Lincoln National (LNC) Q4 2006 earnings summary

Executive summary

• 2006 net income reached a record $1.316B, or $5.13 diluted EPS; results benefited primarily from the April 3 Jefferson-Pilot merger.

• The merger expanded distribution, product breadth and scale; management prioritized market-share gains, integration and retirement-income products for 2007.

• Q4 2006 net income was $382M, or $1.36 diluted EPS; quarterly results from Q2 onward include Jefferson-Pilot.

Financial highlights

• Revenue rose 66% to $9.063B in 2006; income before taxes was $1.811B, and net income increased 58% to $1.316B.

• Operating cash flow was $3.049B; total assets were $178.5B and shareholders’ equity was $12.2B at year-end.

• Deposits increased 3% to $43.229B; net flows declined 28% to $14.378B, while assets under management rose 36% to $233.523B.

• Adjusted for the merger-related comparison, earnings also reflected a $26M pre-tax U.K. insurance recovery, $49M pre-tax integration costs and $9M pre-tax net unfavorable annual assumption-review adjustments.

Outlook and guidance

• 2007 priorities: continue integration, launch a unified product portfolio, expand distribution, improve Employer Markets results and develop retirement-income solutions.

• Integration and restructuring costs were estimated at $180M pre-tax in total, with completion expected in Q4 2009.

• SOP 05-1 adoption in 2007 was expected to reduce DAC and VOBA by $75M–$100M pre-tax through retained earnings and add an estimated $15M–$20M to 2007 amortization.

• Domestic insurance subsidiaries were expected to have capacity for about $665M in dividends in 2007 without prior regulatory approval; up to $750M of debt or capital securities issuance was contemplated.