $3,353.7 $1,692.7 $1,678.3
Net Income (Loss) before Federal Income Taxes:
Annuities $211.4 $178.2 $100.3 $87.7
Life Insurance 204.0 171.6 102.8 89.1
Lincoln UK 46.0 52.2 26.0 25.3
Reinsurance 84.5 92.7 37.2 38.1
Investment Management 7.7 8.6 (0.3) 11.2
Other Operations (includes interest expense) (96.0) (97.1) (39.4) (49.7)
------------ ------------ ------------ ------------
Total $457.6 $406.2 $226.6 $201.7
Federal Income Taxes (Credits):
Annuities $42.8 $32.2 $19.8 $15.3
Life Insurance 74.5 62.6 37.7 32.7
Lincoln UK 11.4 14.2 6.9 5.3
Reinsurance 25.3 32.7 11.9 13.4
Investment Management 2.9 5.0 -- 4.0
Other Operations (33.1) (33.9) (13.5) (17.4)
Total $123.8 $112.8 $ 62.8 $53.3
Net Income (Loss):
Annuities $168.6 $146.0 $ 80.5 $72.4
Life Insurance 129.5 109.0 65.1 56.4
Lincoln UK 34.6 38.0 19.1 20.0
Reinsurance 59.2 60.0 25.3 24.7
Investment Management 4.8 3.6 (0.3) 7.2
Other Operations (includes interest expense) (62.9) (63.2) (25.9) (32.3)
------------ ------------ ------------ ------------
Net Income Before Minority Interest
In Consolidated Subsidiary 333.8 293.4 163.8 148.4
Minority Interest In Consolidated Subsidiary -- -- 0.2 --
------------ ------------ ------------ ------------
Net Income $333.8 $293.4 $163.6 $148.4
<CAPTION>
June 30 December 31
(in millions) 2000 1999
------------- ---- ----
<S> <C> <C> <C>
Assets:
Annuities $61,168.0 $60,414.0
Life Insurance 20,463.9 19,941.3
Lincoln UK 9,067.0 9,712.8
Reinsurance 6,592.7 6,757.7
Investment Management 1,459.0 1,483.1
Other Operations 5,097.9 4,786.8
------------ ------------
Total $103,848.5 $103,095.7
</TABLE>
7. 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>
Six Months Ended Three Months Ended
June 30 June 30
Numerator: [in millions] 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income as used in basic calculation $333.8 $293.4 $163.6 $148.4
Dividends on convertible preferred stock * * * *
------------ ------------ ------------ ------------
Net income as used in diluted calculation $333.8 $293.4 $163.6 $148.4
* Less than $100,000.
Denominator: [number of shares]
Weighted average shares, as used
in basic calculation 192,236,322 200,146,975 190,655,096 199,119,557
Shares to cover conversion of
preferred stock 452,955 509,045 445,853 501,912
Shares to cover restricted stock 198,134 510,629 (34,813) 500,381
Average stock options outstanding
during the period 8,991,887 7,364,108 12,683,912 9,315,306
Assumed acquisition of shares
with assumed proceeds and tax
benefits from exercising stock options
(at average market price during the period) (7,430,510) (5,858,867) (10,336,620) (7,514,657)
Average deferred compensation shares 136,641 -- 629,985 --
------------ ------------ ------------ ------------
Weighted-average shares, as
used in diluted calculation 194,585,429 202,671,890 194,043,413 201,922,499
</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.
8. Comprehensive Income
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $333.8 $293.4 $163.6 $148.4
Foreign currency translation loss (8.2) (29.3) (1.0) (9.4)
Net unrealized gain (loss) on securities (90.8) (553.5) (145.3) (255.8)
------------ ------------ ------------ ------------
Comprehensive Income (Loss) $234.8 $(289.4) $17.3 $(116.8)
</TABLE>
9. 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).
