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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Exchanges on which registered
- ------------------- -----------------------------
Common Stock New York, Chicago and Pacific
Common Share Purchase Rights New York, Chicago and Pacific
$3.00 Cumulative Convertible Preferred Stock, Series A New York and Chicago
8.35% Trust Originated Preferred Securities, Series B* ** New York
7.40% Trust Originated Preferred Securities, Series C* New York
5.67% Trust Originated Preferred Securities, Series D* New York, Chicago and Pacific
7.65% Trust Preferred Securities, Series E* New York
* Issued by Lincoln National Capital II, Lincoln National Capital III,
Lincoln National Capital IV and Lincoln National Capital V,
respectively. Payments of distributions and payments on liquidation or
redemption are guaranteed by Lincoln National Corporation.
** Redeemed on January 7, 2002.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the 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 such shorter period 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ x ]
As of March 1, 2002, 187,585,451 shares of common stock were
outstanding. The aggregate market value of such shares (based upon the
closing price of these shares on the New York Stock Exchange) held by
non-affiliates was approximately $9,726,306,000.
Select information from the registrant's 2001 Annual Report to
Shareholders has been incorporated by reference into Part II of this
Form 10-K. Select materials from the Proxy Statement for the Annual
Meeting of Shareholders, scheduled for May 9, 2002 have been
incorporated by reference into Part III of this Form 10-K.
The exhibit index to this report is located on page 27.
Lincoln National Corporation
Table of Contents
Item Page
- ---- ----
PART I
1. Business
A. Business Overview 3
B. Description of Business Segments:
1. Annuities 5
2. Life Insurance 9
3. Investment Management 10
4. Lincoln UK 11
C. Other Matters:
1. Regulatory 12
2. Miscellaneous 12
2. Properties 13
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 13
PART II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 13
6. Selected Financial Data 13
7. Management's Discussion and Analysis 13
7A. Quantitative and Qualitative Disclosures About Market Risk 13
8. Financial Statements and Supplementary Data 13
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 13
PART III
10. Directors and Executive Officers of the Registrant 14
11. Executive Compensation 14
12. Security Ownership of Certain Beneficial
Owners and Management 14
13. Certain Relationships and Related Transactions 15
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 15
Index to Exhibits 27
Signatures 28
PART I
Item 1. Business
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A. Business Overview
Lincoln National Corporation ("LNC") is a holding company. Through
subsidiary companies, LNC operates multiple insurance and investment
management businesses. The collective group of companies uses "Lincoln
Financial Group" as its marketing identity. Based on assets, LNC is the
34th largest U.S. Corporation (2000 Fortune 500, Largest U.S.
Corporations, April 2001). Operations are divided into four business
segments: 1) Annuities (effective March 7, 2002, this segment will be
known as Lincoln Retirement), 2) Life Insurance, 3) Investment
Management and 4) Lincoln UK. Over the past five years, segments have
been redefined as follows. Prior to 1997, LNC had a Property-Casualty
segment. This segment was sold in 1997 and the related segment
information was reclassified to discontinued operations. The Lincoln UK
segment, which was added in 1997, was included in the Life Insurance and
Annuities segment prior to the adoption of Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information." During the first quarter of 2000,
changes to the structure of LNC's internal organization resulted in the
creation of a separate Annuities segment and a separate Life Insurance
segment. In the first quarter of 2001, LNC established a new wholesaling
distribution organization, Lincoln Financial Distributors ("LFD"), to
focus on the changing business needs of financial intermediaries. LFD's
results are reported within Other Operations. Previously, LNC's
wholesaling efforts were conducted separately within the Annuities, Life
Insurance and Investment Management segments. Prior to the fourth
quarter of 2001, LNC had a Reinsurance segment. LNC's reinsurance
operations were acquired by Swiss Re on December 7, 2001 and the related
segment information prior to the close of this transaction was moved to
Other Operations.
Revenues, pre-tax income and assets for LNC's major business segments
and other operations are shown in this Form 10-K report as part of the
consolidated financial statements (see Note 9 to the consolidated
financial statements as set forth in LNC's 2001 Annual Report to
Shareholders which is incorporated by reference to Item 8 of this Form
10-K). The LNC "Other Operations" category includes the financial data
for operations that are not directly related to the business segments,
unallocated corporate items (such as, corporate investment income and
interest expense on short-term and long-term borrowings), the operations
of Lincoln Financial Advisors ("LFA") and LFD, and the historical
results of the former Reinsurance segment along with the ongoing
amortization of deferred gain on the indemnity reinsurance portion of
the transaction with Swiss Re (for further discussion of the transaction
with Swiss Re, refer to Acquisitions, Divestitures and Discontinued
Lines of Business below).
Although one of the subsidiaries held by LNC was formed in 1905, LNC
itself was formed in 1968. LNC is an Indiana corporation that maintains
its principal offices at 1500 Market Street, Suite 3900, Philadelphia,
Pennsylvania 19102-2112. As of December 31, 2001, there were 66 persons
engaged in the governance of the LNC holding company. Total employment
of Lincoln National Corporation at December 31, 2001 on a consolidated
basis was 6,780. Of this total, approximately 2,380 employees are
included in "Other Operations" related primarily to the operations of
LFA and LFD.
The primary operating subsidiaries that comprise LNC are Lincoln
National Life Insurance Company ("LNL"); First Penn-Pacific Life
Insurance Company ("First Penn"); Lincoln Life & Annuity Company of New
York ("Lincoln Life New York"), Delaware Management Holdings, Inc.
("Delaware"), Lincoln National (UK) plc, LFA and LFD.
LNL is an Indiana corporation with its annuities operations
headquartered in Fort Wayne, Indiana and its life insurance operations
headquartered in Hartford, Connecticut. LNL is the 8th largest U.S.
stockholder-owned life insurance company, based on revenues (2000
Fortune Rankings of Largest Life Insurance Companies by Revenues, April
2001) and the 5th largest life insurer in the U.S. when measured by
total life insurance in-force (Best's Review, August 2001). The primary
operations of LNL are reported in the Annuities and Life Insurance
segments. LNL also has operations that are reported in the Investment
Management segment and the results of LNL's reinsurance operations
acquired by Swiss Re via an indemnity reinsurance transaction are
reported in Other Operations.
First Penn is an Indiana corporation headquartered in Schaumburg,
Illinois. First Penn offers universal life, term life and deferred fixed
annuity products for distribution in most states of the United States.
Through the end of 2000, all of the operations of First Penn were
reported in the Life Insurance segment. Beginning in the first quarter
of 2001, the reporting of First Penn's annuities business was moved from
the Life Insurance segment into the Annuities segment.
Lincoln Life New York is a New York company headquartered in Syracuse,
New York. Lincoln Life New York offers fixed annuities, variable
annuities, universal life, variable universal life, term life and other
individual life insurance products within the state of New York
utilizing the distribution networks described below under Distribution
of Products. The operations of Lincoln Life New York are reported in the
Annuities and Life Insurance segments.
Acquisitions, Divestitures and Discontinued Lines of Business
Over the last several years, LNC has undertaken a variety of
acquisitions and divestitures, and has exited certain businesses. These
actions have been conducted with the goal of strengthening shareholder
value by providing more consistent sources of earnings and by focusing
on financial products that have the potential for significantly growing
earnings. To this end, the following transactions have occurred during
the three years covered by this Form 10-K:
During 2001, Swiss Re acquired LNC's reinsurance operation for $2.0
billion. In addition, LNC retained the capital supporting the
reinsurance operation. After giving affect to the increased levels of
capital needed within the Life Insurance and Annuity segments that
result from the change in the ongoing mix of business under LNC's
internal capital allocation models, the disposition of LNC's reinsurance
operation has freed-up approximately $100 million of capital. The
transaction structure involved a series of indemnity reinsurance
transactions combined with the sale of certain stock companies that
comprised LNC's reinsurance operation. An immediate gain of $15.0
million after-tax was recognized on the sale of the stock companies.
Under the indemnity reinsurance agreements, Swiss Re reinsured certain
liabilities and obligations of LNC. Because LNC is not relieved of its
legal liability to the ceding companies, in accordance with Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" ("FAS 113"),
the liabilities and obligations associated with the reinsured contracts
remain on the consolidated balance sheets of LNC with a corresponding
reinsurance receivable from Swiss Re.
A gain of $723.1 million ($1.1 billion pre-tax) was generated under the
indemnity reinsurance agreements. This gain was recorded as a deferred
gain on LNC's consolidated balance sheet in accordance with the
requirements of FAS 113 and is being amortized into earnings at the rate
that earnings on the reinsured business are expected to emerge, over a
period of seven to 15 years on a declining basis. During 2001, LNC
recognized in Other Operations $5.0 million ($7.9 million pre-tax) of
deferred gain amortization. In addition, LNC recognized $7.9 million
($12.5 million pre-tax) of accelerated deferred gain amortization relating
to the fact that certain Canadian indemnity reinsurance contracts were
novated after the sale, but prior to year-end.
During 2000, LNC transferred Lincoln UK's sales force to Inter-Alliance
Group PLC. Concurrent with the announcement of this transfer, LNC also
ceased writing new business in the United Kingdom ("UK") through direct
distribution. These actions followed a strategic review of the Lincoln
UK segment in late 1999, where LNC concluded that trends in the UK
insurance market including the unfavorable regulatory environment raised
significant concerns regarding the ongoing fit of the Lincoln UK segment
within LNC's overall strategic plans. While these actions have changed
the focus of Lincoln UK's business to maintaining the in-force policies,
it is not closed to new business and continues to sell some new
products.
