UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: September 30, 2001
LINCOLN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 1-6028 35-1140070
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
1500 Market Street, Suite 3900, Centre Square West Tower, Philadelphia, PA
19102
(Address of principal executive offices)
Registrant's telephone number 219-448-1400
2
Item 9
Financial Report for the quarter ended September 30, 2001.
Lincoln
QUARTERLY
SHAREHOLDERnews
third quarter 2001
[PHOTO OMITTED: JON A. BOSCIA]
THIS issue:
LFG ESTIMATES
LOSSES RELATED
TO SEPT. 11 TRAGEDY
KEY FEATURES
OF Income4LifeSM
SOLUTION
LINCOLN'S ELITE
SERIES OF FUNDS
GETTING NET
FLOW POSITIVE
QUARTERLY
HIGHLIGHTS
To Our Shareholders:
The third quarter of 2001 can be characterized as anything but normal.
The tragic events we witnessed on Sept. 11 left an indelible mark on all
of our lives. And we at Lincoln continue to grieve for the family
members, friends and colleagues who were personally affected.
The tragedy, coupled with the weak stock market clearly had a financial
impact on the overall economy, as well as on Lincoln's third quarter
earnings. But despite these events, our balance of both wealth
accumulation and protection businesses, coupled with our broad array of
products and distribution breadth helped to insulate us from an even
worse impact.
In addition to growth in our life insurance segment earnings, we had
positive net flows in our Annuities segment.
Lincoln reported income from operations of $143.2 million, or $.74 per
diluted share. This compares to $190.7 million, or $.98 per diluted
share in the year-ago period.
Our Annuities segment reported earnings of $72.4 million for the
quarter. Despite equity market performance, we had record deposits of
$1.6 billion and reached positive net cash flows for the first time
since the second quarter of 1997.
Life Insurance income from operations was $70.1 million, reflecting
$1.9 million in losses stemming from the Sept. 11 tragedy. Although
overall life sales were down, over the course of the year we experienced
sales growth in term life insurance products, as well as in MoneyGuard
(registered trademark), our universal life product with a long-term care
rider.
Income from operations for the Investment Management segment was $3.5
million, down from the $9.9 million reported in the third quarter 2000,
due primarily to market depreciation. Relative investment performance
continued to be strong with 16 of Delaware's 25 largest retail funds
exceeding Lipper averages for the last 12 months.
Reinsurance reported income from operations of only $17.2 million.
Earnings were reduced $31.3 million as a result of the Sept. 11 events.
Lincoln UK earnings were $10.1 million for the quarter, compared with
$10.6 million a year ago. The decrease is due to the significant decline
in equity markets.
All in all, we continue to make good progress on our goals, and will
continue to focus on the challenges and opportunities that lie ahead.
Sincerely,
/S/ Jon A. Boscia
Jon A. Boscia
Chairman and Chief Executive Officer
Lincoln Quarterly THIRD QUARTER 2001
OVERview
We're a family of financial services.
Lincoln Financial Group (LFG), is the marketing name for Lincoln
National Corporation. LFG provides annuities, life insurance,
life-health reinsurance, mutual funds, retirement plans, institutional
investment management and financial and estate planning services. The
corporation holds a prominent position among financial services companies
due primarily to its excellent customer service, risk management expertise
and the strategic focus to succeed in the future. LFG retains consolidated
assets of $90 billion and annual consolidated revenues of $6.9 billion.
FINANCIAL & ESTATE PLANNING
RETIREMENT PLANS PENSIONS
Financial
MUTUAL FUNDS Services ANNUITIES
REINSURANCE LIFE INSURANCE
CURRENT events
LFG Estimates Losses Related to Sept. 11 Tragedy
The calamity that befell our nation on Tuesday, Sept. 11 leaves us forever
changed. And, as the country still mourns this day, the insurance industry
is preparing itself for the large, but manageable costs of the claims
associated with this tragedy.
According to a Wall Street Journal article, insurance industry analysts
predict that direct life-insurers will pay approximately $4 billion to
$6 billion in claims arising from the attacks, far below the $40 billion
or more that the property-casualty insurers are expected to pay in claims.