10. 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 June 30, 2000,
actual pre-tax costs of $53.8 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 $3.0 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 elimination 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 June 30, 2000, actual
pre-tax costs of $20.4 million have been expended or written-off and 141
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 June 30, 2000, a balance
of $8.4 million pre-tax remains in the restructuring reserves for these
1999 plans.
During the second quarter of 2000, LNC recorded a restructuring charge in
its Investment Management segment of $2.7 million after-tax ($4.1 million
pre-tax). The objective of this restructuring plan is to combine the
structured products team of Delaware Management Holdings, Inc. ("Delaware")
and Vantage Global Advisors, Inc. ("Vantage") in Philadelphia and
consolidate the back office operations of Vantage into Delaware, in order
to reduce ongoing operating costs and eliminate redundant facilities within
this business segment. This charge was included in Underwriting,
Acquisition, Insurance and Other Expenses on the Consolidated Statement of
Income for the quarter ended June 30, 2000. The restructuring plan
identified the following activities and associated costs to achieve the
objectives of the restructuring plan: (1) severance and termination
benefits of $2.3 million related to the elimination of 15 positions, (2)
write-off of impaired assets of $1.4 million and (3) other costs of $0.4
million. Write-offs under the restructuring plan began in the second
quarter of 2000. All remaining expenditures under this restructuring plan
are expected to be complete by the end of 2000. As of June 30, 2000, $1.4
million (pre-tax) has been written-off under this restructuring plan and all
affected employees have been notified, but no employees have yet been severed
under the restructuring plan.
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), litigation (e.g., adverse decisions in extracontractual
damage cases, new appellate decisions which change the law, unexpected
trial court rulings, unavailability of witnesses and newly discovered
evidence), 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
six months ended June 30, 2000 compared to the results for the six months
ended June 30, 1999. The factors affecting the current quarter to prior
quarter comparisons are essentially the same as the year-to-date factors
except as noted.
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".
<TABLE>
<CAPTION>
RESULTS OF CONSOLIDATED OPERATIONS
Summary Financial Results
Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Revenue (1) $3,373.2 $3,355.8 $1,703.0 $1,682.4
Expenses (including taxes) (2) 3,029.6 3,048.4 1,529.8 1,530.6
Income from Operations before Minority Interest (2) 343.6 307.4 173.2 151.8
Minority Interest -- -- 0.2 --
------------ ------------ ------------ ------------
Income from Operations 343.6 307.4 173.0 151.8
Realized Gain (Loss) on Investments (after-tax) (7.1) (1.9) (6.7) (3.4)
Restructuring Charge (after-tax) (2.7) (12.1) (2.7) --
------------ ------------ ------------ ------------
Net Income $ 333.8 $ 293.4 $ 163.6 $ 148.4
(1) Operating revenue excludes realized gain/(loss) on investments.
(2) Expenses exclude restructuring charges.
</TABLE>
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
in "Other Operations". Included in "Other Operations" are corporate
investment income, interest expense on corporate debt, unallocated overhead
expenses, the operations of Lincoln Financial Advisors Corporation ("LFA")
and LNC's minority interest in AnnuityNet. See "Reorganization of
Reporting Segments" below for further discussion of LNC's segment reporting
structure.
Net income and income from operations for the first six months of 2000
increased 14% and 12%, respectively, compared to the same period in 1999.
Net income and income from operations for the second quarter of 2000
increased 10% and 14%, respectively, compared to the same quarter in 1999.
The increases in net income and income from operations for the six months
and quarter were primarily the result of increased earnings in the
Annuities and Life Insurance segments.