During 1999, as a result of a comprehensive review of the group markets
business in the former Reinsurance segment, LNC discontinued writing new
HMO excess-of-loss and group carrier medical reinsurance programs. LNC
also purchased Alden Risk Management Services, an employer stop-loss
business, for $41.5 million in cash. In another 1999 Reinsurance segment
transaction, LNC transferred a block of disability income business to
MetLife under an indemnity reinsurance agreement. LNC transferred $490.4
million of cash to Metlife representing the statutory reserves on the
block, net of $18.5 million of purchase price consideration. In
accordance with the accounting rules for indemnity reinsurance
transactions, at December 31, 2001, a deferred gain of $64.8 million
related to this transaction is included in the overall deferred gain
associated with the acquisition of the reinsurance operations by Swiss
Re and is being amortized at the rate that earnings are expected to
emerge on this reinsured business.
Distribution of Products
LNC has an extensive distribution network for the sale of fixed
annuities, variable annuities, universal life insurance, variable
universal life insurance, term life insurance, other individual
insurance coverages, retail mutual funds, 401(k) products and managed
account products. LNC's distribution strategy reflects a marketplace
where consumers increasingly want to do business on their own terms.
LNC's network consists of internally owned wholesaling and retailing
business units: LFD and LFA, respectively, as well as distribution for
annuities through alliances with third parties including American Funds
Distributors ("AFD"), SEI, and Wells Fargo. LFD, headquartered in
Philadelphia, Pennsylvania, consists of approximately 250 internal and
external wholesalers organized to penetrate multiple channels including
the Wirehouse/Regional channel, the Independent Financial Planner
channel, the Marketing General Agent channel and the Financial
Institutions channel. Through its relationships with a large number of
financial intermediaries, LFD has access to approximately 7,500
insurance brokers, 14,000 bank agents, 50,000 stockbrokers and 53,000
financial planners including LFA.
LFA is a retail broker/dealer and financial planning firm that offers a
full range of financial and estate planning services. LFA and its
consolidated affiliate, Sagemark, offer access to annuities, 401(k)
plans, pensions, universal and variable universal life insurance and
other wealth accumulation and protection products and services, and is a
preferred distributor of LNC retail products. LFA and Sagemark are
headquartered in Hartford, Connecticut and consist of nearly 2,200
planners in 39 offices across the United States.
Institutional investment products managed in the Investment Management
segment including large case 401(k) plans which are marketed by a
separate sales force in conjunction with pension consultants. These
products are offered to defined benefit and defined contribution plan
sponsors, endowments, foundations and insurance companies.
National Branding Campaign
During 2001, Lincoln Financial Group ("LFG"), the marketing name for LNC
and its affiliates, continued building its brand on a national basis
through an integrated package of national magazine, television and
Internet advertising, sponsorships of major sporting events, educational
partnerships, public relations and promotional events. National studies
conducted by LNC indicate significant increases in consumer awareness of
and familiarity with Lincoln Financial Group. This is especially true
among LNC's primary target audience, the affluent, and an important
sub-target, the super-affluent. The affluent market is defined as U.S.
households having at least $500,000 of investable net worth, with the
super affluent having at least $1 million. Nearly 70% of adults aged
35-64 saw an LFG advertisement 5 or times during 2001. Based on a May
2001 national consumer tracking study, awareness of LFG is up 41% since
advertising began in late 1998.
In 2001, LFG began a new advertising campaign to build awareness and
familiarize key intermediary audiences of bank representatives,
financial planners, insurance brokers and wirehouse/regional
stockbrokers about its broad range of products and services. Nine of ten
intermediaries have heard of the company and awareness of the new
advertising campaign increased significantly by the end of 2001. A new
website was launched during August 2001 (www.LFG.com) which presents the
various capabilities of the company in a clear yet more comprehensive
way.
B. Description of Business Segments
1. Annuities
The Annuities segment (effective March 7, 2002, this segment will be
known as Lincoln Retirement), headquartered in Fort Wayne, Indiana, with
additional operations in Portland, Maine and Schaumburg, Illinois,
provides tax-deferred investment growth and lifetime income
opportunities for its clients through the manufacture and sale of fixed
and variable annuities. There are two lines of business within this
segment, individual annuities and employer-sponsored markets. Both lines
of business offer fixed annuity and variable annuity products.
The individual annuities line of business targets individuals to
purchase non-qualified and qualified fixed and variable annuities as
tax-deferred accumulation vehicles that can ultimately provide income
flow for life in retirement. Annuities are attractive, because they
provide tax-deferred growth in the underlying principal, thereby
deferring the tax consequences of the growth in value until withdrawals
are made from the accumulation values, often at lower tax rates
occurring during retirement. In addition to favorable tax treatment,
annuities are unique in that retirees can select a variety of payout
alternatives to help provide an income flow during life. The individual
annuities market is a growth market that has seen an increase in
competition along with new product types and promotion.
The employer-sponsored line of business markets fixed and variable
annuities along with a mutual fund based product to public sector
employees including school teachers and health care providers for use in
retirement plans under Sections 403(b) and 457 of the Internal Revenue
Code (the "Code") and also markets to private sector companies for use
in retirement plans under Section 401(k) of the Code. The
employer-sponsored market is a relatively mature market in which LNC's
primary competitors are mutual fund companies. Of the Annuities
segment's employer-sponsored market account values, 95% are made up of
public sector accounts.
Products
In general, an annuity is a contract between an insurance company and an
individual or group in which the insurance company, after receipt of one
or more contributions, agrees to pay an amount of money either in one
lump sum or on a periodic basis (i.e., annually, semi-annually,
quarterly or monthly), beginning on a certain date and continuing for a
period of time as specified in the contract. Such payments can begin the
month after the deposit is received (referred to as an immediate
annuity) or at a future date in time (referred to as a deferred
annuity). This retirement vehicle helps protect an individual from
outliving his money and it takes on two forms, a fixed annuity or a
variable annuity.
Fixed Annuity: A fixed deferred annuity preserves the principal value of
the contract while guaranteeing a minimum interest rate to be credited
to the accumulation value. LNC offers both single and flexible premium
fixed deferred annuities to the individual annuities market. Single
premium fixed deferred annuities are contracts that allow only a single
contribution to be made. Flexible premium fixed deferred annuities are
contracts that allow multiple contributions on either a scheduled or
non-scheduled basis. With fixed deferred annuities, the contractholder
has the right to surrender the contract and receive the current
accumulation value less any applicable surrender charge and, if
applicable, market value adjustment. Fixed annuity contributions are
invested in LNC's general account. LNC bears the investment risk for
fixed annuity contracts. To protect itself from premature withdrawals,
LNC imposes surrender charges. Surrender charges are typically
applicable during the early years of the annuity contract, with a
declining level of surrender charges over time. LNC expects to earn a
spread between what it earns on the underlying general account
investments supporting the fixed annuity product line and what it
credits to its fixed annuity contractholders' accounts.
The strong equity markets and low interest rate environment experienced
through the first quarter of 2000 contributed to fixed annuities being
replaced by variable annuities as the annuity of choice for retirement
planning. In 2001, even with the historically low interest rate
environment, fixed annuities have taken on increased importance due to
sustained volatility of the equity markets that began in the second
quarter of 2000. LNC primarily distributes fixed annuities through the
Financial Institutions channel and to a lesser extent in the Independent
Financial Planner and Wirehouse/Regional channels. LNC's fixed annuity
sales in 2001 were bolstered by new product offerings including the
Lincoln ChoicePlusSM Fixed Annuity and the StepFive(registered
trademark) Fixed Annuity. The guarantees of the StepFive Fixed Annuity
have been especially well-received in the Financial Institutions
channel. The market value adjusted ("MVA") feature of the Lincoln
ChoicePlus Fixed Annuity is expected to be more attractive in the
Wirehouse/Regional channel during a volatile interest rate environment.
This feature increases or decreases the cash surrender value of the
annuity based on a decrease or increase in interest rates.
Contractholders participate in gains when the contract is surrendered in
a falling interest rate market, and LNC is protected from losses up to a
cap when the contract is surrendered in a rising interest rate market.
Variable Annuity: A variable annuity provides the contractholder the
ability to direct the investment of deposits into one or more
sub-accounts offered by the product. The value of the contractholder's
account varies with the performance of the underlying sub-accounts
chosen by the contractholder. The underlying assets of the sub-accounts
of the separate account are managed within a special insurance series of
mutual funds. Because the contractholder's return is tied to the
performance of the segregated assets underlying the variable annuity,
the contractholder bears the investment risk associated with these
investments. LNC charges the contractholder insurance and administrative
fees based upon the value of the variable contract.
The separate account choices for LNC's variable annuities cover diverse
asset classes with varying levels of risk and include both equity funds and
fixed income funds. The Individual and Group Multi-Fund(registered
trademark) Variable Annuity product line offers 33 fund choices from 13
well known advisors: Alliance Capital(registered trademark), American Fund
Insurance Series(Service Mark), Baron Capital Funds, Delaware Investments,
Delaware Lincoln Investment Advisers, Deutsche Asset Management, Fidelity
Investments(registered trademark), Goldman Sachs, Janus, MFS Investment
Management, Neuberger Berman Management Inc., Putnam Investments, Inc. and
Vantage Investment Advisers. LNC's Lincoln Choice Plus(Service Mark)
Variable Annuity, an individual multi-manager product line, has arguably
the best fund line up with up to 44 offerings from AIM(registered
trademark), Alliance Capital(registered trademark) , American Funds
Insurance Series(Service Mark), Delaware Investments, Delaware Lincoln
Investment Advisers, Deutsche Asset Management, Fidelity
Investments(registered trademark) , Franklin(registered trademark), Liberty
Funds Distributor, Inc., MFS Investment Management(registered trademark)
and Templeton(registered trademark). LNC's American Legacy Variable
Annuity, a premier single manager individual and group variable annuity
product line, offers 13 mutual fund choices from American Funds Insurance
Series(Service Mark). American Funds is the 3rd largest mutual fund company
for 2001 based on assets under management. LNC's alliance with SEI, the
number one provider of wrap accounts in America (Cerulli Associates), has
yielded the SEI Individual Variable Annuity product line, which offers 11
SEI mutual fund choices from the SEI Insurance Products Trust as investment
options. LNC's Alliance Program, which is for the employer-sponsored
market, has over 2000 mutual fund choices plus a fixed account. This
product is customized for each employer.
