<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year ended December 31, 1999
LINCOLN NATIONAL CORPORATION
EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN
(Full Title of Plan)
[Current Reg. No. 33-52667]
LINCOLN NATIONAL CORPORATION
Centre Square West
1500 Market Street, Suite 3900
Philadelphia, PA 19107
(Name of Issuer and Principal Executive Office)
FORM 11-K
Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
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TABLE OF CONTENTS
Facing Sheet
Financial Statements
Exhibit 23--Consent of Ernst & Young LLP, Independent Auditors
Signature
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Financial Statements
LINCOLN NATIONAL CORPORATION
EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN
Years ended December 31, 1999 and 1998
with Report of Independent Auditors
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
Report of Independent Auditors ................................... 1
Audited Financial Statements
Statements of Net Assets Available for Plan Benefits ............. 2
Statements of Changes in Net Assets Available for Plan Benefits... 3
Notes to Financial Statements .................................... 4
Signature ........................................................ 9
Consent of Ernst & Young LLP, Independent Auditors ............... 10
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REPORT OF INDEPENDENT AUDITORS
Lincoln National Corporation Benefits Investment Committee
Lincoln National Corporation
We have audited the accompanying statements of net assets available for plan
benefits of the Lincoln National Corporation Employees' Savings and
Profit-Sharing Plan as of December 31, 1999 and 1998, and the related statements
of changes in net assets available for plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan at
December 31, 1999 and 1998, and the changes in its net assets available for plan
benefits for the years then ended, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
June 14, 2000
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Statements of Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---- ----
<S> <C> <C>
ASSETS
Investments ......................................... $ 404,656,085 $ 361,337,784
Cash and invested cash (deficit) .................... (500,653) 295,913
Accrued interest receivable ......................... 28,560 23,207
Contributions receivable from participating employers 7,787,671 9,354,515
------------- -------------
Net assets available for plan benefits ...... $ 411,971,663 $ 371,011,419
============= =============
</TABLE>
See accompanying notes.
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Statements of Changes in Net Assets Available for Plan Benefits
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
---- ----
<S> <C> <C>
ADDITIONS:
Net realized and unrealized appreciation
in fair value of investments .............................. $ 32,754,997 $ 28,552,368
Investment income:
Cash dividends -- Lincoln National Corporation ............ 4,363,540 4,157,618
Interest:
The Lincoln National Life Insurance Company ............. 2,164,269 2,030,745
Other ................................................... 1,436,071 807,979
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Total investment income ............................... 7,963,880 6,996,342
Contributions:
Participants .............................................. 19,673,240 17,800,355
Participating employers (net of
forfeitures: 1999--$43,871; 1998--$52,036) ............... 10,635,203 11,528,864
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Total contributions ................................... 30,308,443 29,329,219
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Total additions .............................................. 71,027,320 64,877,929
DEDUCTIONS:
Distributions to participants ............................... (29,831,400) (15,505,698)
Administrative expenses ..................................... (235,676) (211,983)
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Total deductions ............................................ (30,067,076) (15,717,681)
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Net increase in net assets available for plan benefits ........ 40,960,244 49,160,248
Net assets available for plan benefits at beginning of the year 371,011,419 321,851,171
------------- -------------
Net assets available for plan benefits at end of the year ..... $ 411,971,663 $ 371,011,419
============= =============
</TABLE>
See accompanying notes.
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
The investment in Lincoln National Corporation ("LNC") common stock is valued at
the last reported sales price per the national securities exchange on the last
business day of the year.
The Wells Fargo Bank Short-Term Investment Fund is valued at cost which
approximates fair value.
The fair value of participation units in pooled separate accounts is based on
quoted redemption value on the last business day of the year.
The investment contracts are valued at contract value as estimated by The
Lincoln National Life Insurance Company ("Lincoln Life"). Contract value
represents net contributions made plus interest at the contract rate. These
contracts are fully benefit responsive.
Participant loans are valued at their outstanding balances which approximate
fair value.
The cost of investments sold, distributed or forfeited is determined using the
specific identification method. Investment purchases and sales are accounted for
on a trade date basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified to
conform with the 1999 presentation. These reclassifications had no effect on net
assets available for plan benefits or changes in net assets available for plan
benefits.
2. DESCRIPTION OF THE PLAN
The Employees' Savings and Profit Sharing Plan ("Plan") is a contributory,
defined contribution plan which covers substantially all employees of LNC and
certain of its subsidiaries ("Employer") who meet certain eligibility
requirements as defined by the Plan. A participant may make pretax contributions
at a rate of at least 1%, but not more than 15% of compensation (not more than
8% for higher compensated employees), up to a maximum annual amount as
determined and adjusted annually by the Internal Revenue Service ("IRS").