Consolidated operating revenues increased slightly (0.5% for the first six
months of 2000 compared to the same period in 1999) due primarily to
increased fee income in the Annuities and Life Insurance segments,
increased individual life premiums in the Reinsurance segment, increased
other revenue in the Investment Management segment and increased net
investment income in the Reinsurance segment. These increases were
partially offset by decreased business volume in the Reinsurance segment
related to exited businesses in run-off, decreased investment advisory
fees in the Investment Management segment and decreased net investment
income in the Annuities segment. All of the explanations noted above for
the change in operating revenues apply to the comparison of the second
quarter of 2000 to the same quarter of 1999, except that net investment
income decreased between quarters for the Reinsurance segment. Consolidated
expenses decreased slightly (0.6% for the first six months of 2000 compared
to the same period of 1999) due primarily to expense management initiatives
conducted by the Life Insurance segment, Annuities segment and LFA included
in Other Operations and decreased health benefit expenses in the Reinsurance
segment. These decreases were partially offset by increases in volume
related expenses. For further discussion of the results of operations see
the discussion of the results of operations by segment starting on page 16.
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 beginning
with 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 six months and quarter
ended June 30, 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
During the second quarter of 2000, LNC implemented a restructuring plan
related to the downsizing and consolidation of the operations of Vantage
Global Advisors, Inc. ("Vantage"). The charge associated with this
restructuring plan was $2.7 million after-tax ($4.1 million pre-tax). The
components of the pre-tax costs include $2.3 million for employee severance
and termination benefits, write-off of impaired assets of $1.4 million, and
other costs of $0.4 million. (See Note 10 to the consolidated financial
statements for further details regarding this restructuring plan.)
For an update on the status of restructuring plans implemented in 1998 and
1999 refer to Note 10 to the consolidated financial statements.
Lincoln UK Strategic Review
The previously announced analysis of strategic options for Lincoln UK
continued during the second quarter of 2000. No decisions have been made
at this time. Based upon the current status of this strategic review,
management expects to finalize this process in the third quarter of 2000.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS BY SEGMENT
Annuities
Results of Operations (1) Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income from Operations $165.4 $143.5 $80.4 $72.4
Net Income $168.6 $146.0 $80.5 $72.4
June 30 (in billions) 2000 1999
----------------------------------------------------------------------------------------------------------
Account Values
Variable Annuities $43.1 $37.2
Fixed Annuities 14.0 14.8
Variable Life Insurance 0.2 0.1
------------ ------------
Total Account Values $57.3 $52.1
</TABLE>
(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 an increase in net income of $22.6 million
or 15% for the first six months of 2000 compared to the same period in 1999
and an increase of $8.1 million or 11% for the second quarter of 2000
compared to the same quarter in 1999. Income from operations for the first
six months of 2000 increased $21.9 million or 15% compared to the same
period in 1999 and increased $8.0 million or 11% for the second quarter of
2000 compared to the same quarter in 1999. The increase in net income and
income from operations was driven primarily by growth in fee income from
variable annuity accounts and to a lessor extent favorable investment
margins and decreased general and administrative expenses. Variable
annuity account values increased by $5.9 billion or 16% from June 30, 1999
to June 30, 2000. 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 primarily from participation in
investment partnerships. The decrease in general and administrative
expenses was due primarily to lower Year 2000 information technology costs.
During the first six months of 2000 and the second 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 six months of
2000, annuity deposits were $2.6 billion and withdrawals were $3.7 billion,
resulting in net cash outflow of $1.1 billion. For the first six months of
1999, annuity deposits were $2.3 billion and withdrawals were $2.6 billion,
resulting in net cash outflow of $0.3 billion. The growth rate of annuity
deposits of 13% between periods was attributable to variable annuity
deposits which grew 22% between periods. Fixed annuity deposits decreased
by 3% between periods as result of lower deposits in the second quarter of
2000 compared to the same quarter in 1999.
Although the trend of annuity net cash outflow has continued into the first
six months of 2000 and the second quarter of 2000, amounts by month were
relatively flat and there was an improvement in net cash outflows of $58
million from the first quarter of 2000 to the second quarter of 2000. To
address these net cash outflows, LNC announced several initiatives in the
first quarter of 2000. LNC is continuing to implement these programs which
are aimed at the retention of current accounts and increasing new deposits.
Product line expansion efforts are also progressing and are expected to
result in the third quarter 2000 launch of a significant number of new
products.