Most of LNC's variable annuity products also offer the choice of a fixed
option that provides for guaranteed interest credited to the account
value. In addition, many of LNC's individual variable annuities feature
minimum guaranteed death benefits. These minimum guaranteed death
benefits include either guaranteed return of premium, the highest
account value attained on any policy anniversary through attained age 80
(i.e., high water mark), or a 5% annual step up of the account value
depending on the specific terms of the contract.
LNC earns mortality assessments and expense assessments on variable
annuity accounts to cover insurance and administrative charges. These
expenses are built into accumulation unit values, which when multiplied
by the number of units owned for any sub-account equals the
contractholder's account value for that sub-account. Some products
feature decreasing fee schedules based on account value break points.
The fees that LNC earns from these policies are classified as insurance
fees on the income statement. In addition, for some contracts, LNC
collects surrender charges when contractholders surrender their
contracts during the early years of a contract. For other contracts, LNC
collects surrender charges when contractholders surrender their
contracts during a number of years subsequent to each deposit. LNC's
individual variable annuity products have a maximum surrender period of
ten years. The assets that support variable annuities are included in
the assets held in separate accounts balance and the related liabilities
for the current account values are included in the liabilities related
to separate accounts balance.
In 2001, LNC continued the product momentum established in the year 2000
when it introduced more new variable annuity products than it did in the
preceding five years. During 2001, LNC began offering L-shares in
several product lines including the ChoicePlus II, American Legacy III
and the new Wells Fargo product line which also offers B and C-shares.
LNC now offers through most of its variable annuity product lines,
A-share, B-share, C-share, L-share and bonus variable annuities. The
differences in A, B, C and L-shares relate to the sales charge and fee
structure associated with the contract. An A-share has a front-end sales
charge. A B-share has a contingent deferred sales charge that is only
paid if the account is surrendered or withdrawals are in excess of
contractual free withdrawals within the contract's specified surrender
charge period. A C-share has no front-end sales charge or back-end
surrender charge. Like a B-share, an L-share has a contingent deferred
sales charge that is only paid if the account is surrendered or
withdrawals are in excess of contractual free withdrawals within the
contract's specified surrender charge period. The differences between
the L-share and B-share are the length of the surrender charge period
and the fee structure. L-shares have a shorter surrender charge period,
so for the added liquidity, mortality and expense assessments are
higher.
A bonus annuity is a variable annuity contract, which offers a bonus
credit to a contract based on a specified percentage (typically ranging
from 2% to 5%) of each deposit. Bonus products, in general, have come
under increased scrutiny due to concerns with whether they have been
properly designed and sold with the contractholders' interests in mind.
The concern is that the higher expenses and extended surrender charge
periods that are often associated with bonus annuities may not be
adequately understood by contractholders. In developing bonus annuity
products for its Lincoln ChoicePlus and American Legacy variable
annuities, LNC has attempted to address these concerns, while at the
same time designing products that are competitive in the marketplace. A
key competitive feature of LNC's bonus annuity that is attractive to
long-term contractholders is the persistency credit. This feature
rewards a contractholder with a bonus credit of 20 basis points per
annum after maintaining an account for 14 years. In addition, a 30 basis
point per annum persistency credit is offered on LNC's L-share products
after a contractholder maintains an account for eight years.
In addition to new product offerings in 2001, LNC introduced a new and
innovative product feature, the Income4Life(Service Mark) Solution. LNC
will also introduce in the first quarter of 2002 the Accumulated Benefit
Enhancement ("ABE") rider. Both innovations have patents pending. The
Income4Life Solution allows variable annuity contractholders access and
control during the income distribution phase of their contract. This
added flexibility allows the contractholder to access the account value
for transfers, additional withdrawals and other service features like
portfolio rebalancing. The ABE rider lets clients transfer their
balances to LNC variable annuity products and retain the death benefit
of their prior variable annuity. Unlike bonus products, which require
longer surrender penalties and increased mortality and expense
assessments, this rider is available on all share classes of most LNC
variable annuity product lines with no additional charge.
According to Variable Annuity Research and Data Services ("VARDS"),
LNC's American Legacy III Variable Annuity ranked number three out of
135 variable annuities for asset-weighted performance for the three-year
period ended December 31, 2001. Challenging equity markets like 2001 may
prompt contractholders of competitors' variable annuities to consider
better-performing LNC variable annuities. The ABE feature allows
contractholders who choose to do so to make the transition without
having to give up their existing death benefit.
In 2001, LNC introduced the ChoicePlus II(Service Mark) Elite Series of
Funds(Service Mark). This common fund lineup crosses LNC's variable
annuity, variable life insurance, and 401(k) business lines, making it
easier for financial advisors to do business with LNC. It also allows LNC
to deepen its relationship with fewer fund families and reduce
administrative expenses.
Also in 2001, LNC enhanced American Legacy and Multi-Fund variable
annuities through new fund additions. LNC introduced the new
Multi-Fund(registered trademark) 5 Variable Annuity with four option
packages.
LNC also introduced the Estate Enhancement Benefit feature on its
individual variable annuities. This is designed to help beneficiaries
offset the impact of taxes on appreciated value. This new optional
feature integrates the other death benefits provided with a new death
benefit based on earnings in the contract.
Distribution
Fixed annuity products as well as the Lincoln ChoicePlus Variable
Annuity product line are distributed by LFD and LFA. LFA also
distributes the Multi-Fund(registered trademark) Variable Annuity
product line and Alliance Program. Three other manufactured variable
annuity product lines, the American Legacy Variable Annuity, SEI
Variable Annuity and Wells Fargo Variable Annuity are distributed by
American Funds Distributors ("AFD"), SEI and LFD, respectively. In
addition, LFA, as a client of AFD and SEI in the Independent Planner
channel, distributes both the American Legacy Variable Annuity and SEI
Variable Annuity product lines.
Market Position
Capitalizing on a broad product portfolio and a strong and diverse
distribution network, LNC is a leader in both the individual and
employer-sponsored annuity markets. According to VARDS, LNC ranks 4th in
assets as of December 31, 2001 and 9th in variable annuity sales in the
United States for the year ended December 31, 2001. Although fixed
annuity sales did not gain momentum until the second quarter of 2001,
LNC ranked 9th in fixed annuity sales through financial institutions for
2001 and 4th for the fourth quarter of 2001 (Kenneth Kehrer Associates
Fixed Annuity Sales Through Financial Institutions Rankings for 2001).
LNC was an early entrant into the fixed and variable annuity business
and as such has a mature book of business with many contracts that are
out of the surrender charge period. As a result, LNC, as well as other
seasoned industry participants, have been vulnerable to what are
referred to as Section 1035 exchanges, named after the Internal Revenue
Code Section that governs these exchanges. In 1035 exchanges,
contractholders surrender their LNC annuity and make a non-taxable
transfer to another insurance company's non-qualified annuity. Over the
last year, however, LNC's lapse rate has improved dramatically from
approximately 12% in 2000 to below 10% in 2001. The overall improvement
in lapses along with sales of fixed annuities were the chief
contributors to LNC's return to positive net cash flows in the second
half of 2001. Heightened scrutiny by regulators of tax-free 1035
exchanges appears to be reducing the frequency of such exchanges on an
industry-wide basis. In addition, LNC initiated targeted conservation
efforts on both the fixed and variable annuity product lines to reduce
lapses. Finally, overall market conditions contributed to the overall
improvement in retention. Contractholders whose variable annuity
contracts have guaranteed minimum death benefits that are in the money
due to equity market declines are less likely to transfer from these
contracts. To sustain and further improve overall retention levels, LNC
is continuing to utilize targeted conservation efforts and is exploring
other retention initiatives. In addition, LNC believes that maintaining
a strong and balanced portfolio of fixed and variable annuities helps
generate positive net cash flows in any economic environment.
Approximately 1,390 employees are involved in this business segment.
2. Life Insurance
The Life Insurance business segment, headquartered in Hartford,
Connecticut, with additional operations in Schaumburg, Illinois (First
Penn), focuses on the creation and protection of wealth for its clients
through the manufacture and sale of life insurance products. The
Hartford operation offers both single and survivorship versions of
universal life ("UL"), variable universal life ("VUL"), and
interest-sensitive whole life ("ISWL"), as well as corporate owned life
insurance ("COLI") and term insurance. This operation targets the
affluent market, defined as households with at least $500,000 of
investable net worth. Two key measures of the effectiveness of meeting
the needs of this market include average face amount of policies sold,
which was $1.2 million for the year ended December 31, 2001, and average
premiums paid per policy sold, which were approximately $23,000 for the
same period.
Additional offerings through its First Penn operations include term
life, linked-benefit life, universal life and variable universal life
insurance products. Since its entry into the term insurance market in
1995, First Penn has emerged as a recognized leader in service and
product development. First Penn is also a leader in the linked-benefit
product category. The linked-benefit product is a universal life
insurance policy linked with an accelerated benefits rider that provides
a benefit for long-term care needs.
Products
The Life Insurance segment's book of business includes
interest/market-sensitive products (UL, VUL, ISWL, COLI) and traditional
life products (term and whole life). Profitability is driven by
mortality margins (defined below), investment margins (spreads/fees),
expenses and surrender fees.
Mortality margins represent the difference between amounts charged the
customer to cover the mortality risk and the death benefits paid.