On October 1, 1998, LNC acquired the domestic individual life insurance business
of Aetna, Inc. In connection with this transaction, individuals who became
employees of the Employer were eligible to participate in the Plan effective
January 1, 1999.
The participants are fully vested in their contributions and direct the Plan to
invest their contributions in any combination of the investment options offered
under the Plan. Participants can direct employer contributions, but only after
the contributions have been in the Plan for two full years following the date
the last contribution for the plan year was contributed.
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
Employer contributions to the Plan are based on an amount equal to a
participant's contributions, not to exceed 6% of eligible earnings,
multiplied by a percentage, ranging from 25% to 150%, which varies
according to LNC's return on equity in relation to pre-identified peer
companies. In early 1998, the Board of Directors of LNC adopted an
amendment approving certain changes to the contribution formula that became
effective April 1998. Under the new formula, Employer contributions to the
Plan are based on LNC's increase in operating income. The Employer match on
eligible participants' contributions during their first year of employment
is limited to a maximum of 25%.
Employer contributions are invested in the LNC Common Stock Fund.
Participants' contributions are fully vested. Employer contributions vest
based upon years of service as defined in the Plan document as follows:
Years of Service Percent Vested
---------------- --------------
1 0%
2 50%
3 or more 100%
The Employer has the right in accordance with the Plan to discontinue
contributions at any time and terminate participation in the Plan. In the event
of termination of the Plan, all amounts allocated to participants' accounts
shall become vested.
The Plan allows loans to participants in amounts up to 50% of the vested account
value to a maximum of $50,000 but not more than the total value of the
participant's account excluding Employer contributions that have not been in the
Plan for two full years, less the highest outstanding loan balance in the
previous twelve-month period. A participant may have a maximum of two loans
outstanding at any one-time. Interest charged on new loans to participants is
established monthly based upon the prime rate plus 1%. Loans may be repaid over
any period selected by the participant up to a maximum repayment period of five
years except that the maximum repayment period may be 20 years for the purchase
of a principal residence.
Upon termination of service due to disability, retirement or death, a
participant or beneficiary, in case of the participant's death, may elect to
receive either a lump-sum amount equal to the entire value of the participant's
account, or up to five annual installments. For termination of service due to
other reasons, a participant may receive the value of the vested interest in his
or her account as a lump-sum distribution.
Each participant's account is credited with the participant's contributions,
matching contributions from the Employer and allocations of Plan earnings, and
is charged with an allocation of administrative expenses. Allocations are based
on participant account balances, as defined. The benefit to which a participant
is entitled is the benefit that can be provided from the participant's vested
account. Forfeited non-vested amounts are used to reduce future Employer
contributions.
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements (continued)
3. INVESTMENTS
Individual investments greater than 5% of net assets available for plan benefits
at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------- -------------------------------
NUMBER OF NUMBER OF
SHARES, UNITS MARKET SHARES, UNITS MARKET
OR PAR VALUE VALUE OR PAR VALUE VALUE
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Common stock -- Lincoln
National Corporation....................... 4,066,259 $162,650,360* 4,075,860 $166,728,148*
Pooled separate accounts -- Lincoln Life:
Core Equity Fund........................... 2,588,567.288 40,546,950 2,532,054.939 33,032,052
Medium Capitalization Equity Fund.......... 2,133,425.023 38,203,460 2,197,547.709 27,165,219
Large Capitalization Equity Fund........... 2,809,872.823 36,516,733 2,607,565.754 26,296,054
Investment contracts -- Lincoln Life........ $40,006,271 40,006,271 $37,418,835 37,418,835
</TABLE>
* Nonparticipant-directed.
The investment contracts earned an average interest rate of approximately 6.22%
and 6.45% in 1999 and 1998, respectively. The credited interest rates for new
contributions, which approximate the current market rate, were 6.50% and 5.50%
at December 31, 1999 and 1998, respectively. The rate on new contributions is
guaranteed through the succeeding three calendar year quarters. The credited
interest rates for the remaining contract value balance at December 31, 1999 and
1998 were 6.25% and 6.40%, respectively, and were determined based upon the
performance of Lincoln Life's general account. The credited interest rates
change at least quarterly. The minimum guaranteed rate is 4.5% for the first
five contract years, 4.00% for years 6-10 and 3.50% following year 10. The
guarantee is based on Lincoln Life's ability to meet its financial obligations
out of its general assets. Restrictions may apply to the aggregate movement of
funds to other investment options. The fair value of the investment contracts
approximates contract value. Participants are allocated interest on the
investment contracts based on the average rate earned on all Plan investments in
the investment contracts.