<TABLE>
<CAPTION>
Life Insurance
Results of Operations (1) Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income from Operations $136.1 $113.3 $ 69.0 $ 58.8
Net Income 129.5 $109.0 65.1 $ 56.4
Sales - Face Amount (in billions)
Term Insurance $15.3 $13.4 $6.5 $6.4
Universal Life and Other 5.5 5.0 2.9 2.9
First Year Premiums (in millions) $286.0 $247.0 $142.0 $128.0
<CAPTION>
June 30 (in billions) 2000 1999
---------------------------------------------------------------------------------------------------------
<C> <C>
Account Values
Universal and Variable Life Insurance $ 8.5 $ 7.7
Interest-Sensitive Whole Life 2.0 1.9
------------ ------------
Total Life Insurance 10.5 9.6
Annuities 3.3 3.6
Reinsurance Ceded on Annuities (1.3) (1.5)
------------ ------------
Total Annuities 2.0 2.1
Total Account Values $ 12.5 $ 11.7
In-Force - Face Amount
Universal Life and Other $110.4 $106.0
Term Insurance 97.0 78.4
</TABLE>
(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 an increase in net income of $20.5
million or 19% for the first six months of 2000 compared to the same period
in 1999 and an increase of $8.7 million or 15% for the second quarter of
2000 compared to the same quarter in 1999. Income from operations for the
first six months of 2000 increased $22.8 million or 20% compared to the
same period in 1999 and increased $10.2 million or 17% for the second
quarter of 2000 compared to the same quarter in 1999. The increase in net
income and income from operations for the first six months of 2000 as
compared to the six months of 1999 was attributable to strong sales growth
particularly from the fourth quarter of 1999, favorable mortality and
expense savings. Despite the growth in in-force, expenses decreased
slightly in the first six months of 2000 due primarily to lower Year 2000
information technology costs.
First year premiums increased $39.0 million or 16% for the first six months
of 2000 compared to the same period in 1999 and increased $14.0 million or
11% for the second quarter of 2000 compared to the same quarter in 1999.
Account values of universal life, variable life and interest-sensitive life
insurance products increased $0.9 billion or 9% from June 30, 1999 to June
30, 2000. 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 six
months of 2000 over the comparable period in 1999. In addition, variable
life sales were bolstered by the introduction of a new survivorship VUL
product in May 2000. Also, the corporate market, bolstered by a new
corporate VUL product launched at the end of 1999, contributed $32.2
million of first year premiums, an increase of $23.8 million over the first
six months of 1999.
<TABLE>
<CAPTION>
Lincoln UK
Results of Operations (1) Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income from Operations $35.0 $37.1 $19.3 $19.0
Net Income 34.6 $38.0 19.1 $20.0
<CAPTION>
June 30 (in billions) 2000 1999
---------------------------------------------------------------------------------------------------------
<C> <C>
Unit-Linked Assets $ 6.7 $ 6.5
Individual Life Insurance In-Force $25.2 $25.1
</TABLE>
The UK segment reported a decrease in net income of $3.4 million or 9% for
the first six months of 2000 compared to the same period in 1999 and a
decrease of $0.9 million or 5% for the second quarter of 2000 compared to
the same quarter in 1999. Income from operations for the first six months
of 2000 decreased $2.1 million or 6% compared to the same period in 1999
and slightly increased $0.3 million or 2% for the second quarter of 2000
compared to the same quarter in 1999. The decrease in net income and
income from operations for the first six months of 2000 compared to the
same period in 1999 was primarily attributable to lower margins and
one-time expenses related to the operational initiatives started in the
fourth quarter of 1999 partially offset by reduced taxes. The slight
increase in income from operations for the second quarter of 2000 compared
to the same quarter of 1999 was due primarily to improvements in
administrative expenses.