Mortality charges are either specifically deducted from the
contractholder's fund (i.e. cost of insurance assessments or "COIs") or
embedded in the premiums charged to the customer. In either case, these
amounts are a function of the rates priced into the product and level of
insurance in-force (less reserves previously set aside to fund
benefits). Insurance in-force, in turn, is driven by sales, persistency
and mortality experience.
Another important source of earnings from life insurance contracts is
investment margins, described below under Fixed Life Insurance. Similar
to the annuity product classifications described above, life products
can be classified as "fixed" and "variable" contracts. This
classification describes whether the policyholder or LNC bears the
investment risk of the assets supporting the policy. This also
determines the manner in which LNC earns profits from these products,
either as investment spreads for fixed products or as fees charged for
variable products.
Fixed Life Insurance (primarily UL and ISWL): Premiums and deposits
received on fixed products are invested in LNC's general account
investment portfolio, so LNC bears the risk on investment performance.
LNC manages investment margins, (i.e. the difference between the rate
the portfolio earns compared to the rate that is credited to the
customer) by seeking to maximize current yields, in line with
asset/liability and risk management targets, while crediting a
competitive rate to the customer. Crediting rates are typically subject
to guaranteed minimums specified in the underlying life insurance
contract.
Variable Universal Life Insurance (VUL): Deposits received on VUL
products are invested in separate accounts which offer several
investment options for the customer's selection. The investment choices
are the same, in most cases, as the investment choices offered in LNC's
variable annuity contracts. In addition, VUL products offer a fixed
account option which is managed by LNC. Investment risk is borne by the
customer on all but the fixed account option. LNC charges fees for
mortality costs and administrative expenses, as well as investment
management fees.
Corporate Owned Life Insurance ("COLI"): COLI is typically purchased by
corporations funding non-qualified benefit plans. These include 401(k)
excess - voluntary deferrals of executive salary and/or bonus in excess
of 401(k) limits and Supplemental Executive Retirement Plans (SERP's) in
a variety of forms, paid for with corporate funds. LNC's COLI product
line has been enhanced and is now in the top tier of a very competitive
segment of the life insurance business.
Term Life Insurance: Term life insurance provides a death benefit
without a cash accumulation balance. Policy premiums are generally paid
annually.
Distribution
Distribution of the Life Insurance segment's products currently occurs through
the internally owned wholesaling arm, LFD, as well as the internally owned3
retail sales arm, LFA. Both channels have an industry-wide reputation of
being highly skilled in the development of financial and estate planning
solutions for the affluent market.
Market Position
LNC is a leading provider of life insurance products designed
specifically for the high net-worth and affluent markets. Product
breadth, design innovation, competitiveness and speed to market all
contribute to the strength of LNC's life insurance operations. Averaging
eight new products and features per year since 1998, including three new
VUL and UL products and 4 new riders in 2001, the segment is successful
at meeting changing needs when market trends shift.
In 2000, LNL was ranked 5th largest life insurer in the U.S. when
measured by total life insurance in-force (Best's Review, August 2001).
LNC's current market leadership position is a result of the breadth and
quality of its product portfolio along with its commitment to
exceptional customer service, its extensive distribution network and the
growth opportunity offered by its target market, the affluent.
Approximately 890 employees are involved in this business segment.
3. Investment Management
The Investment Management segment, which is headquartered in
Philadelphia, Pennsylvania with offices in Fort Wayne, London, Denver,
and New York, provides investment products and services to both
individual and institutional investors. The primary companies within
this business segment include Lincoln National Investments, Inc.
("LNI"), Lincoln National Investment Companies, Inc. ("LNIC"), and
Delaware Management Holdings, Inc. ("Delaware"). LNI and LNIC are
intermediate level holding companies that own the operating companies
within this segment. The operating subsidiaries within Delaware offer a
broad line of mutual funds, retirement plan services and other
investment products including managed accounts to their retail investors
and also offer investment advisory services to their institutional
clients which include pension funds, foundations, endowment funds and
trusts. Delaware serves as investment advisor to 274 institutional
accounts; acts as investment manager and/or shareholder services agent
for 98 open-end funds; and serves as investment manager for 10
closed-end funds. The Investment Management segment also provides
investment advisory services for certain insurance and corporate
portfolios of LNC.
In 1999, the Investment Management segment was reorganized as follows:
1) LNC's internal investment advisor, Lincoln Investment Management, was
moved from Other Operations to this segment and 2) Lincoln Life's 401(k)
business was moved from the former Life Insurance and Annuities segment
to this segment.
Products
The Investment Management segment provides an array of products for a
range of investors. Products include domestic and international equity
and fixed-income retail mutual funds, separate accounts, institutional
mutual funds, managed accounts, and retirement plans and services, as
well as administration services for these products.
For the individual investor, Delaware offers various products including
mutual funds and managed accounts. Delaware also provides investment
management and account administration services for variable annuity
products. Delaware offers alternative pricing schemes for mutual funds
including traditional front-end load funds, back-end load funds, and
level-load funds. Variable annuity products provide the contractholder
the ability to direct the investment of deposits into one or more funds
offered by the product. The Institutional Class shares of the mutual
funds are also available to institutional clients and retirement plan
participants (such as defined contribution plans). Delaware also
provides investment services to high net worth and small institutional
investor markets through managed accounts. A managed account is provided
to individual investors through relationships with broker-dealer
sponsored programs.
Delaware offers various retirement plans and services, including 401(k)
plans. A 401(k) plan allows employees to divert a portion of their
salary to a company-sponsored tax-sheltered account, thus deferring
taxes until retirement. These plans offer several investing options such
as equity and fixed income products. In 2002, Delaware plans to enter
the 529 college savings plan market with the roll-out of 529 programs
for the state of Hawaii and the Commonwealth of Pennsylvania, which were
awarded to Delaware in 2001, but remain subject to contract negotiations.
Delaware provides a broad range of institutional investment advisory
services to corporate and public retirement plans, endowments and
foundations, nuclear decommissioning trusts, socially responsible
investors, sub-advisory clients and Taft-Hartley plans, among others.
Most clients utilize individually managed separate accounts, which means
clients have the opportunity to customize the management of their
portfolio by including or excluding certain types of securities, sectors
or segments within a given asset class. Because of their individually
managed nature, these separate accounts are best suited for larger
investment mandates. Currently, Delaware's minimum account size is
typically $10 million for U.S. investments and $100 million for non-U.S.
investments.
The portfolios of the Delaware Pooled Trust products are no-load mutual
funds designed for the institutional investor and high net worth
individual. Delaware Pooled Trust includes registered SEC mutual funds
managed in styles that are similar to separate account offerings and are
best suited for medium-sized institutional investment mandates.
Delaware's minimum account size for these vehicles is typically $1
million.
Distribution
The businesses in the Investment Management segment deliver their broad
range of products through multiple distribution channels, enabling them
to reach an expanding community of retail and institutional investors.
Delaware distributes retail mutual funds, managed accounts and
retirement products through the LFD distribution network, LFA, and
Delaware's direct retirements sales force. Institutional products are
marketed primarily by Delaware's institutional marketing group working
through pension consultants. These products are also offered to defined
benefit and defined contribution plan sponsors, endowments, foundations
and insurance companies.
Market Position
Diversity of investment styles, as well as diversity of clients served,
are prudent ways to manage risk in varying market environments.
Delaware, historically known primarily for a conservative, "value"
equity investment style, has evolved over the last few years into an
investment manager with strong and diversified offerings across multiple
asset classes including value and growth equity investment styles;
high-grade, high-yield and municipal fixed-income investment styles;
balanced and quantitive investment styles; and international and global
equity and fixed income investment styles. In 2000, LNC initiated
various actions focused on improving investment performance across all
of these assets classes with the ultimate goal of attracting and
retaining assets under management. These actions included hiring and
retaining the best people and putting the best investment processes in
place. Tangible results from these initiatives began to develop in the
year 2000 and have continued into 2001 as investment performance
improved relative to benchmarks in many retail and institutional asset
classes. Although the segment experienced net cash outflows of $0.7
billion in 2001, the overall improvement from the prior year was $6.5
billion. The key contributor to this improvement was retention of
assets, primarily in response to the improved investment performance.
Institutional inflows increased $0.3 billion while retail sales were
down $0.8 billion in what was a difficult sales environment given the
weak equity markets which were heightened by the aftermath of September
11. While the Investment Management segment has made measurable progress
on the initiatives of investment performance and asset retention, its
focus in 2002 is not only to sustain and improve upon those results, but
also to bolster sales and improve overall profitability.
Approximately 1,330 employees are involved in this business segment.
3. Lincoln UK
Lincoln UK is headquartered in Barnwood, Gloucester, England, and is
licensed to do business throughout the United Kingdom ("UK"). Although
Lincoln UK transferred its sales force to Inter-Alliance Group PLC in
the third quarter of 2000, it continues to manage, administer and accept
new deposits on its current block of business and, as required by UK
regulation, accept new business for certain products. Lincoln UK's
product portfolio principally consists of unit-linked life and pension
products, which are similar to U.S. produced variable life and annuity
products.
The closure of the Uxbridge office and related transfer of operations to
the Barnwood office were completed in 2001. The number of employees
noted below reflects the actual level of staffing for the current
business structure.
Approximately 790 employees are involved in this business segment.
C. Other Matters
1. Regulatory
LNC's Annuities, Life Insurance and Lincoln UK business segments, in
common with those of other insurance companies, are subject to
regulation and supervision by the states, territories and countries in
which they are licensed to do business. The laws of these jurisdictions
generally establish supervisory agencies with broad administrative
powers relative to granting and revoking licenses to transact business,
regulating trade practices, licensing agents, prescribing and approving
policy forms, regulating premium rates for some lines of business,
establishing reserve requirements, regulating competitive matters,
prescribing the form and content of financial statements and reports,
regulating the type and amount of investments permitted and prescribing
minimum levels of capital. The ability to continue an insurance business
is dependent upon the maintenance of the licenses in the various
jurisdictions. In addition, variable annuities and variable life
insurance businesses and products are subject to regulation and
supervision by the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers ("NASD").
