Lincoln National (LNC) Q4 2007 earnings summary

Executive summary

• FY 2007 net income was $1.215B, down 8% YoY, while diluted EPS was $4.43 vs. $5.13; continuing-operations income rose 2% to $1.321B.

• Sales grew across major protection and retirement products; variable annuity, life insurance and group protection sales each rose at least 20%, and defined contribution sales increased 25%.

• Operational execution, merger integration and risk management supported results amid late-year market volatility; year-end capital was described as strong.

Financial highlights

• Total revenue increased 18% to $10.594B; net investment income rose 10% to $4.384B and insurance fees rose 25% to $3.254B.

• Continuing-operations income before tax was $1.874B, up 5%; benefits and expenses grew 21% to $8.720B.

• Q4 revenue was $2.607B, continuing-operations income $240M and net income $113M; diluted EPS was $0.43.

• Net income included a $106M after-tax discontinued-operations loss; realized losses were $118M, including $261M of other-than-temporary impairment write-downs.

Outlook and guidance

• 2008 priorities include investment in distribution and product development, scaling defined contribution and retail investment management, cost discipline, and completing platform consolidation.

• Expected 2008 free cash flow was considered sufficient to fund growth, dividends, repurchases and strategic initiatives; domestic insurers were expected to have capacity for ~$957M of dividends without prior approval.

• Integration savings target was $200M; integration activity was expected to be substantially complete by H1 2009, with estimated total costs of $205M–$215M pre-tax.

• 2008 challenges include market volatility, recession risk, low interest rates, competitive pressure, regulatory scrutiny and acceptance of new products.