<TABLE>
<CAPTION>
Reinsurance
Results of Operations (1) Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Results by Source
Individual Markets $41.8 $46.7 $22.6 $21.3
Group Markets 2.2 1.3 1.2 0.4
Financial Reinsurance 11.2 12.0 4.1 4.7
Other (1.9) (0.7) (0.9) (0.4)
------------ ------------ ------------ ------------
Income from Operations, excluding Exited Businesses 53.3 59.3 27.0 26.0
Exited Businesses 5.9 (0.4) (0.6) (1.7)
Income from Operations 59.2 58.9 26.4 24.3
Net Income $59.2 $60.0 $25.3 $24.7
Individual Life Sales - Face Amount (in billions) $67.2 $38.5 $37.2 $20.0
<CAPTION>
June 30 (in billions) 2000 1999
--------------------------------------------------------------------------------------------------------------
<C> <C>
Individual and Group Life Insurance In-Force
Face Amount $384.4 $278.5
</TABLE>
(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 a slight decrease in net
income of $0.8 million or 1% for the first six months of 2000 compared to
the same period in 1999 and a slight increase of $0.6 million or 2% for the
second quarter of 2000 compared to the same quarter in 1999. Income from
operations for the first six months of 2000 increased slightly by $0.3
million or 1% compared to the same period in 1999 and increased $2.1
million or 9% for the second quarter of 2000 compared to the same quarter
in 1999. The flat results between the first six months of 2000 and the
comparable period in 1999 were due to offsetting results by business
source.
In Individual markets, earnings were bolstered by the growth in the
individual life business, as the strong sales that began in the fourth
quarter of 1999 continued through the second quarter of 2000. Part of the
growth in sales in the second quarter of 2000 was due to the surge in term
life insurance policies written by direct life insurance companies prior to
January 1, 2000 when the Valuation of Life Insurance Model Regulation
("Regulation XXX") became effective. Regulation XXX requires companies to
increase reserves related to certain term life insurance policies resulting
in an increase in premium to the policyholder. The individual life
insurance in-force face amount grew to $354.0 billion at the end of the
second quarter of 2000; a $114.0 billion or 48% increase from the end of
the second quarter of 1999. However, fluctuations in mortality more than
offset the positive effects of the growth in business, which explains why
individual markets' earnings were down relative to the first six months of
1999. While the actual to expected loss ratio improved somewhat in the
second quarter of 2000 to 96.9% from 99.5% in the first quarter of 2000,
the ratio was 98.1% for the first six months of 2000 as compared to a
favorable 87.4% for the first six months of 1999.
Group markets earnings increased due to growth in the employer stop-loss
business. Finally, while Exited businesses benefited from $9.2 million
(after-tax) of interest received upon the transfer of LNC's investment in
Seguros Serfin Lincoln in the first quarter of 2000, earnings without this
transaction were down slightly due to increased reserves for the group
carrier medical reinsurance and HMO excess-of-loss reinsurance programs.
<TABLE>
<CAPTION>
Investment Management
Results of Operations (1) Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Investment Advisory Fees $138.2 $145.6 $68.6 $71.8
Income from Operations 9.6 15.9 4.4 7.5
Realized Loss on Investments (after-tax) (2.1) (0.2) (2.0) (0.3)
Restructuring Charge (after-tax) (2.7) (12.1) (2.7) --
------------ ------------ ------------ ------------
Net Income $ 4.8 $ 3.6 $(0.3) $7.2
<CAPTION>
June 30 (in billions) 2000 1999
--------------------------------------------------------------------------------------------------------------
<C> <C>
Assets Under Management
Regular Operations:
Retail $29.8 $30.3
Institutional 26.7 31.2
------------ ------------
56.5 61.5
At Cost Operations 34.9 37.4
------------ ------------
Total Assets Under Management $91.4 $98.9
</TABLE>
(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 an increase in net income of
$1.2 million or 33% for the first six months of 2000 compared to the same
period in 1999 and a decrease of $7.5 million or 104% for the second
quarter of 2000 compared to the same quarter in 1999. Net income exclusive
of restructuring charges was $7.5 million and $15.7 for the first six
months of 2000 and 1999, respectively, a 52% decrease between periods. Net
income exclusive of restructuring charges was $2.4 million and $7.2 million
for the second quarter of 2000 and 1999, respectively, a 67% decrease
between periods. Income from operations for the first six months of 2000
decreased $6.3 million or 40% compared to the same period in 1999 and
decreased $3.1 million or 41% for the second quarter of 2000 compared to
the same quarter in 1999. The decrease in net income excluding the
restructuring charge and income from operations for the first six months of
2000 as compared to the first six months of 1999 was attributable to
decreased investment advisory fees and increased expenses, which were
partially offset by an increase in other revenue. Expenses increased due
primarily 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 revenue increased due to an
increase in fees resulting from an increase in the number and value of
accounts being serviced in the 401(k) and investment accounting groups.