LNC's Investment Management segment, in common with other investment
management groups, is subject to regulation and supervision by the SEC,
NASD, the Investment Management Regulatory Organization ("IMRO"), the
Pennsylvania Department of Banking and jurisdictions of the states,
territories and foreign countries in which they are licensed to do
business.
LFA is subject to regulation and supervision by the SEC and NASD on
broker/dealer and registered investment advisor issues.
2. Miscellaneous
LNC's insurance subsidiaries protect themselves against losses greater
than the amount they are willing to retain on any one risk or event by
purchasing reinsurance from unaffiliated insurance companies (see Note 7
to the consolidated financial statements as set forth in LNC's 2001
Annual Report to shareholders which is incorporated by reference to Item
8 of this Form 10-K).
All businesses LNC is involved in are highly competitive due to the
market structure and the large number of competitors. At the end of
2000, the latest year for which data is available, there were
approximately 1,300 life insurance companies in the United States. As
noted previously, Lincoln Life is the 8th largest stockholder-owned life
insurance company in the United States based on revenues (2000 Fortune
Ranking of Largest Life Insurance Companies by Revenues, April 2001).
LNC's investment management companies were the 47th largest U.S.
investment management group at the end of 2000 (2000 Institutional
Investor 300 Money Managers, July 2001). Also, many of the products
offered by LNC's operating companies are similar to products offered by
non-insurance financial services companies, such as banks. The Financial
Services Modernization Act was passed in November 1999 and repealed the
Glass-Steagall Act of 1933 and expands the Bank Holding Company Act of
1956. This act allows, among other things, cross-ownership by banks,
securities firms and insurance companies. In 2001, there were some
cross-ownership activities in the financial services industry; however,
there was minimal impact on LNC's operations.
Because of the nature of the insurance and investment management
businesses, there is no single customer or group of customers upon whom
the business is dependent. Although LNC does not have any significant
concentration of customers, LNC's Annuities segment has a long-standing
distribution relationship with American Funds Distributors that is
significant to this segment. In 2001, the American Legacy Variable
Annuity sold through American Funds Distributors accounted for about 21%
of LNC's total gross annuity deposits. The relationship with American
Funds Distributors is highly valued by LNC. Both LNC and American Funds
Distributors are continuously seeking ways to increase sales and retain
existing business.
LNC does not have a separate unit that conducts market research.
Research activities related to new products or services, or the
improvement of existing products or services, are conducted within the
business segments. Expenses related to such activities are not material.
Also, sales are not dependent upon select geographic areas. LNC has
foreign operations that are significant in relationship to the
consolidated group (see Note 9 to the consolidated financial statements
as set forth in LNC's 2001 Annual Report to Shareholders which is
incorporated by reference to Item 8 of this Form 10-K).
Item 2. Properties
- ------------------------------------------------------------------------
LNC and the various operating businesses own or lease approximately 3.7
million square feet of office space. The governance group for LNC and
the Investment Management segment lease 0.6 million square feet of
office space in Philadelphia, Pennsylvania. The operating units in the
Fort Wayne, Indiana area own or lease 1.3 million square feet. Also,
businesses operating in Schaumburg, Illinois; Hartford, Connecticut and
the United Kingdom own or lease another 0.8 million square feet of
office space. An additional 1.0 million square feet of office space is
owned or leased in other U.S. cities and foreign countries for branch
offices and other operations. As shown in the notes to the consolidated
financial statements (see Note 7 to the consolidated financial
statements as set forth in LNC's 2001 Annual Report to Shareholders
which is incorporated by reference to Item 8 of this Form 10-K), the
rental expense on operating leases for office space and equipment for
continuing operations totaled $83.4 million for 2001. Office space rent
expense accounts for $68.8 million of this total. This discussion
regarding properties does not include information on investment
properties.
Item 3. Legal Proceedings
- ------------------------------------------------------------------------
LNC and its subsidiaries are involved in various pending or threatened
legal proceedings, including purported class actions, arising from the
conduct of business. In some instances, these proceedings include claims
for unspecified or substantial 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 these
proceedings ultimately will be resolved without materially affecting the
consolidated financial position of LNC. (See Note 7 to the consolidated
financial statements as set forth in LNC's 2001 Annual Report to
Shareholders, which is incorporated by reference to Item 8 of this Form
10-K).
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------------------
During the fourth quarter of 2001, no matters were submitted to security
holders for a vote.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
- ------------------------------------------------------------------------
Information required by this item is set forth on page 133 of LNC's 2001
Annual Report to Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data
- ------------------------------------------------------------------------
Information required by this item is set forth on page 33 of LNC's 2001
Annual Report to Shareholders and is incorporated herein by reference.
Item 7. Management's Discussion and Analysis
- ------------------------------------------------------------------------
Information required by this is set forth on pages 36 through 69 of
LNC's 2001 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7A. Quantitive and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------------
Information required by this item is set forth on pages 69 through 76 of
LNC's 2001 Annual Report to Shareholders and is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
- ------------------------------------------------------------------------
Information required by this item is set forth on page 33, pages 77
through 127 and page 129 of LNC's 2001 Annual Report to Shareholders and
is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
- ------------------------------------------------------------------------
There have been no disagreements with LNC's independent auditors which
are reportable pursuant to Item 304 of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------------------
Information for this item relating to directors of LNC is incorporated
by reference to the sections captioned "NOMINEES FOR DIRECTOR",
"DIRECTORS CONTINUING IN OFFICE" and " COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES AND EXCHANGE ACT OF 1934", of LNC's Proxy Statement for
the Annual Meeting scheduled for May 9, 2002.
Executive Officers of the Registrant as of March 14, 2002 were as
follows:
Name Age** Position with LNC and Business Experience During the Past Five Years
- ----------------------------------------------------------------------------------------------------
Jon A. Boscia 49 Chairman, Chief Executive Officer and Director, LNC (since 2001).
President, Chief Executive Officer and Director, LNC (1998-2001).
Chief Executive Officer, LNL* (1996-1998). President, Chief Operating
Officer, LNL* (1994-1996).
George E. Davis 58 Senior Vice President, LNC (since 1993).
Jason S. Glazier 34 Senior Vice President, Chief Technology Officer and Chief
E-Commerce Officer, LNC (since 2001). Senior Vice President and Chief
E-Commerce Officer, LNC (2000-2001).
John H. Gotta 51 Chief Executive Officer - Life Insurance, LNL* (since 1999).
Senior Vice President, LNL* (1998-1999).
Charles E. Haldeman 53 President, Chief Executive Officer and Director, LNIC and President
and Chief Executive Officer, Delaware (since 2000).
J. Michael Hemp 55 President, LFA* (since 2000).
Barbara S. Kowalczyk 51 Senior Vice President, LNC (since 1994).
Dennis L. Schoff 42 Senior Vice President, LNC and General Counsel (since 2002).
Lorry J. Stensrud 52 Executive Vice President and Chief Executive Officer - Annuities, LNL* (since 2000).
Michael Tallett-Williams 48 Managing Director, Lincoln National (UK)* (since 2000).
Finance Director, Lincoln National (UK)* (1995-2000).
Westley V. Thompsen 46 Chief Executive Officer, LFD* (since 2000).
Casey J. Trumble 48 Senior Vice President and Chief Accounting Officer, LNC (since 1998).
Vice President, LNC (1994-1998).
Richard C. Vaughan 52 Executive Vice President (since 1995) and Chief Financial Officer, LNC (since 1992).
* Denotes a subsidiary of LNC.
** Age shown is based on the officer's age as of March 14, 2002.
There is no family relationship between any of the foregoing executive
officers, all of whom are elected annually.
Item 11. Executive Compensation
- ------------------------------------------------------------------------
Information for this item is incorporated by reference to the section
captioned "EXECUTIVE COMPENSATION" of LNC's Proxy Statement for the
Annual Meeting scheduled for May 9, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information for this item is incorporated by reference to the sections
captioned "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" and
"SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS" of
LNC's Proxy Statement for the Annual Meeting scheduled for May 9, 2002.
Item 13. Certain Relationships and Related Transactions
- ------------------------------------------------------------------------
Information for this item is incorporated by reference to the section
captioned "TERMINATION OF EMPLOYMENT ARRANGEMENT" of LNC's Proxy
Statement for the Annual Meeting scheduled for May 9, 2002.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
Item 14(a)(1) Financial Statements
- ------------------------------------------------------------------------
The following consolidated financial statements of Lincoln National
Corporation are included in LNC's 2001 Annual Report to Shareholders and
are incorporated by reference to Item 8 of this Form 10-K:
Consolidated Balance Sheets - December 31, 2001 and 2000
Consolidated Statements of Income - Years ended December 31, 2001, 2000
and 1999
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - Years ended December 31, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Item 14(a)(2) Financial Statement Schedules
- ------------------------------------------------------------------------
The following consolidated financial statement schedules of Lincoln
National Corporation are included in Item 14(d):
I - Summary of Investments - Other than Investments in Related Parties
II - Condensed Financial Information of Registrant
III - Supplementary Insurance Information
IV - Reinsurance
V - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or the
required information is included in the consolidated financial
statements, and therefore omitted.
Item 14(a)(3) Listing of Exhibits
- ------------------------------------------------------------------------
The following exhibits of Lincoln National Corporation are included in
Item 14 - (Note: The numbers preceding the exhibits correspond to the
specific numbers within Item 601 of Regulation S-K.):
3(a) The Articles of Incorporation of LNC as last amended effective
May 12, 1994.
3(b) The Bylaws of LNC as last amended February 18, 2002.