For the record, LFG exited its property-casualty operations in 1997.
Through the third quarter, Lincoln's direct life insurance segment reported
losses of approximately $1.9 million after-tax, including reserves set up
for unreported claims.
In the reinsurance segment, the total impact to operating earnings for the
third quarter was $31.3 million and included a reserve for incurred but
unreported claims.
"Lincoln remains in a solid financial position with excellent financial
strength ratings, a strong balance sheet and substantial liquidity to meet
all policyholder obligations and financial demands," said Jon A. Boscia,
chairman and chief executive officer.
FINANCIAL NEWS
FINANCIAL HIGHLIGHTS
Third Quarter Nine Months Ended 9/30
(Millions of dollars, except ratios and per share data) 2001 2000 Change 2001 2000 Change
--------------------------------------------------------------------------------------------------------------------------------
Income from Annuities** 72.4 102.9 (29.6%) 245.5 275.6 (10.9%)
Operations* Life Insurance** 70.1 66.5 5.4% 205.8 189.3 8.7%
Reinsurance 17.2 28.2 (39.0%) 98.1 85.9 14.2%
Investment Management** 3.5 9.9 (64.6%) 9.6 35.4 (72.9%)
Lincoln UK 10.1 10.6 (4.7%) 40.7 45.5 (10.5%)
Corporate & Other** (30.1) (27.4) (109.8) (97.3)
--------------------------------------------------------------------------------------------------------------------------------
Total Income from Operations* 143.2 190.7 (24.9%) 489.9 534.4 (8.3%)
--------------------------------------------------------------------------------------------------------------------------------
Net Income Net Income 119.1 138.6 (14.1%) 421.0 472.5 (10.9%)
--------------------------------------------------------------------------------------------------------------------------------
Per Share Data Income from Operations* $0.74 $0.98 (24.5%) $2.53 $2.74 (7.7%)
Net Income $0.61 $0.71 (14.1%) $2.18 $2.42 (9.9%)
Shareholders' Equity (Book Value):
Securities at Market $28.29 $23.67 19.5% $28.29 $23.67 19.5%
Securities at Cost $26.87 $25.43 5.7% $26.87 $25.43 5.7%
Common Shares Outstanding (millions):
Average for the Period 194.8 195.6 193.5 194.9
End of Period 193.3 196.2 193.3 196.2
* "Income from Operations" is defined as "Net Income" less gain (loss)
on investments, gain (loss) on derivatives, restructuring charges and
cumulative effect of accounting changes, net of tax.
** 3rd quarter 2000 was restated from the prior year due to changes in
LNC's segments which were effective on January 1, 2001.
STOCK PRICES/DIVIDENDS DECLARED
The table below sets forth, by quarter, the range of high, low and
quarter-end closing sale prices for Lincoln National Corporation common
stock and the cash dividends declared per common share.