Investment advisory fees relating to external assets under management for
the first six months of 2000 decreased $9.7 million or 8% compared to the
same period in 1999 due to decreases in institutional and retail assets
under management. Institutional assets under management were $26.7 billion
at the end of the second quarter of 2000 as compared to $31.2 billion at
the end of the second quarter of 1999. Retail assets under management were
$29.8 billion at the end of the second quarter of 2000 as compared to $30.3
billion at the end of the second quarter of 1999. The decrease in
institutional assets under management was due to net cash outflows and
market depreciation. The retail assets under management decreased due to
net cash outflows partially offset by market appreciation.
The net cash outflows experienced by the institutional accounts ($3.7
billion) and to a lessor extent by the retail accounts ($1.2 billion)
during the first six months of 2000 were due to continued performance
issues relating to the value investment style being out of favor. To
reverse the trend of net cash outflows, LNC has initiated various actions
to improve performance, the most important element to attracting and
retaining assets under management. These actions include a new structure
in the large cap value area, establishing a separate portfolio management
group for the retail area, adding resources to the fixed income and growth
areas, as well as enhancing sub-advisory relationships.
<TABLE>
<CAPTION>
Other Operations
Results of Operations (1) Six Months Ended Three Months Ended
June 30 June 30
(in millions) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Results by Source
LNC Financing $(43.6) $(42.5) $(22.0) $(21.6)
LFA (10.3) (18.1) (2.9) (9.7)
AnnuityNet (3.3) (1.7) (1.9) (1.1)
Other Corporate (4.4) 1.0 0.3 2.1
------------ ------------ ------------ ------------
Loss from Operations (61.6) (61.3) (26.5) (30.3)
Net Loss $(62.9) $(63.2) $(26.1) $(32.3)
</TABLE>
(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.
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 slight decrease in the net loss of $0.3 million
or 0.5% for the first six months of 2000 compared to the same period in
1999 and a decrease in the net loss of $6.2 million or 19% for the second
quarter of 2000 compared to the same quarter in 1999. Loss from operations
for the first six months of 2000 increased slightly by $0.3 million or 0.5%
compared to the same period in 1999 and decreased $3.8 million or 13% for
the second quarter of 2000 compared to the same quarter in 1999.
The relatively flat change in net loss and loss from operations for the
first six months of 2000 compared to the same period in 1999 was due to
offsetting results by business source. The slight increase in the loss in
the LNC Financing line was due primarily to increased short-term debt
costs. The increased loss from AnnuityNet was due to higher distribution
costs in the first quarter of 2000 and a nonrecurring $0.8 million tax
charge recorded in the second quarter of 2000. The increase in the loss in
the Other Corporate line is attributable to a variety of items including
$2.6 million (after-tax) of offsetting litigation matters recorded in the
first quarter of 2000, $2.5 million relating to interest on tax refunds
received in the second quarter of 1999 and timing differences between
periods on various intercompany expense allocations. The decrease in the
loss from LFA was due to increased sales volumes and reduced field office
costs resulting from expense management initiatives.
In May of 2000, LNC adopted the equity method of accounting for AnnuityNet.
