Lincoln National Corporation
File No. 1-6028)
to Rule 425 under the Securities Act of 1933
Deemed Filed Pursuant to Rule 14a-12
Securities Exchange Act of 1934
Company: Jefferson-Pilot Corporation
File No. 1-5955
Quarter 2005 Earnings Conference Call
And I'll now turn things back over to our speaker to continue with the
Boscia: Thank you, in our announcement of the merger with Jefferson Pilot
over three weeks ago, we cited a number of reasons why this merger will create
more powerful, more responsive company one better positioned to successfully
compete in today's competitive environment. From a strategic standpoint,
companies bring many complementary strengths to the merged company. But there
are two industry-leading capabilities that really serve to define the
distribution strength and Jefferson pilot's operational efficiency. Both
glass and I have answered numerous questions and addressed pointed remarks
regarding our abilities to improve these capabilities in our respective
companies on a stand-alone basis. As both of us will attest to you, neither
easy to achieve, nor can they be accomplished in a brief period of
view this merger as an opportunity to leverage these strengths at a time
both are critical to near-term as well as long-term success of an enterprise
today's environment. As we move into the integration planning phase, it's
that the new organizational structure and management team will bring greater
clarity and energy to our strategic initiatives in a manner that minimizes
execution risk. Enhanced scale will allow us to bring greater resources to
on industry challenges and new opportunities.
broader market focus on the mass affluent and above will ensure that a more
comprehensive range of products satisfies the needs of a distribution force
unparalleled reach. At no other time have I been more excited about the
opportunities in our business and our ability to capitalize on them. With
I'll now turn it over to Priscilla for Q&A on the merger itself.
Brown: Thanks, Jon, as noted in the opening of the call, we'd like to now
the call for your questions specific to the merger. Again, in order to provide
an opportunity for as many callers as possible, we will take one question
one follow-up from each caller. Operator.
(Caller instructions) we will pause for just a moment to give everyone an
opportunity to signal for questions. We'll go first to Saul Martinez with
Martinez: Good afternoon. Sorry if I missed part of Jon's remarks I'm sorry
you addressed this during your prepared remarks, but obviously both Jefferson
Pilot and Lincoln have had
individual life earnings in recent years. Can you talk a little bit about
of the things you can do now that you weren't able to do before the merger
offset profitability pressures, whether it be retaining more life insurance,
using less reinsurance, being more aggressive on the investment management
operating efficiency, can you just go into any more detail on that?
Boscia: I'm trying to think what points you didn't cover for me. So I'll --
Martinez: So I made your life easier, right?
Boscia: It really is all of those points and I would say, importantly, too,
being able to take the scale that Lincoln has and to operate it with the
efficiency capabilities that Jefferson Pilot has. And that becomes important
because as we continue and in our remarks as we talked about the operating
results for the quarter, you know we noted in there that we are seeing now
resumption of premium growth and NAR growth inside of the life insurance
So the efficiency capabilities at JP won't be just a one-time event allowing
to do or bring their skill to our in-force business, but as we continue to
growth in the markets that we serve in the channels that we serve, we'll
benefit of their efficiency in every single sale that we make on a going
basis. So it continues to be able to sustain itself.
I think, both currently have excellent leadership and employees in the
organization. And the biggest area that we do have overlap is clearly in
life insurance business, and what this combination allows us to be able to
to really have the luxury of picking the best of two very good staffed
organizations. And once you put good people together that are creative and
innovative, you will more often than not have positive surprises rather than
negative surprises that come from that. Whether it's product design,
distribution expansion, technology utilization, there's just so many things.
what's good is we didn't build that kind of stuff into the basic plan in
first place either. So, I would expect, it all to be enhancements.
Crawford: I think -- Saul, it's Fred. Just piggybacking on your risk
management comment, when you talk about greater financial flexibility it
also equate to the notion of where you can and can't take risk and what kind
risk you can afford to absorb relative to your capital base. And certainly
topic of looking hard at mortality and our current stand-alone retention
is a topic to be looked at. Raising that limit does a couple things. One
is viewed very favorably and can be critical in production in some large
partnerships, depending on the nature of the relationship and the clients
served. But also it lessens, if you will, your exposure to what can be a
reinsurance market that moves around pricing wise as you know.
think that's the kind of financial flexibility that can come with the added
balance sheet and the diversification of our earnings base.
Martinez: Great. Thanks a lot.