4(a) Indenture of LNC dated as of January 15, 1987 is incorporated by
reference to Exhibit 4(a) of LNC's Form 10-K for the year ended
December 31, 1994, filed with the Commission on March 27, 1995.
4(b) First Supplemental Indenture dated as of July 1, 1992, to Indenture
of LNC dated as of January 15, 1987.
4(c) Specimen Notes for 7 1/8% Notes due July 15, 1999 and for
7 5/8% Notes due July 15, 2002.
4(d) Rights Agreement of LNC as last amended November 14, 1996.
4(e) Indenture of LNC dated as of September 15, 1994, between LNC and
The Bank of New York, as Trustee is incorporated by reference to
Exhibit 4(e) of LNC's Form 10-K for the year ended December 31, 1998,
as filed with the Commission on March 11, 1999.
4(f) Form of Note dated as of September 15, 1994.
4(g) Form of Zero Coupon Security dated as of September 15, 1994.
4(h) Specimen of LNC's 9 1/8% Debentures due October 1, 2024 is
incorporated by reference to Schedule I of LNC's Form 8-K filed with
the Commission on September 29, 1994.
4(i) Specimen of LNC's 7 1/4% Debenture due May 15, 2005 is incorporated
by reference to Schedule III of LNC's Form 8-K filed with the
Commission on May 17, 1995.
4(j) Junior Subordinated Indenture dated as of May 1, 1996 between LNC
and The First National Bank of Chicago.
4(k) Guarantee Agreement for Lincoln National Capital II.
4(l) Form of Lincoln National Capital II 8.35% Trust Originated Preferred
Securities, Series B (Commission File No. 333-04133).
4(m) Form of Amended and Restated Declaration of Trust for Lincoln National
Capital I and Lincoln National Capital II between LNC, as depositor,
The First National Bank of Chicago, as property trustee, First Chicago
Delaware, Inc., as Delaware trustee, and certain administrative
trustees is incorporated by reference to Exhibit 4(o) of LNC's
Registration Statement (Commission File No. 333-4133) filed with the
Commission on May 21, 1996.
4(n) Specimen of 6 1/2% Notes due March 15, 2008 incorporated by
reference to Exhibit 4.1 LNC's Form 8-K, as filed with the commission
on March 24, 1998.
4(o) Specimen of 7% Notes due March 15, 2018 incorporated by reference to
Exhibit 4.2 of LNC's Form 8-K, as filed with the Commission on
March 24, 1998.
4(p) Amended and Restated Trust Agreement for Lincoln National Capital
III between LNC, as depositor, The First National Bank of Chicago,
as property trustee, First Chicago Delaware, Inc., as Delaware trustee
and the administrative trustees is incorporated by reference to
Exhibit 4.1 of LNC's form 8-K, as filed with the Commission on
July 30, 1998.
4(q) Form of 7.40% Trust Originated Preferred Securities, Series C, of
Lincoln National Capital III is incorporated by reference to
Exhibit 4.2 of LNC's Form 8-K, as filed with the Commission on
July 30, 1998.
4(r) Guarantee Agreement for Lincoln National Capital III is incorporated
by reference to Exhibit 4.4 of LNC's Form 8-K, as filed with the
Commission on July 30, 1998.
4(s) Amended and Restated Trust Agreement for Lincoln National Capital IV
between LNC, as depositor, The First National Bank of Chicago, a
property trustee, First Chicago Delaware, Inc., as Delaware trustee
and the administrative trustees is incorporated by reference to
Exhibit 4.1 of LNC's form 8-K, as filed with the Commission on
August 27, 1998.
4(t) Guarantee Agreement for Lincoln National Capital IV is incorporated
by reference to Exhibit 4.5 of LNC's Form 8-K, as filed with the
Commission on August 27, 1998.
4(u) Purchase Contract Agreement between LNC and The First National Bank
of Chicago, as Purchase Contract Agent, relating to Lincoln National
Capital IV is incorporated by reference to Exhibit 4.9 of LNC's Form
8-K, as filed with the Commission on August 27, 1998.
4(v) Pledge Agreement among LNC, The Chase Manhattan Bank, as agent, and
The First National Bank of Chicago, as Purchase Agent, relating to
Lincoln National Capital IV is incorporated by reference to Exhibit
4.9 of LNC's Form 8-K, as filed with the Commission on August 27, 1998.
10(a)* The Lincoln National Corporation 1986 Stock Option Incentive Plan.
10(b)* Salary Continuation Plan for Executives of Lincoln National
Corporation and Affiliates as amended through August 1, 2000.
10(c)* Lincoln National Corporation Executives' Severance Benefit Plan as
Amended and Restated effective January 10, 2002.
10(d)* The Lincoln National Corporation Outside Directors Retirement Plan
as last amended effective March 15, 1990.
10(e)* Lincoln National Corporation Directors' Value Sharing Plan as last
amended effective May 14, 1998.
10(f)* Lincoln National Corporation Executive Deferred Compensation Plan
for Employees (Commission File No. 33-51721) as last amended effective
February 16, 1998.
10(g)* Lincoln National Corporation 1993 Stock Plan for Non-Employee
Directors (Commission File No. 33-58113) as last amended effective
May 10, 2001.
10(h)* Lincoln National Corporation Executives' Excess Compensation Benefit
Plan.
10(i)* First Amendment to Lincoln National Corporation Executives' Excess
Compensation Benefit Plan effective December 22, 1999 is incorporated
by reference to Exhibit 10(k) of LNC's Form 10-K for the year ended
December 31, 1999 filed on March 11, 2000.
10(j)* Lincoln National Corporation 1997 Incentive Compensation Plan, as
last amended effective May 13, 1999.
10(k) Lease and Agreement dated August 1, 1984, with respect to LNL's Home
Office properties located at Clinton Street and Harrison Street, Fort
Wayne, Indiana is incorporated by reference to Exhibit 10(n) of LNC's
Form 10-K for the year ended December 31, 1995, filed with the
Commission on March 27, 1996.
10(l) Form of Lease and Agreement dated March 1, 1999, with respect to
LNC's Corporate Office located at Centre Square West Tower, 1500
Market Street, Suite 3900, Philadelphia, Pennsylvania is incorporated
by reference to Exhibit 10(p) of LNC's Form 10-K for the year ended
December 31, 2000, filed with the Commission on March 11, 2000.
10(m) Agreement of Lease dated February 17, 1998, with respect to
LNL's life products headquarters located at 350 Church Street,
Hartford, Connecticut.
10(n) Lease and Agreement dated December 10, 1999 with respect to
Delaware Management Holdings, Inc. for Home Office property located
at One Commerce Square, Philadelphia, Pennsylvania is incorporated
by reference to Exhibit 10(r) of LNC's Form 10-K for the year ended
December 31, 2000, filed with the Commission on March 11, 2000.
10(o) Sublease and Agreement dated December 10, 1999 by and between
Delaware Management Holdings, Inc. and New York Central Lines LLC
for property located at Two Commerce Square, Philadelphia,
Pennsylvania is incorporated by reference to Exhibit 10(s) of LNC's
Form 10-K for the year ended December 31, 2000, filed with the
Commission on March 11, 2000.
10(p) Consent to Sublease dated December 10, 1999 with respect to
Delaware Management Holdings, Inc. for property located at Two
Commerce Square and Philadelphia Plaza Phase II, Philadelphia,
Pennsylvania is incorporated by reference to Exhibit 10(t) of LNC's
Form 10-K for the year ended December 31, 2000, filed with the
Commission on March 11, 2000.
* This exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this form
pursuant to Item 14 of this report.
12 Historical Ratio of Earnings to Fixed Charges.
13 Portions of LNC's Annual Report to Shareholders that are expressly
incorporated by reference in this Form 10-K. Other sections of the
Annual Report furnished for the information of the Commission are
not deemed "filed" as part of this Form 10-K.
21 List of Subsidiaries of LNC.
23 Consent of Ernst & Young LLP, Independent Auditors
Item 14(b)
- ------------------------------------------------------------------------
Financial Report for the quarter ended September 30, 2000, as filed with
the Securities and Exchange Commission on Form 8-K on October 25, 2000.
Financial Report for the quarter ended September 30, 2000, as filed with
the Securities and Exchange Commission on Form 8-K on November 6, 2000.
Item 14(c)
- ------------------------------------------------------------------------
The exhibits of Lincoln National Corporation are listed in Item 14(a)(3)
above.
Item 14(d)
- ------------------------------------------------------------------------
The financial statement schedules for Lincoln National Corporation
follow on pages 19 through 26.
LINCOLN NATIONAL CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN
RELATED PARTIES
December 31 (000s omitted)
- -------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D
- -------- -------- -------- --------
Amount
at Which
Fair Shown in the
Type of Investment Cost Value Balance Sheet
- ------------------------ ---- ----- -------------
Fixed maturity securities available-for-sale:
Bonds:
United States government and government
agencies and authorities $357,881 $410,510 $410,510
States, municipalities and political subdivisions 45,866 44,725 44,725
Asset/Mortgage-backed securities 3,417,596 3,524,678 3,524,678
Foreign governments 1,117,253 1,174,720 1,174,720
Public utilities 2,535,542 2,529,354 2,529,354
Convertibles and bonds with warrants attached 791 566 566
All other corporate bonds 20,398,464 20,575,192 20,575,192
Redeemable preferred stocks 82,588 85,928 85,928
---------------- ---------------- ----------------
Total 27,955,981 28,345,673 28,345,673
Equity securities available-for-sale:
Common stocks:
Public utilities 294 306 306
Banks, trusts and insurance companies 18,971 22,561 22,561
Industrial, miscellaneous and all other 271,899 296,415 296,415
Nonredeemable preferred stocks 153,234 151,177 151,177
---------------- ---------------- ----------------
Total Equity Securities 444,398 470,459 470,459
Mortgage loans on real estate: 4,535,550 4,535,550(1)
Real estate:
Investment properties 262,307 262,307
Acquired in satisfaction of debt 5,575 5,575
Policy loans 1,939,683 1,939,683
Derivative instruments 46,445 46,445
Other investments 507,386 507,386
---------------- ---------------- ----------------
Total Investments $35,650,880 $36,113,078
(1) Investments deemed to have declines in value that are other than
temporary are written down or reserved for to reduce the carrying value
to their estimated realizable value.