This change was due to the reduction of LNC's ownership interest in
AnnuityNet to 44.9% resulting from second round funding of $20 million by
an unaffiliated investor group.
<TABLE>
<CAPTION>
CONSOLIDATED INVESTMENTS
June 30 (in billions) 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Assets Managed $137.5 $137.2
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mean Invested Assets (cost basis) (in billions) $37.77 $39.28 $37.31 $39.39
Adjusted Net Investment Income (1) (in millions) $1,388.7 $1,414.1 $676.1 $702.8
Investment Yield (ratio of net investment
income to mean invested assets) 7.35% 7.20% 7.25% 7.14%
</TABLE>
(1) Includes tax-exempt income.
The total investment portfolio decreased $521.2 million in the first six
months of 2000. This is the net result of the decrease in the fair value
of securities available-for-sale and fixed annuity contractholders opting
to transfer funds to variable annuity contracts partially offset by
purchases of investments from cash flow generated by the business segments.
The quality of LNC's fixed maturity securities portfolio as of June 30,
2000 was as follows:
Treasuries and AAA 22.3% BBB 33.0%
AA 7.0% BB 3.9%
A 30.3% Less than BB 3.5%
As of June 30, 2000, $2.0 billion or 7.4% of fixed maturity securities was
invested in below investment grade securities (less than BBB). This
represents 5.7% 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 six months ended June 30, 2000, the aggregate cost of such
investments purchased was $67.2 million. Aggregate proceeds from such
investments sold were $65.3 million, resulting in a net realized pre-tax
loss at the time of sale of $38.3 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 June 30, 2000, mortgage loans on real estate and real estate
represented 13.6% and 0.8% of LNC's total investment portfolio,
respectively. As of June 30, 2000, the underlying properties supporting
the mortgage loans on real estate consisted of 31.1% in commercial office
buildings, 28.9% in retail stores, 16.3% in apartments, 13.8% in industrial
buildings, 5.5% in hotels/motels and 4.4% 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:
June 30 December 31
(in millions) 2000 1999
------------- ----- -----
Total Portfolio (net of reserves) $4,783.8 $4,735.4
Mortgage loans two or more payments
delinquent (including in process of foreclosure) 6.5 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 six months ended
June 30, 2000 were not significant.
Net Investment Income
Net investment income decreased $25.4 million or 1.8% when compared with
the first six months of 1999. This decrease was the result of a 4% decrease
in mean invested assets partially offset by an increase in the overall
yield on investments from 7.20% to 7.28% (exclusive of $14.1 million of
interest income on the transfer of Seguros Serfin Lincoln recognized in the
first quarter of 2000).
Realized Gain on Investments
The first six months of 2000 and 1999 had realized losses on investments of
$11.4 million and $2.1 million, respectively. The losses for 2000 and 1999
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
mortgage loans on real estate, real estate and other investments.
The pre-tax write-downs of securities available-for-sale for the first six
months of 2000 and 1999 were $23.1 million and $19.5 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
six months of 2000, LNC released $0.5 million in reserves on real estate
and mortgage loans on real estate compared to reserves released of $0.5
million for the first six months of 1999. Net write-downs and reserve
releases for all investments for the six months ended June 30, 2000 and
1999 were $22.6 million and $19.0 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 statement of cash flows on page 6, indicates that
operating activities provided cash of $393.5 million during the first six
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 June 30, 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 six months of 2000 include the purchase and
retirement of 5,109,081 shares of common stock at a cost of $158.3 million.
At June 30, 2000, the remaining amount under the May 1999 board
authorization to repurchase $500 million of common stock was $105.1
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 5 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
six months of 2000 and during the year ended December 31, 1999, Lincoln
Life received regulatory approval and paid extraordinary dividends totaling
$210 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 decreased $40.1 million in the first six months
of 2000. Excluding the decrease of $90.9 million related to an increase
in the unrealized loss on securities available-for-sale, shareholders'
equity increased $50.8 million. This increase was the net result of
increases due to $333.8 million from net income and $1.4 million from the
issuance of common stock related to the acquisition of subsidiaries offset
by decreases of $7.8 million from the issuance of common stock related to
benefit plans, $8.2 million for the cumulative foreign currency translation
adjustment, $158.3 million for the repurchase of common shares and $110.1
million for the declaration of dividends to shareholders.