Cash
Dividends
2001 Quarter High Low Close Declared
First $48.250 $38.000 $42.470 $0.305
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Second $52.300 $41.280 $51.750 $0.305
------------------------------------------------------------------------
Third $52.750 $41.000 $46.630 $0.305
------------------------------------------------------------------------
Total $0.915
========
Cash
Dividends
2000 Quarter High Low Close Declared
------------------------------------------------------------------------
First $41.375 $22.625 $33.500 $0.290
------------------------------------------------------------------------
Second $40.063 $29.000 $36.125 $0.290
------------------------------------------------------------------------
Third $56.375 $35.625 $48.125 $0.290
------------------------------------------------------------------------
Fourth $50.938 $40.875 $47.313 $0.305
------------------------------------------------------------------------
Total $1.175
========
LINCOLN NATIONAL CORPORATION'S RATINGS
------------------------------------------------------------------------
Commercial Paper Debt
------------------------------------------------------------------------
Standard & Poor's A-2 (Satisfactory) A- (Strong)
Moody's P-2 (Strong) A3 (Upper medium grade)
Fitch F-1 (Very strong) A+ (Strong)
A.M. Best a (Strong)
LIFE INSURANCE COMPANY
FINANCIAL STRENGTH RATINGS
---------------------------------------------------------------------------------------------------
Description A.M. Fitch Moody's Standard
Best & Poor's
---------------------------------------------------------------------------------------------------
Exceptional or Superior A++ AAA Aaa AAA
Negligible Risk Factors A+
---------------------------------------------------------------------------------------------------
Excellent A AA+ Aa1 AA+
Modest Risk A- AA Aa2 AA
AA- Aa3 AA-
---------------------------------------------------------------------------------------------------
Very Good, Strong, or High B+ A+ A1 A+
Average Risk A A2 A
A- A3 A-
---------------------------------------------------------------------------------------------------
Adequate B BBB+ Baa1 BBB+
Protection Factors are Average B- BBB Baa2 BBB
More Vulnerable to
Economic Conditions BBB- Baa3 BBB-
---------------------------------------------------------------------------------------------------
Below Average C+ BB+ Ba1 BB+
Questionable or Uncertain Security BB Ba2 BB
BB- Ba3 BB-
---------------------------------------------------------------------------------------------------
Poor C B+ B1 B+
Vulnerability is High C- B B2 B
Considered Financially Weak BB- B3 B-
Obligations May Not be Paid
---------------------------------------------------------------------------------------------------
Very Poor CCC Caa CCC
May Not Meet Obligations CC Ca CC
May be in Default D C D
---------------------------------------------------------------------------------------------------
Lincoln National Life Ratings are Highlighted.
A.M. BEST RATINGS FOR SELECTED AFFILIATES
---------------------------------------------------------------------------------------------------
First Penn-Pacific Life Insurance Company A
Lincoln National Health and Casualty Company A
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
---------------------------------------------------------------------------------------------------
Third Quarter Nine Months Ended 9/30
(Millions of dollars) 2001 2000 2001 2000
--------------------------------------------------------------------------------------------------------------
Revenue Insurance Premiums and Fees 821.6 882.1 2,568.5 2,571.9
Investment Advisory Fees 47.2 53.3 146.3 159.5
Net Investment Income 686.2 690.0 2,033.0 2,075.0
Realized Gain/(Loss)
on Investments (37.6) (17.0) (75.8) (28.3)
Other 91.9 107.7 235.1 299.9
-----------------------------------------------------------------------------------------
Total Revenue 1,609.3 1,716.1 4,907.1 5,078.0
--------------------------------------------------------------------------------------------------------------
Benefits and Benefits and Settlement Expenses 903.1 893.5 2,664.8 2,636.4
Expenses Underwriting, Acquisition,
Insurance and Other Expenses 556.6 632.2 1,667.9 1,793.6
-----------------------------------------------------------------------------------------
Total Benefits and Expenses 1,459.7 1,525.7 4,332.7 4,430.0
--------------------------------------------------------------------------------------------------------------
Income Net Income before Federal Taxes 149.6 190.4 574.4 648.0
Federal Income Taxes 30.5 51.8 137.9 175.5
Net Income from Continuing
Operations
Discontinued Operations
Net Income before Minority
Interest & Accounting Changes 119.1 138.6 436.5 472.5
Minority Interest & Accounting
Changes 0.0 0.0 (15.5) 0.0
-----------------------------------------------------------------------------------------
Net Income 119.1 138.6 421.0 472.5
======== ======== ======== ========
--------------------------------------------------------------------------------------------------------------
Earnings Per Share Net Income $0.61 $0.71 $2.18 $2.42
======== ======== ======== ========