We'll go next to Colin Devine with Citigroup.
Devine: Hello again. A couple of questions. Perhaps if you can update us
you've given any thought to changing the financing of the deal and perhaps
more thought to the decision to retain the position in B of A or the
communications operations of Jefferson Pilot?
Crawford: On the financing, Colin, no change in what we've talked about
previously, although when I discussed the financing package, I left open
opportunity for our management
look at the mix, the mix of tax deductible, nontax deductible preferred and
potentially mandatory converts. We're still looking at that as to where we
leverage new designs in the marketplace to certainly improve the cost of
capital. But we are committed to the high equity content capital structure
we've talked about. We think it's critical to maintaining the strong ratings
that we've been able to produce out of this combined deal.
Devine: Okay. Then for Jon, perhaps you could discuss the rationale for
retaining Jefferson Pilot's position in B of A, which I guess was about $400
million, as well as the decision -- how strategically putting Lincoln into
the television and radio business fits into this deal?
Boscia: Yeah, I think, Colin, it's fair to say that as we look at any of
businesses going forward. Communications, included, we will continue to or
will look at those businesses on the basis of whether it is in the best
interests of shareholders to continue to own and participate in any of our
businesses at Lincoln or not to participate and own any of the businesses
Lincoln. So I don't think that at this point in time there's any compelling
reason for us not to bring existing Jefferson Pilot businesses into the new
Lincoln and existing Jefferson Pilot strategic investments such as Bank of
America into the new Lincoln. And we will continue to evaluate any strategic
investment, any of our businesses on a going forward basis relative to what
would do on an alternative, with that capital or that strategic investment.
And our next question will come from Bob Glasspiegel with Langen McAlenney.
Glasspiegel: Good afternoon. What retention programs do you have in place
make sure your A performers aren't picked over in this ambiguous period today?
You have the first layer of management identified, how far down have you
notify people and what about the key producers, how do you make sure you
they're on board?
Boscia: Bob that's an excellent question and what we're doing in fact right
is developing on a concurrent basis the next level down, both in terms of
organizational design, the competencies to do the job, the candidates for
jobs, identifying which candidates would be part of the ongoing Lincoln
candidates are critical to retain as we go through the integration and closing
process. We will be communicating as we get more and more of this information
with individuals specifically about their status. Clearly, whenever you have
combination of companies like this, and we've been open with our employees
saying there will be people who will lose jobs, you know you have to put
place retention programs to keep your key talent and motivate people you
an ongoing basis, and lots of focus, including at the highest levels, myself
Dennis Glass, is being applied to that.
Glasspiegel: Thank you. One quick follow-up. Are there any prohibitions your
lawyers have established against a special dividend? You said you can't do
back ahead of the deal.
Crawford: No, there's no prohibition to special dividends.
Glasspiegel: Would that be considered then, given that your ROE targets are
Crawford: I think dividend decisions obviously are always up to the board's
discretion. But I would expect to hold to our current dividend policy.
We'll go next to Thomas Gallagher with Credit Suisse First Boston.
Gallagher: Hi, just, I guess Jon if we could go to, you know, one of the
reasons you're focusing on for doing this acquisition is the merging the
top line culture at Lincoln with the very efficient bottom line culture at
Jefferson Pilot. Given that you've kind of put it that way, I'm imagining
seen a pretty dramatic difference in terms of what their cost is and their
ability to administer universal life and other products versus where Lincoln's
running at. Can you just, and I'm not asking for an exact specific number,
can give us in ballpark terms what the difference would be from a financial
metric standpoint, whether you want to put it in ROE terms, margin terms
Boscia: Offhand, Tom, I don't recall that number. However I do think that
week in the Jefferson Pilot call, Dennis glass referred to a number, if you
took the statutory G and A levels of Jefferson Pilot and applied those ratios
the Lincoln book of business, that piece alone resulted in more than
$200 million of efficiency gains. And that's not putting it on any other
types of businesses in Lincoln, and I think, Dennis, which I would agree
referred to that as giving both of us, he and myself, high level confidence
the savings that we announced as a part of this are savings that we are
confident we will be able to achieve but I don't remember the percentage
that equate to those high level numbers or to those gross savings.
