LINCOLN NATIONAL CORP

Details underlying the results for Other Operations (in millions) were as follows:

(1)Includes our institutional pension business, which has a corresponding offset in benefits and policyholder liability remeasurement for changes in reserves.

(2)Includes certain third-party advisory fees, which has a partial offset in other expenses.

Loss from operations for Other Operations decreased modestly due primarily to the following:

•Higher other revenues due to the effect of market fluctuations on assets held as part of certain compensation plans.

•Higher net investment income, net of interest credited, driven by funding agreement activity.

•More favorable income tax benefits driven by favorable market impacts on tax preferred investment income and higher excess tax benefits associated with stock-based compensation.

The decrease in loss from operations was partially offset by higher other expenses associated with higher costs pertaining to business operations.

Loss from operations for Other Operations increased due primarily to the following:

• Lower net investment income, net of interest credited, related to lower portfolio yields and lower allocated investments driven by a decrease in excess capital retained by Other Operations, partially offset by funding agreement activity.

•Higher other expenses associated with higher costs pertaining to business operations.

•Higher interest and debt expense driven by an increase in average outstanding debt.

The increase in loss from operations was partially offset by the following:

•More favorable income tax benefits driven by higher excess benefits associated with stock-based compensation.

•Higher other revenues due to the effect of market fluctuations on assets held as part of certain compensation plans.

We utilize an internal formula to determine the amount of capital that is allocated to our business segments. Investment income on capital in excess of the calculated amounts is reported in Other Operations. If our business segments require increases in statutory reserves, surplus or investments, the amount of excess capital that is retained by Other Operations would decrease and net investment income would be negatively affected.

Write-downs for impairments decrease the recorded value of investments owned by the business segments. These write-downs are not included in the income from operations of our business segments. When impairment occurs, assets are transferred to the business segments’ portfolios and will reduce the future net investment income for Other Operations. Statutory reserve adjustments for our business segments can also cause allocations of investments between the business segments and Other Operations.

For information on funding agreements, see Note 10.

Benefits are recognized when incurred for institutional pension products and disability income business. Policyholder liability remeasurement gains (losses) result from updates in cash flow assumptions and actual variance from expected experience used in the net premium ratio or benefit ratio calculation for future policy benefits associated with institutional pension products.

Other Expenses

Details underlying other expenses (in millions) were as follows:

Interest and Debt Expense

Our current level of interest expense may not be indicative of the future due to, among other things, the timing of the use of cash and the future cost of capital. For additional information on our financing activities, see “Liquidity and Capital Resources – Holding Company Sources and Uses of Liquidity and Capital – Debt” below.