LINCOLN NATIONAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
Lincoln National Corporation (Parent Company Only)
December 31 (000's omitted) 2001 2000
- -------------------------------------------------------------------------------------------------------------
Assets:
Investments in subsidiaries * $5,140,208 $5,198,438
Investments 592 81,175
Derivative instruments (2,806) --
Cash and invested cash ** 321,245 342,945
Property and equipment 2,678 2,696
Accrued investment income 514 649
Receivable from subsidiaries * 210,500 197,500
Loans to subsidiaries * 1,594,278 1,489,413
Federal income taxes recoverable 26,792 61,925
Other assets 129,806 64,155
-------------- -------------
Total Assets 7,423,807 7,438,896
Liabilities and Shareholders' Equity
Liabilities:
Cash collateral on loaned securities 75,750 148,421
Dividends payable 59,565 57,914
Short-term debt 254,968 150,000
Long-term debt 861,730 712,207
Loans from subsidiaries * 875,870 1,265,778
Accrued expenses and other liabilities 250,820 153,889
-------------- -------------
Total Liabilities 2,378,703 2,488,209
Shareholders' Equity
Series A preferred stock 762 857
Common stock 1,255,112 1,003,651
Retained earnings 3,834,427 3,915,598
Foreign currency translation adjustment (8,062) 21,930
Minimum pension liability adjustment (35,959) --
Net unrealized gain (loss) on securities available-for-sale and
derivative instruments [excluding unrealized gain of subsidiaries:
2001-$218,380; 2000-$3,397] (1,176) 8,651
-------------- -------------
Total Shareholders' Equity 5,045,104 4,950,687
-------------- -------------
Total Liabilities and Shareholders' Equity $7,423,807 $7,438,896
* Eliminated in consolidation.
** Includes short-term funds invested on behalf of LNC's subsidiaries.
These condensed financial statements should be read in conjunction with
the consolidated financial statements and accompanying footnotes of LNC
on pages 77 through 127 of LNC's 2001 Annual Report to Shareholders
which are incorporated by reference to Item 8 of this Form 10-K.
LINCOLN NATIONAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
STATEMENTS OF INCOME
Lincoln National Corporation (Parent Company Only)
Year Ended December 31 (000s omitted) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Revenue:
Dividends from subsidiaries* $532,482 $474,318 $584,226
Interest from subsidiaries* 89,080 90,988 80,395
Equity in earnings of unconsolidated affiliate -- -- 3,807
Net investment income 20,350 38,715 28,689
Realized gain on investments 18,275 20,898 13,311
Other 2,846 11,312 5,760
------------ ------------ ----------------
Total Revenue 663,033 636,231 716,188
Expenses:
Operating and administrative 19,401 7,743 15,090
Interest-subsidiaries* 17,848 31,804 23,820
Interest-other 116,312 130,817 117,941
------------ ------------ ----------------
Total Expenses 153,561 170,364 156,851
------------ ------------ ----------------
Income Before Federal Income Tax Benefit,
Equity in Income of Subsidiaries, Less Dividends 509,472 465,867 559,337
Federal income tax benefit 13,258 19,853 16,899
------------ ------------ ----------------
Income Before Equity in Income of Subsidiaries,
Less Dividends 522,730 485,720 576,236
Equity in income of subsidiaries,
less dividends 67,481 135,673 (115,882)
------------ ------------ ----------------
Net Income $590,211 $621,393 $460,354
* Eliminated in consolidation.
These condensed financial statements should be read in conjunction with
the consolidated financial statements and accompanying footnotes of LNC
on pages 77 through 127 of LNC's 2001 Annual Report to Shareholders
which are incorporated by reference to Item 8 of this Form 10-K.
LINCOLN NATIONAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
STATEMENTS OF CASH FLOWS
Lincoln National Corporation (Parent Company Only)
Year Ended December 31 (000s omitted) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $590,211 $621,393 $460,354
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in income of subsidiaries less than
(greater than) distributions* (67,481) (115,173) 103,060
Equity in undistributed earnings of
unconsolidated affiliates -- -- (3,807)
Realized gain on investments (18,275) (20,898) (13,311)
Federal income taxes 65,501 17,822 19,623
Other 22,616 7,297 (23,004)
------------ ------------- -------------
Net Adjustments 2,361 (110,952) 82,561
------------ ------------- -------------
Net Cash Provided by Operating Activities 592,572 510,441 542,915
Cash Flows from Investing Activities:
Net sales (purchases) of investments (56,058) 69,442 (113,449)
Cash collateral on loaned securities (72,671) (38,027) 135,822
Increase in investment in subsidiaries* (19,900) (20,364) (75,242)
Sale of (investment in) unconsolidated affiliate -- 3,517 (7,013)
Proceeds from sale of subsidiaries 141,743 85,000 --
Net (purchase) sale of property and equipment (205) 225 1,620
Other 64,737 17,095 (62,092)
------------ ------------- -------------
Net Cash Provided by (Used in)
Investing Activities 57,646 116,888 (120,354)
Cash Flows from Financing Activities:
Decrease in long-term debt (includes payments and
transfers to short-term debt) (99,968) -- --
Issuance of long-term debt 249,220 -- --
Net increase (decrease) in short-term debt 104,968 (122,451) 122,495
Increase in loans from subsidiaries* (389,909) (53,089) 27,153
Decrease in loans to subsidiaries* (104,865) (83,880) (100,505)
Increase (decrease) in receivables from subsidiaries (13,000) 25,500 (69,700)
Increase in Common Stock 225,254 -- --
Common stock issued for benefit plans 90,259 32,741 48,015
Retirement of Common Stock (503,750) (210,021) (377,719)
Dividends paid to shareholders (230,127) (222,661) (218,435)
------------ ------------- -------------
Net Cash Used in Financing Activities (671,918) (633,861) (568,696)
------------ ------------- -------------
Net Decrease in Cash (21,700) (6,532) (146,135)
Cash and Invested Cash at Beginning of the Year 342,945 349,477 495,612
------------ ------------- -------------
Cash and Invested Cash at End-of-Year $321,245 $342,945 $349,477
* Eliminated in consolidation.
These condensed financial statements should be read in conjunction with
the consolidated financial statements and accompanying footnotes of LNC
on pages 77 through 127 of LNC's 2001 Annual Report to Shareholders
which are incorporated by reference to Item 8 of this Form 10-K.
LINCOLN NATIONAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
Column A Column B Column C Column D Column E Column F
- -------- ------------ ------------ -------------- ------------ --------------
Insurance Other Policy
Deferred Policy and Claims and
Acquisition Claim Unearned Benefits Premium
Segment Costs Reserves Premiums Payable Revenue (1)
- ------- ------------ ------------ -------------- ------------ --------------
Year Ended December 31, 2001
Annuities $912,819 $2,653,963 $-- $-- $646,422
Life Insurance 1,265,606 13,049,065 -- -- 969,341
Investment Management -- -- -- -- --
Lincoln UK 587,345 1,426,577 -- -- 214,801
Other (incl. consol. adj's.) 119,541 4,479,664 -- -- 1,417,479
------------ ------------ -------------- ------------ --------------
Total $2,885,311 $21,609,269 $-- $-- $3,248,043
Year Ended December 31, 2000
Annuities $812,465 $2,693,517 $-- $-- $734,426
Life Insurance 1,079,333 12,892,092 -- -- 950,692
Investment Management -- -- -- -- --
Lincoln UK 635,002 1,626,453 -- -- 357,798
Other (incl. consol. adj's.) 543,707 4,516,036 -- -- 1,431,637
------------ ------------ -------------- ------------ --------------
Total $3,070,507 $21,728,098 $-- $-- $3,474,553
Year Ended December 31, 1999
Annuities $848,062 $2,662,945 $-- $-- $639,322
Life Insurance 864,372 12,326,467 -- -- 912,597
Investment Management -- -- -- -- --
Lincoln UK 679,709 1,642,891 -- -- 354,525
Other (incl. consol. adj's.) 408,147 4,292,465 -- -- 1,512,676
------------ ------------ -------------- ------------ --------------
Total $2,800,290 $20,924,768 $-- $-- $3,419,120
(1) Includes insurance fees on universal life and other
interest-sensitive products.
LINCOLN NATIONAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (Continued)
Column G Column H Column I Column J Column K Column L
- -------- -------------- ------------- ---------------- -------------- --------------
Amortization of
Net Deferred Policy Other
Investment Acquisition Operating Premiums
Segment Income (2) Benefits Costs Expenses (2) Written
- ------- -------------- ------------- ---------------- -------------- --------------
Year Ended December 31, 2001
Annuities $1,369,961 $1,127,747 $131,991 $395,714 $--
Life Insurance 910,166 1,066,968 95,008 308,816 --
Investment Management 53,573 -- -- 414,650 --
Lincoln UK 64,787 83,397 31,608 116,673 --
Other (incl. consol. adj's.) 281,130 1,131,628 111,404 600,895 --
-------------- ------------- ---------------- -------------- --------------
Total $2,679,617 $3,409,740 $370,011 $1,836,748 $--
Year Ended December 31, 2000
Annuities $1,393,512 $1,120,791 $87,962 $486,945 $--
Life Insurance 871,453 1,017,816 121,583 286,944 --
Investment Management 57,742 -- -- 432,068 --
Lincoln UK 70,258 178,545 70,336 213,100 --
Other (incl. consol. adj's.) 354,153 1,240,008 60,224 698,894 --
-------------- ------------- ---------------- -------------- --------------
Total $2,747,118 $3,557,160 $340,105 $2,117,951 $--
Year Ended December 31, 1999
Annuities $1,474,173 $1,184,285 $87,477 $475,344 $--
Life Insurance 840,133 1,005,812 97,232 325,180 --
Investment Management 56,884 -- -- 412,991 --
Lincoln UK 75,257 306,221 73,316 167,136 --
Other (incl. consol. adj's.) 361,065 1,308,706 44,024 746,012 --
-------------- ------------- ---------------- -------------- --------------
Total $2,807,512 $3,805,024 $302,049 $2,126,663 $--
(2) The allocation of expenses between investments and other operations
are based on a number of assumptions and estimates. Results would change
if different methods were applied.