Gallagher: Sure. And I remember when Dennis referenced that. I guess is there
way, and maybe I'll ask it a different way, is there a way to think about
kind of ROE improvement putting Jefferson Pilot's back office in would do
your returns? Because I guess I step back for a minute and think if this
of the key reasons for the merger, I'm guessing there's, you know, aside
this original expense saving, which I kind of view as more a consolidation
than a Jefferson Pilot efficiency issue, I would imagine that their ability
administer and process that business, you know, is far superior and would
added something to the overall ROE?
Boscia: I would reinforce the comment I made earlier that there's a
consolidation benefit that will come from this, but then as we sell each
going forward, you will have the additional ongoing efficiency improvement.
ROE impact of it will tend to get lost because of the increase in intangibles
the balance sheet that we have talked about which really will be large enough
offset the improvement we otherwise would have received if you could just
our existing balance sheet and income statement and improve the efficiencies
the operating statement and not have to increase the equity on the balance
sheet. But when you have the two moving parts there, we do have our ROE
initially as Fred had indicated in the announcement, go backwards as a result
this, because of the intangibles.
Crawford: ROE, we would expect to kick off at closing at around 11.5% and
climb to the 13% territory as we close out 2007. In there you have ROE lift,
only from the expense savings which incorporates the operational efficiencies,
if you will, back room efficiencies you're speaking to, but also the more
efficient use of capital, if you will, and that's some repurchase activity
during that time frame. We haven't split out the attribution of either one
those things, but I think it's the kind of math you can sit down and move
through on your own giving all the details that we've given.
Our next question will come from Jason Zucker, Fox-Pitt Kelton.
Zucker: Actually my question is right along the same line. Maybe I can follow-up
with that. Maybe instead of thinking about it in terms of numbers, perhaps
can talk about just some examples of where you think JP does a little bit
in terms of operational efficiencies and where you think that JP can help
improve operational efficiencies at Lincoln?
Boscia: I think probably the biggest area, Jason has been their application
technology to better streamline processes and have fewer administrative systems
and the complexity that goes into multiple administrative systems. They've
themselves to be superior to us when it comes to that end of the business.
Crawford: I would only add that Jefferson Pilot has been hard at work in
building out improved processes as well as technology for the better part
four or five years, and they've got a very sophisticated detailed play book
covers a number of different efficiency measures up and down the P&L across
all their businesses, and they're quite disciplined at managing to those
metrics. But those are not metrics and processes that were just adopted
overnight. They've taken quite a long time to build leveraging a shared service
platform. Their approach to centralized activities versus Lincoln's
decentralized structure. There are a number of differences just in the way
which their platform operates and it's part of what we find appealing. I
just emphasize there's a great deal of intellectual capital that comes with
deal not just the scale. The scale end of it itself will generate savings
there's intellectual capital that comes with improved processes across the
company that they've spent a tremendous amount of time on.
Zucker: Great. Thank you.
And we'll go next to Suneet Kamath with Sanford Bernstein.
Kamath: Hi. I was wondering in terms of timing if you can tell us when we're
going to get more information either about the consideration mix or other
expectations you have with the deal. And to follow up, I understand from
conversations right after the deal was announced that you shared some pretty
detailed expense saving information with the rating agencies and I think
comment was that they were pretty impressed with the level of detail that
went to. Is there any way that you can, at some point, maybe even after the
closes, share that with us? Because I think there's some skepticism around
$180 million cost savings you talked about. Thanks.
Crawford: You know, just hopefully this will answer your question. But we
obviously fast at work on the closing process, which involves a number of
different elements, regulatory approval, of course, both SEC as well as the
state insurance departments and so forth. We would -- we are hard at work
at registration statement design right now. The S-4, for example. Right now
don't have a precise date of when we would expect to be filing that, other
to note that we're making good progress on it. So I think at this point in
I'd rather not give a specific date on it.
Boscia: I think in terms of the more detail behind the $180 million, that's
something Suneet that certainly after the fact, if we see that there's still
continued interest in doing that, would be something that we would consider.
this point in time, I feel it would be inappropriate to share that level
detail externally because as you might imagine there might be some competitive
issues associated with it, with peers. There might be some employee issues
we would have to be concerned about, and putting that kind of stuff in the
public domain before employees have fuller knowledge and understanding of
think would be inappropriate for us. After the fact, we can certainly, you
make a different consideration, if there's still interest and merit to doing
Kamath: Okay. Thank you.
And we'll go next to Jimmy Bhuller with JP Morgan.