CONSOLIDATED CONDENSED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------
September December 31 Increase
(Millions of dollars) 2001 2000 (Decrease)
------------------------------------------------------------------------------------------------------------------
Assets
------------------------------------------------------------------------------------------------------------------
Investments Securities Available-for-Sale
Fixed Maturities 28,931.6 27,449.8 1,481.8
Equities 477.7 549.7 (72.0)
Mortgage Loans on Real Estate 4,663.1 4,663.0 0.1
Real Estate 288.8 282.0 6.8
Policy Loans 1,943.4 1,960.9 (17.5)
Other Long-Term Investments 483.4 463.3 20.1
---------------------------------------------------------------------------------------------
Total Investments 36,788.0 35,368.7 1,419.3
------------------------------------------------------------------------------------------------------------------
Other Assets Assets Held in Separate Accounts 39,479.8 50,579.9 (11,100.1)
Other Assets 13,938.2 13,895.5 42.7
---------------------------------------------------------------------------------------------
Total Assets 90,206.0 99,844.1 (9,638.1)
========= ========= =========
Liabilities and Shareholders' Equity
------------------------------------------------------------------------------------------------------------------
Liabilities Liabilities for Insurance and
Investment Contracts 40,961.0 40,105.2 855.8
Liabilities Related to
Separate Accounts 39,479.8 50,579.9 (11,100.1)
Other Liabilities 4,396.6 4,204.9 191.7
---------------------------------------------------------------------------------------------
Total Liabilities 84,837.4 94,890.0 (10,052.6)
------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred Stock 0.8 0.9 (0.1)
Equity Common Stock 1,252.5 1,003.7 248.8
Retained Earnings 3,840.2 3,915.6 (75.4)
Net Unrealized Gain on Securities
Available-for-Sale 247.9 12.0 235.9
Net Unrealized Gain on Derivatives 20.3 0.0 20.3
Foreign Currency Translation Adjustment 6.9 21.9 (15.0)
---------------------------------------------------------------------------------------------
Shareholders' Equity 5,368.6 4,954.1 414.5
---------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity 90,206.0 99,844.1 (9,638.1)
========= ========= =========
FORM 10-Q DISCLOSURE STATEMENT
------------------------------------------------------------------------------------------------------------------
The notes to these unaudited condensed interim financial statements have
not been included in this report. Those notes, along with more detailed
financial information are, however, contained in the corporation's
quarterly report on Form 10-Q filed with the Securities and Exchange
Commission. Copies of the 10-Q are available electronically at
www.sec.gov or www.lfg.com or by writing to: Douglas N. Miller, LNC
Controller, 1500 Market Street, Suite 3900, Philadelphia, PA 19102-2112.
Requests may also be directed to 215-448-1430 or to dnmiller@lnc.com on
the Internet.
Lincoln Quarterly THIRD QUARTER 2001
PRODUCT news
Lincoln's Elite Series of Funds:
A Whole New Meaning to One-Stop Shopping
[GRAPHIC OMITTED: PHOTO OF NEWSPAPER]
Remember when life was simple? Although we all enjoy the ability to make
choices, too many choices can be overwhelming at times. With the launch
of Lincoln's Elite Series of Funds, Lincoln has managed to simplify its
investment options from an enterprise-wide perspective and bring one-stop
shopping to a whole new level. The Lincoln Elite Series of Funds is
comprised of 44 variable investment options available in our 401(k),
variable annuity and variable life products. This makes it easier for
LFG's financial intermediaries to get to know the funds regardless of
the product.
Lincoln's Elite Series of Funds also meet the investment objectives of
all investor types. Fund managers include: AIM (registered trademark),
American FundsSM, Delaware Investments, Janus, Franklin (registered
trademark) Templeton (registered trademark), Deutsche Asset Management,
Fidelity Investments (registered trademark), Neuberger Berman, Alliance
Capital (registered trademark) and Putnam Investments.
"Due to customer demand for a high quality, consistent fund lineup, Lincoln's
wholesaling group teamed up with its product manufacturers to develop a
unique fund platform to be incorporated into Lincoln's products," said
Wes Thompson, president and chief executive officer of Lincoln Financial
Distributors. "Making it easy to do business with Lincoln is the best value
proposition we can provide to our customers," he added.
Prior to the creation of the Lincoln Elite Series of Funds, Lincoln's
distribution partners had to familiarize themselves with more than
60 funds from 17 different fund families that populated Lincoln's
variable annuities, 401(k) and life insurance products. However, the
development of the Lincoln Elite Series of Funds decreased the number
of funds to 44 from 11 fund families. This represents a 27% reduction
in funds and a 35% reduction in fund families that distributors have
to learn and market to end-users. In addition, the smaller number of
funds enables LFG to deepen its relationship with fewer fund families.