LINCOLN NATIONAL CORPORATION
SCHEDULE IV - REINSURANCE
Column A Column B Column C Column D Column E Column F
- -------- -------------- ------------- ---------------- -------------- --------------
Percentage
Ceded Assumed of Amount
Gross to Other from Other Assumed
Description Amount Companies Companies Net Amount to Net
- ----------- -------------- ------------- ---------------- -------------- --------------
(000s omitted)
------------------------------------------------------------------------------------------
Year Ended December 31, 2001
Individual life insurance
in-force $255,700,000 $586,500,000 $396,200,000 $ 65,400,000 605.8%
Premiums:
Life insurance and annuities (1) $2,552,962 $679,630 $1,034,131 $2,907,463 35.6%
Health insurance 263,607 346,489 423,462 340,580 124.3%
-------------- --------------- --------------- ---------------
Total $2,816,569 $1,026,119 $1,457,593 $3,248,043
Year Ended December 31, 2000
Individual life insurance
in-force $241,000,000 $191,500,000 $396,100,000 $445,600,000 88.9%
Premiums:
Life insurance and annuities (1) $2,583,403 $453,537 $934,913 $3,064,779 30.5%
Health insurance 151,204 106,328 364,898 409,774 89.0%
-------------- --------------- --------------- ---------------
Total $2,734,607 $559,865 $1,299,811 $3,474,553
Year Ended December 31, 1999
Individual life insurance
in-force $221,300,000 $171,100,000 $295,300,000 $345,500,000 85.5%
Premiums:
Life insurance and annuities (1) $2,363,373 $458,798 $816,046 $2,720,621 30.0%
Health insurance 167,489 162,202 693,212 698,499 99.2%
-------------- --------------- --------------- ---------------
Total $2,530,862 $621,000 $1,509,258 $3,419,120
(1) Includes insurance fees on universal life and other
interest-sensitive products.
LINCOLN NATIONAL CORPORATION
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- -------- ------------- ----------------------------------- -------------- -------------
Additions
Charged to
Balance at Charged to Other Balance
Beginning Costs Accounts- Deductions- at End
Description of Period Expenses (1) Describe Describe (2) of Period
- -------------- ------------ ---------------- ------------ ------------- -------------
(000s omitted)
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001
Deducted from Asset Accounts:
Reserve for Mortgage Loans
on Real Estate $4,907 $736 $-- $(3,432) $2,211
Included in Other Liabilities:
Investment Guarantees 323 -- -- -- 323
Year Ended December 31, 2000
Deducted from Asset Accounts:
Reserve for Mortgage Loans
on Real Estate $4,691 $1,830 $-- $(1,614) $4,907
Included in Other Liabilities:
Investment Guarantees 323 -- -- -- 323
Year Ended December 31, 1999
Deducted from Asset Accounts:
Reserve for Mortgage Loans
on Real Estate $4,794 $807 $-- $(910) $4,691
Included in Other Liabilities:
Investment Guarantees 323 -- -- -- 323
(1) Excludes charges for the direct write-off of assets.
(2) Deductions reflect sales or foreclosures of the underlying holdings.
LINCOLN NATIONAL CORPORATION
EXHIBIT INDEX FOR THE ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2000
Exhibit
Number Page
- ------- ------
3(a) Articles of Incorporation dated as of May 12, 1994. 29
3(b) Bylaws of LNC as last amended February 18, 2002. 79
4(a) Indenture of LNC dated as of January 15, 1987.*
4(b) LNC First Supplemental Indenture dated July 1, 1992, to Indenture of LNC
dated as of January 15, 1987. 90
4(c) Specimen Notes for 7 1/8% Notes due July 15, 1999 and 7 5/8% Notes due July 15, 2002. 95
4(d) Rights Agreement dated November 14, 1996. 113
4(e) Indenture of LNC dated as of September 15, 1994.*
4(f) Form of Note dated as of September 15, 1994. 156
4(g) Form of Zero Coupon Security dated as of September 15, 1994. 162
4(h) Specimen Debenture for 9 1/8% Notes due October 1, 2024.*
4(i) Specimen of 7 1/4% Debenture due May 15, 2005.*
4(j) Junior Subordinated Indenture of LNC as of May 1, 1996. 167
4(k) Guarantee Agreement for Lincoln National Capital II. 238
4(l) Form of Lincoln National Capital II Preferred Securities, Series B. 258
4(m) Declaration of Trust for Lincoln National Capital I and Lincoln Capital II.*
4(n) Specimen Notes for 6 1/2% Notes due March 15, 2008.*
4(o) Specimen Notes for 7% Notes due March 15, 2018.*
4(p) Trust Agreement for Lincoln National Capital III.*
4(q) Form of Lincoln National Capital III Preferred Securities, Series C.*
4(r) Guarantee Agreement for Lincoln National Capital III.*
4(s) Trust Agreement for Lincoln National Capital IV.*
4(t) Guarantee Agreement for Lincoln National Capital IV.*
4(u) Purchase Contract Agreement for Lincoln National Capital IV.*
4(v) Pledge Agreement for Lincoln National Capital IV.*
10(a) LNC 1986 Stock Option Plan. 261
10(b) Salary Continuation Plan for Executives of Lincoln National Corporation and Affiliates. 275
10(c) LNC Executives' Severance Benefit Plan. 282
10(d) The LNC Outside Directors Retirement Plan. 309
10(e) LNC Directors' Value Sharing Plan. 310
10(f) The LNC Executive Deferred Compensation Plan for Employees. 319
10(g) LNC 1993 Stock Plan for Non-Employee Directors. 342
10(h) Lincoln National Corporation Executives' Excess Compensation Pension Benefit Plan. 350
10(i) First Amendment to LNC Executives' Excess Compensation Benefit Plan
dated December 22, 1999.*
10(j) LNC 1997 Incentive Compensation Plan as amended. 354
10(k) Lease and Agreement LNL home office property.*
10(l) Form of Lease-LNC's Corporate Offices dated March 14, 1999.*
10(m) Lease and Agreement-additional LNL headquarter property. 371
10(n) Form of Delaware's Lease and Agreement for One Commerce Square Property.*
10(o) Form of Delaware's Sublease for Two Commerce Square Property.*
10(p) Form of Delaware's Consent to Sublease for Philadelphia Plaza II Property.*
12 Historical Ratio of Earnings to Fixed Charges. 422
13 Portions of LNC's Annual Report to Shareholders that are expressly incorporated
by reference in this Form 10-K. Other sections of the Annual Report furnished
for the information of the Commission are not deemed "filed" as part of
this Form 10-K. 423
21 List of Subsidiaries. 518
23 Consent of Ernst & Young LLP, Independent Auditors. 537
* Incorporated by reference
Signature Page
LINCOLN NATIONAL CORPORATION
Pursuant to the requirements
of Section 13 or 15(d) of
the Securities Exchange Act of By /s/ Jon A. Boscia March 14, 2002
1934, LNC has duly caused -------------------------------------------
this report to be signed on Jon A. Boscia
its behalf by the under- (President, Chief Executive Officer
signed, thereunto duly and Director)
authorized.
By /s/ Richard C. Vaughan March 14, 2002
-------------------------------------------
Richard C. Vaughan
(Executive Vice President and Chief
Financial Officer)
By /s/ Casey J. Trumble March 14, 2002
-------------------------------------------
Casey J. Trumble
(Senior Vice President and Chief
Accounting Officer)
Pursuant to the requirements By /s/ J. Patrick Barrett March 14, 2002
of the Securities Exchange -------------------------------------------
Act of 1934, this report J. Patrick Barrett
has been signed below by
the following Directors By /s/ Thomas D. Bell, Jr. March 14, 2002
of LNC on the date indicated. -------------------------------------------
Thomas D. Bell, Jr
By /s/ Jenne K. Britell, Ph.D. March 14, 2002
-------------------------------------------
Jenne K. Britell, Ph.D.
By /s/ John G. Drosdick March 14, 2002
-------------------------------------------
John G. Drosdick
By /s/ Eric G. Johnson March 14, 2002
-------------------------------------------
Eric G. Johnson
By /s/ M. Leanne Lachman March 14, 2002
-------------------------------------------
M. Leanne Lachman
By /s/ Michael F. Mee March 14, 2002
-------------------------------------------
Michael F. Mee
By /s/ John M. Pietruski March 14, 2002
-------------------------------------------
John M. Pietruski
By /s/ Ron J. Ponder, Ph.D. March 14, 2002
-------------------------------------------
Ron J. Ponder, Ph.D.
By /s/ Jill S. Ruckelshaus March 14, 2002
-------------------------------------------
Jill S. Ruckelshaus
By /s/ Glenn F. Tilton March 14, 2002
-------------------------------------------
Glenn F. Tilton
By /s/ Gilbert R. Whitaker, Jr.,
Ph.D. March 14, 2002
-------------------------------------------
Gilbert R. Whitaker, Jr., Ph.D.