Bhuller: Thank you. Just a question on the $180 million. Fred, could you
down the 180 million by how much of that is coming from expense savings just
your own business and how much of that could you have done on your own without
the merger? And then second I have a follow-up for Jon.
Crawford: We haven't broken them down, Jimmy, by what comes out of Lincoln
what comes out of JP, because really the expense savings are the result of
combining the two operations and leveraging the better platform. So it's
not a way in which we're looking at the expense savings.
Bhuller: But does the $180 include your normal ongoing expense savings program
that you had before?
Crawford: No. I mean to the degree we have budgeted for things that we would
normally look to save on or do better at, we would expect that would not
considered or qualify, if you will, for integration savings.
speak to integration savings, we're meaning the pure play savings that results
from the combination of the two companies, not anything we could do on our
up until that point in time.
thing I would note, I think Jon alluded to it in his comments, is that the
notion of a company like Lincoln sort of waking up one day and deciding let's
move to a shared service platform and centralized operations and let's do
quickly has a great deal more execution risk than if you were to marry, if
will, with a company that's been there and done that. And as I mentioned
has the detailed metrics and processes that are better than four or five
in development. So, again, I would just highlight Jon's comments in that
that we think the $180 is a good number, but also carries less execution
than if the company were to just simply decide to go on a new platform and
Boscia: You said you had a follow-up?
Bhuller: Just on the new spend, you spent a significant amount of time talking
about the flows in asset management, annuity businesses, and you mentioned
Delaware, the value of the company is not being fully reflected in your stock
price. How do you think after the merger it will be reflected in the stock
price? Delaware was small enough as it was as a part of your overall company,
now it's only going to be about 2% of earnings, the same thing about your
variable annuity business. That's also significantly a smaller portion of
combined entity. How do you think the values of those, perhaps the best two
franchises that Lincoln had, will be reflected in the stock price after the
combination with Jefferson Pilot?
Boscia: I think both are good questions, and let me just take a step back
little bit here, Jimmy, and try to give you some of my thinking on it. And
I'm going to put on my former portfolio manager hat and take a look at Lincoln.
One of the, I think, areas of concern that I would have had in looking at
Lincoln was in fact the success that we were having in both Delaware and
variable annuity lines and that success, while welcome and really coveted,
carried with it a risk that the company would be even more and more look
almost a giant mutual fund from an equity sensitivity to the market perspective.
And you know the majority of the economic cycle you're going to feel good
that. But as we saw in 2000, 2001 and 2002 it's also an unattractive business
exposure to have in the wrong part of a cycle.
look at what this company looks like afterwards, we end up with only 30 to,
know, 32, 33% of the company having an equity market exposure to it, which,
looking at it from the other way, means that we have 65 plus percent of the
company that has more predictable, more stable earnings, which also should
associated with it more free cash flow predictability and generation
capabilities inside of it as well. But yet you still have about a third of
company that has the positive beta or has the beta associated with the equity
markets, which, again, in most conditions is going to be positive beta and
going to work for you to help you with that.
think just strategically, it's a very good mix to have. Now, as it relates
Delaware being in our valuation today or not being in our valuation, I believe
it's not in the valuation today, not because of its percentage of the company
itself, but that percentage in fact equates to there really hasn't been much
earnings coming out of Delaware. And if you're looking at a business that
EBITDA margins of the low 20%, growing to a business that has EBITDA margins
greater than that and indeed as we've indicated by 2007 our objective being
30% EBITDA margin, well now it gives the investment community something real,
something tangible to apply a multiple against because as we all know you
to have earnings times a multiple in order to get valuation. And if your
earnings are too low, you just don't, you know, it doesn't matter what the
multiple is. So I feel very confident that as we have continued EBITDA margin
expansion, even though Delaware will have less a percentage of the overall
company, it will in fact have a positive contribution, because of the earnings
in there. Variable annuities are today and will continue to be a core franchise
of this corporation. And the most exciting thing about our annuity business
we know as do all of you that the future of retail financial services is
going to be hovered and concentrated around retirement income. People,
particularly baby boomers, are accumulating money to some day live off of
money. And annuities continue to receive extraordinarily positive press.
call your attention for many of you particularly in the New York City area,
look at the cover story of the New York Times magazine on Sunday, we're coming
out of, you know, what generally is a previous conservative or a pretty,
should say liberal newspaper, highlighting that annuities, in fact on-benefit
annuities, are the answer to the retirement challenges.