Fund performance is consistently monitored by an in-house research and
due diligence team. Eventually, the Lincoln Elite Series of Funds will
be incorporated into additional Lincoln products.
Lincoln Quarterly THIRD QUARTER 2001
FOCUSED feature
Control and Flexibility
Key Features of Income4Life SM Solution
[GRAPHIC OMITTED: PHOTO OF LINCOLN ADVERTISEMENT WITH CAPTION
"New Income4Life SM solution ad geared toward financial and intermediary
trade publications".]
Joan and David Smith have worked all their lives and purchased an annuity as a
retirement savings vehicle. As they near retirement, they have the same concern
many Americans have regarding their golden years -- What if they run out of
money?
The couple could turn their variable annuity contract into lifetime
income by simply annuitizing it. However, once they do this, they lose
control of their assets and won't be able to make withdrawals even in an
emergency situation.
Joan and David are hoping for a more flexible option where they can
control their hard-earned retirement assets. That's why they decided to
put their money in a Lincoln variable annuity and take advantage of the
Income4LifeSM Solution. This feature offers control and flexibility, coupled
with the benefits of tax advantages and lifetime income. In essence, once
they begin the payout phase, they maintain both access and control of their
assets and income.
Here's how this state-of-the-art income solution works. Working with a
financial advisor, an investor selects one of Lincoln's variable annuities
from the American Legacy single manager, the Lincoln ChoicePlusSM multi
manager or the new Wells Fargo lineup. When the investor is ready to
receive income distribution, he or she elects the Income4LifeSM Solution
feature and selects a period of time in which to access the account assets.
The investor begins receiving income payments, which will fluctuate based
on performance of selected investments. During the access period, the
investor can make transfers, additional withdrawals and request other
service features, such as portfolio rebalancing of the account value.
A survivor benefit is provided during the access period, with the
beneficiary receiving 100 percent of the account value. In addition,
before the initial access period ends, the investor may opt to change
the length of the access period via an internal exchange.
There are a number of benefits to Joan and David. First is a positive
experience each and every time they receive their income check. Second,
the equity-oriented investment performance can be an excellent way to
combat inflation, helping to assure the investors retirement assets
retain their purchasing power throughout their retirement years. And,
finally, the Smiths don't give up control of their assets in exchange
for lifetime income.
A strategic rollout of the Income4LifeSM Solution, which included a
marketing campaign geared toward brokers and advisors, began in May 2001.
Print ads were placed in financial trade publications including the Wall
Street Journal and Barron's, as well as trade publications such as On
Wall Street, Registered Representative and Investment News. New marketing
materials were also created for the product distributors and an aggressive
education program was initiated.
"We are very encouraged by the strong interest in the Income4LifeSM
Solution. In July, the first month of one key distributor's summer
campaign, we received nearly 4,000 inquiries from broker/dealers," said
Bill Boscow, chief marketing officer for Lincoln Annuities. The second
phase of the promotional campaign is anticipated for early 2002.
BRIEF notes
Quarterly Highlights
-----------------------------------------------------------------------------
(bullet) In a display of unity and support for all the victims of the tragic
events that occurred on Sept. 11, Lincoln Financial Group employees have
donated nearly $280,000 to the American Red Cross. In support of its
employee donation, the LFG Foundation will donate an additional $280,000
making the total contribution to the American Red Cross $560,000.
(bullet) For the third consecutive year, Delaware Investments' operations
department has won the prestigious DALBAR Crystal Pyramid Award for
excelling in main office operations. Delaware received top distinction in
the following areas: ease of doing business, problem resolution, service
relationship management, response to inquiries, back office visits,
commission processing, understanding the broker/dealer's business,
keeping broker/dealers informed and overall operations support.