As of June 30, 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 increased approximately 0.10% per annum
as a result of the notice, management believes that liquidity will not be
adversely impacted.
As of June 30, 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, 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 5 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 HMO
excess-of-loss and group carrier medical 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 six months 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 six 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 $1.9 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 $85.5 million notional, resulting in a
remaining balance of $1.7 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
from $370.9 million notional to $402.9 million notional. New interest rate
swaps in the amount of $32.7 million notional were entered into during the
first six months. A total of $0.7 million notional expired. No gain or
loss was recognized as a result of the expirations. These interest rate
swap agreements convert floating rate bond coupon payments into a fixed
rate of return. LNC also increased its use of forward starting interest
rate swaps to hedge the anticipated purchase of assets from $260.0 million
notional to $529.5 million notional. New forward starting interest rate
swaps in the amount of $584.0 million notional were entered into during the
first six months. In addition, $314.5 million notional was terminated
resulting in a $4.5 million loss used to adjust the basis of purchased
assets. These swap agreements protect LNC from falling interest rates.
4. Decreased its use of foreign currency swaps from $44.2 million notional
to $38.0 million notional. This reduction in notional resulted in no gain
or loss. These foreign currency swap agreements are part of a replication
strategy. LNC owns various foreign issue securities. Interest payments
from these securities are received in a foreign currency and then swapped
into U.S. dollars, replicating a foreign issue, U.S. dollar paying
security.
5. 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 $583.2
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 $448.2 million notional was terminated resulting in no gain or
loss.
6. Increased its use of S&P 500 index call options from $129.6 million
notional to $155.8 million notional. New options in the amount of $43.6
million were entered into during the first six months. A total of $17.4
million notional was 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.
7. Entered into 0.6 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.
8. 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 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 4 Submission of Matters to a Vote of Security Holders
(a) The matters discussed below were submitted to and voted on by
Shareholders of the Registrant at the Annual Meeting of Shareholders of the
Registrant on May 11, 2000.
1. To elect three directors for three year terms
M. Leanne Lachman Ron J. Ponder
Votes cast for = 168,076,494 Votes cast for = 168,006,150
Votes withheld = 1,679,220 Votes withheld = 1,749,564
Jill S. Ruckelshaus
Votes cast for = 167,926,553
Votes withheld = 1,829,161
2. To approve Shareholders Proposal relating to Tobacco Investments
Votes cast for = 15,435,341
Votes cast against = 129,796,091
Number of abstentions = 6,338,241
Number of non-votes = 18,186,041
Item 6 Exhibits and Reports on Form 8-K
(a) The following Exhibits of the Registrant are included in this report.
10 (a) Form of H. Thomas McMeekin Employee Compensation Agreement
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 June 30,
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 July 26, 2000
----------------
LINCOLN NATIONAL CORPORATION
Exhibit Index for the Report on Form 10-Q
for the Quarter Ended June 30, 2000
Exhibit Number Description Page Number
-------------- ----------- -----------
10 (a) Form of H. Thomas McMeekin Employee
Compensation Agreement 29
12 Historical Ratio of Earnings to
Fixed Charges 40
27 Financial Data Schedule 41
Note: This is an abbreviated version of the Lincoln National Corporation
Form 10-Q. Copies of the exhibits (pages 29-41) are not attached. Copies
of these exhibits are available electronically at www.sec.gov or by writing
to the Corporate Secretary at Lincoln National Corporation, Centre Square,
1500 Market Street, Suite 3900, Philadelphia, Pennsylvania 19102-2112.