to continue to have that as a core franchise, and I think Lincoln's current
success really places us at the top of the industry in being able to be at
forefront of retirement income and we talked about, you know, the billion
now of income for life sales that we've made. So I think all of this is just
going to continue to be very attractive growth trends and curves for Lincoln
That concludes today's conference. Thank you everyone for your
connection with the proposed transaction, a registration statement, including
joint proxy statement/prospectus, and other materials will be filed with
SEC. WE URGE INVESTORS TO READ THE REGISTRATION STATEMENT AND JOINT PROXY
STATEMENT/PROSPECTUS AND THESE OTHER DOCUMENTS CAREFULLY WHEN THEY
AVAILABLE AND BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS, BECAUSE
WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors
will be able to obtain free copies of the registration statement and joint
statement/prospectus (when available), as well as other filings containing
information about Lincoln and Jefferson-Pilot, without charge, at the Securities
and Exchange Commission’s website (www.sec.gov). In addition, free copies of the
registration statement and joint proxy statement/prospectus will be (when
available), and Lincoln’s other SEC filings are, also available on Lincoln’s
website (www.lfg.com). Free copies of the registration statement and joint
statement/prospectus will be (when available), and Jefferson-Pilot‘s other SEC
filings are, also available on Jefferson-Pilot’s website (www.jpfinancial.com).
Jefferson-Pilot, their respective directors and officers and other persons
be deemed, under SEC rules, to be participants in the solicitation of proxies
respect of the proposed transaction. Information regarding Lincoln’s directors
and executive officers is available in its Annual Report on Form 10-K for
year ended December 31, 2004 and in its proxy statement filed with the SEC
April 8, 2005, and information regarding Jefferson-Pilot’s directors and
executive officers is available in its Annual Report on Form 10-K for the
ended December 31, 2004 and in its proxy statement filed with the SEC on
24, 2005. More detailed information regarding the identity of potential
participants in the proxy solicitation and a description of their direct
indirect interests, by security holdings or otherwise, will be contained
registration statement and joint proxy statement/prospectus and other relevant
materials to be filed with the SEC in connection with the proposed transaction.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
for historical information contained in this document, statements made in
document are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking statement
is a statement that is not a historical fact and, without limitation, includes
any statement that may predict, forecast, indicate or imply future results,
performance or achievements, and may contain words like: “believe,”
“anticipate,” “expect,” “estimate,” “project,” “will,” “shall” and other words
or phrases with similar meaning. We claim the protection afforded by the
harbor for forward-looking statements provided by the PSLRA. Forward-looking
statements involve risks and uncertainties that may cause actual results
differ materially from the results contained in the forward-looking statements.
Risks and uncertainties that may cause actual results to vary materially,
of which are described within the forward-looking statements include, among
others: (1) the shareholders of Lincoln and/or Jefferson-Pilot may not approve
and adopt the merger agreement and the transactions contemplated by the merger
agreement at the special shareholder meetings; (2) we may be unable to obtain
regulatory approvals required for the merger, or required regulatory approvals
may delay the merger or result in the imposition of conditions that could
material adverse effect on the combined company or cause us to abandon the
merger; (3) we may be unable to complete the merger or completing the merger
be more costly than expected because, among other reasons, conditions to
closing of the merger may not be satisfied; (4) problems may arise with the
ability to successfully integrate Lincoln’s and Jefferson-Pilot’s businesses,
which may result in the combined company not operating as effectively and
efficiently as expected; (5) the combined company may not be able to achieve
expected synergies from the merger or it may take longer than expected to
achieve those synergies; (6) the merger may involve unexpected costs or
unexpected liabilities, or the effects of purchase accounting may be different
from our expectations; (7) the credit and insurer financial strength ratings
the combined company and its subsidiaries may be different from what the
companies expect; and (8) the combined company may be adversely affected
future legislative, regulatory, or tax changes as well as other economic,
business and/or competitive factors.
included here are not exhaustive. The annual reports on Form 10-K, current
reports on Form 8-K and other documents filed by Lincoln and Jefferson-Pilot
with the Securities and Exchange Commission include additional factors which
could impact our businesses and financial performance. Given these risks
uncertainties, you should not place undue reliance on forward-looking statements
as a prediction of actual results. In addition, we disclaim any obligation
update any forward-looking statements to reflect events or circumstances
occur after the date of this document, except as may be required by