(bullet) LFG was promoted as the company of choice for the super affluent
in three recent news articles. An article written by LFA's David Megaw,
a tax attorney, appeared in the Sept. issue of Investment Advisor and
showcased the firm's proficiency in estate planning for the wealthy. In
addition, Wes Thompson, LFD's chief executive officer, hosted a
roundtable discussion on the financial planning needs of America's
affluent. The roundtable discussion which included financial planners,
an accountant and two estate planning attorneys, were the focus of two
articles published in the Sept. 17 edition of Investment News.
(bullet) For the 15th consecutive year, Lincoln Financial Group was
selected among the nation's top companies for working mothers by Working
Mother magazine. LFG is one of only five companies to be named to the
list of 100 best companies for working mothers for 15 out of 16 years.
Transfer Agent & Registrar
-----------------------------------------------------------------------------
Equiserve
P.O. Box 2500
Jersey City, NJ 07303-2500
Web site: http://www.equiserve.com
1-800-317-4445
Stock Listing
-----------------------------------------------------------------------------
The common stock of Lincoln National Corporation is traded on the New York,
Chicago and Pacific stock exchanges under the symbol LNC. In newspapers,
stock information is most frequently listed as LincNatCp.
[LOGO OMITTED: LNC AND NYSE]
[LOGO OMITTED: LINCOLN FINANCIAL GROUP]
PRESORTED
STANDARD
U.S. POSTAGE
PAID
NEW BRUNSWICK, NJ
PERMIT NO. 772
Lincoln National Corporation
Centre Square, West Tower
1500 Market Street, Suite 3900
Philadelphia, PA 19102-2112
(215) 448-1400
www.LFG.com
CONTACTS
Investor Relations
Priscilla S. Brown
Director, Investor Relations
(215) 448-1422
Shareholder Services
Fred Crawford
Treasurer
(800) 237-2920
Financial Communications
LaNella Hooper
Director, Financial Communications
(215) 448-1423
Media Relations
D'Arcy Foster Rudnay
Director, Media Relations
(215) 448-1454
Form 19725-3
The Quest to Getting Net Flow Positive
For the first time since the second quarter of 1997, Lincoln Annuities
reached positive net flows. Total annuity deposits were a record $1.6
billion for the third quarter, up 27 percent over third quarter 2000.
This was driven by strong sales of fixed annuities through the bank
channel, as well as the sale of American Legacy, Lincoln ChoicePlusSM
and Lincoln Alliance products.
What's the significance of this milestone? Generally speaking, net
flows are one of the key indicators of Lincoln's future success. In
the Annuities and Investment Management business segments, net flows
are the result of deposits, or incoming dollars, minus outgoing dollars.
The higher the net flows, the more Lincoln can expect to earn in future
fee income. Positive net flows also indicate Lincoln's ability to grow
the business with new accounts, as well as maintain existing business
by stemming fund withdrawals.
Lincoln Annuities implemented a series of strategic initiatives that, in
combination, led to increasing deposits and slowing withdrawals and
ultimately positive net flows of $261 million in the third quarter. These
initiatives included hiring a number of performance players into
critical roles, including a new annuities CEO. In addition, a number of
new products and product features were introduced, such as new fixed
products and variable riders. Finally, improving retention levels and
strengthening distribution alliances were also critical in reaching
positive net flows.
During the second quarter of 2001, our Investment Management segment
also had positive net flows of $285 million, driven by institutional net
flows. However, during the third quarter of 2001, net flows were
negative due to the repositioning of two major institutional clients and
the consolidation of 14 funds. The Investment Management segment had
slightly positive flows for the two quarters combined, and continues
to work on initiatives that are designed to help get it to a consistent
net flow positive. These include focusing on investment research and
improving the relative investment performance of the Delaware family
of funds. For the twelve months ended Sept. 30, 2001, 16 of Delaware's
25 largest retail funds exceeded Lipper averages.
While Lincoln is pleased with the overall positive trends we have
witnessed in our Annuities segment and the progress we are making in
our Investment Management segment, we recognize that fluctuations
will occur as large cases come and go. However, we'll continue to
execute on the initiatives started, and look for other opportunities
to capitalize on our strengths.