During 1999 and 1998 the Plan's investments (including investments bought, sold
as well as held during the year) appreciated (depreciated) in fair value as
follows:
1999 1998
------------ ------------
Fair value as determined by quoted market price:
Common stock ................................... $ (2,710,256) $ 7,144,207
Pooled separate accounts ....................... 35,465,253 21,408,161
------------ ------------
Total .................................. $ 32,754,997 $ 28,552,368
============ ============
The number of shares of LNC common stock at December 31, 1998 have been restated
to reflect the two-for-one stock split which was effective June 1999.
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements (continued)
4. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the changes
in net assets relating to the nonparticipant-directed investments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Common stock--Lincoln National Corporation ........ $ 162,650,360 $ 166,728,148
Wells Fargo Bank Short-Term Investment Fund ....... 4,813,397 4,900,071
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Total ..................................... $ 167,463,757 $ 171,628,219
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YEAR ENDED DECEMBER 31
1999 1998
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CHANGE IN NET ASSETS
Net realized and unrealized
appreciation (depreciation)
in fair value of investments ................ $ (2,710,256) $ 7,144,207
Investment income:
Cash dividends .............................. 4,363,540 4,157,618
Interest .................................... 285,574 313,784
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Total investment income ............... 4,649,114 4,471,402
Contributions:
Participants ................................ 3,532,342 3,313,968
Participating employers (net of forfeitures) 10,635,203 11,528,864
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Total contributions ..................... 14,167,545 14,842,832
Distributions to participants ................... (11,026,299) (6,162,320)
Administrative expenses ......................... (131,246) (123,228)
Net transfers to participant-directed investments (10,998,837) (9,457,725)
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Total ............................... $ (6,049,979) $ 10,715,168
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</TABLE>
5. INCOME TAX STATUS
The IRS ruled on June 20, 1997 that the Plan qualifies under Section 401(a) of
the Internal Revenue Code ("IRC") and, therefore, the related trust is exempt
from taxation. Once qualified, the Plan is required to operate in conformity
with the IRC to maintain its qualification. The Plan's administrator believes
the Plan is being operated in compliance with the applicable requirements of the
IRC and, therefore, believes that the Plan is qualified and the related trust is
tax exempt.
6. TRANSACTIONS WITH PARTIES-IN-INTEREST
The Plan has investments in common stock of LNC, and in pooled separate accounts
and investment contracts with Lincoln Life of $162,650,360; $184,550,428 and
$40,006,271, respectively, at December 31, 1999 (39.5%; 44.8% and 9.7% of net
assets, respectively). LNC and Lincoln Life operate predominately in the
insurance and financial services industries.
LNC and Lincoln Life also provide certain administrative services at no charge
to the Plan. Trustee fees and additional expenses incurred solely for the LNC
Stock Fund are charged directly to the LNC Stock Fund. Audit fees are charged to
earnings of all investment funds based upon the market value of the respective
funds applicable to each investment option. These transactions are exempt.
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Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan
Notes to Financial Statements (continued)
7. CENTURY COMPLIANCE (UNAUDITED)
The Year 2000 issue was complex and affected many aspects of LNC's businesses.
LNC was particularly concerned with Year 2000 issues that related to LNC's
computer systems and interfaces with the computer systems of vendors, suppliers,
customers and business partners. From 1996 through 1999 LNC and its operating
subsidiaries redirected a large portion of internal Information Technology
("IT") efforts and contracted with outside consultants to update systems to
address Year 2000 issues. Experts were engaged to assist in developing work
plans and cost estimates and to complete remediation activities.
For the year ended December 31, 1999, LNC identified expenditures of $44.5
million ($28.9 million after-tax) to address this issue. This brings the
expenditures for 1996 through 1999 to $91.6 million ($59.5 million after-tax).
Because updating systems and procedures is an integral part of LNC's on-going
operations, most of the expenditures shown above for 1999 are expected to
continue after all Year 2000 issues have been resolved. All Year 2000
expenditures have been funded from operating cash flows.
The scope of the overall Year 2000 program included the following four major
project areas: 1) addressing the readiness of business applications, operating
systems and hardware on mainframe, personal computer and local area network
platforms (IT); 2) addressing the readiness of non-IT embedded software and
equipment (non-IT); 3) addressing the readiness of key business partners and 4)
establishing Year 2000 contingency plans. LNC companies completed these projects
prior to year-end.
LNC businesses have not identified any major problems in their business
processing. Minor problems have been resolved quickly. LNC businesses have not
experienced any significant interruption in service to clients or business
partners or in reporting to regulators.
The record keeping for the Plan is currently handled by Wells Fargo. Record
keeping consists of the day to day maintenance of the individual accounts within
the Plan. As a result of Wells Fargo's Year 2000 program and efforts, there were
no significant disruptions in service to the Plan.
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SIGNATURE
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Administrator of the Plan has duly caused this annual report to be signed on
its behalf by the undersigned hereunto duly authorized.
By: /S/ GEORGE E. DAVIS
George E. Davis, Administrator
Date: June 26, 2000
