SEC Company Response from LINCOLN NATIONAL CORP (LNC, LNC-PD) (CIK 0000059558) (LNC) — Jun 16, 2006
LINCOLN NATIONAL CORP (LNC, LNC-PD) (CIK 0000059558)
Date: June 16, 2006 · CIK: 0000059558 · Accession: 0000950159-06-000907
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-6028
Letter
Securities and Exchange Commission Re: Lincoln National Corporation Form 10-K for the Fiscal Year Ended December 31, 2005 Filed March 15, 2006 File Number: 001-6028
Dear Mr. Rosenberg:
This letter is in response to your oral comment we received on June 2, 2006. The oral comment related to our May 9, 2006 correspondence to your letter of April 26, 2006 concerning Lincoln National Corporation’s (“LNC” or “the Company”) Form 10-K for the year ended December 31, 2005. Our reply in this letter refers to the specific comment.
The following is your comment and our response:
Comment: We note your response to our previous comment. In accordance with FAS 95, non-cash transactions should be excluded from the Statement of Cash Flows. Therefore, since cash does not actually change hands until settlement at the end of the contract, please provide us a revised Statement of Cash Flow that excludes the increase in Funds Withheld liability from the financing activities section.
Response: We believe our prior classification of changes in funds withheld liability was appropriate given the interpretation of a reinsurance agreement with funds withheld under Derivative Implementation Issue No. B36, Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments (“DIG B36”). There is cash flow between the policyholder and LNC related to the underlying insurance contract. That cash flow is included in operating cash flows. Under a reinsurance arrangement a portion of this risk passes to the reinsurer. Under the bifurcation of a reinsurance transaction with funds withheld required under DIG B36 there are two separate transactions, a transaction involving the transfer of insurance risk from LNC to the reinsurer and a hypothetical loan transaction. The cash flow from the underlying contracts flow through the reinsurance arrangements as two separate components under the guidance of DIG B36:
1)
The hypothetical payment to/from the reinsurer for the transfer of the underlying insurance risk which we have determined to be an operating cash flow.
2)
The hypothetical loan under DIG B36 results in cash coming from the reinsurer to LNC similar to a financing activity.
In accordance with your oral comment we are enclosing a revised Consolidated Statement of Cash Flows containing the years 2005, 2004 and 2003. The revision reclassifies the line captioned “Increase in funds withheld liability” from the Financing Activities section to the Operating Activities section. Although we believe that our presentation is correct as stated above, we understand the presentation put forth by the SEC Staff and concur that it is also an appropriate presentation. We do not believe that this revision materially changes the Statement of Cash Flows nor does it significantly change the trend of cash flows previously presented. Therefore, we request that any change in the classification of changes in funds withheld liability be implemented in future periodic reports beginning with the Form 10-Q for the quarter ending June 30, 2006.
****
If you have any questions regarding our response, please contact me directly at (215) 448-1430.
Sincerely,
/s/
Douglas N. Miller
Show Raw Text
CORRESP
1
filename1.htm
Lincoln National Corporation Correspondence
Lincoln
Financial Group {logo}
June
9,
2006
Mr.
Jim
Rosenberg
Senior
Assistant Chief Accountant
Securities
and Exchange Commission
100
F
Street, N.E.
Washington,
D.C. 20549
Re:
Lincoln
National Corporation
Form
10-K
for the Fiscal Year Ended December 31, 2005
Filed
March 15, 2006
File
Number: 001-6028
Dear
Mr.
Rosenberg:
This
letter is in response to your oral comment we received on June 2, 2006. The
oral
comment related to our May 9, 2006 correspondence to your letter of April 26,
2006 concerning Lincoln National Corporation’s (“LNC” or “the Company”) Form
10-K for the year ended December 31, 2005. Our reply in this letter refers
to
the specific comment.
The
following is your comment and our response:
Comment:
We
note
your response to our previous comment. In accordance with FAS 95, non-cash
transactions should be excluded from the Statement of Cash Flows.
Therefore, since cash does not actually change hands until settlement at the
end
of the contract, please provide us a revised Statement of Cash Flow that
excludes the increase in Funds Withheld liability from the financing activities
section.
Response: We
believe our prior classification of changes in funds withheld liability was
appropriate given the interpretation of a reinsurance agreement with funds
withheld under Derivative
Implementation Issue No. B36, Embedded Derivatives: Modified Coinsurance
Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That
Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor
under Those Instruments (“DIG B36”).
There
is cash flow between the policyholder and LNC related to the underlying
insurance contract. That cash flow is included in operating cash flows. Under
a
reinsurance arrangement a portion of this risk passes to the reinsurer. Under
the bifurcation of a reinsurance transaction with funds withheld required under
DIG B36 there are two separate transactions, a transaction involving the
transfer of insurance risk from LNC to the reinsurer and a hypothetical loan
transaction. The cash flow from the underlying contracts flow through the
reinsurance arrangements as two separate components under the guidance of DIG
B36:
1)
The
hypothetical payment to/from the reinsurer for the transfer of the
underlying insurance risk which we have determined to be an operating
cash
flow.
2)
The
hypothetical loan under DIG B36 results in cash coming from the reinsurer
to LNC similar to a financing activity.
In
accordance with your oral comment we are enclosing a revised Consolidated
Statement of Cash Flows containing the years 2005, 2004 and 2003. The revision
reclassifies the line captioned “Increase in funds withheld liability” from the
Financing Activities section to the Operating Activities section. Although
we
believe that our presentation is correct as stated above, we understand the
presentation put forth by the SEC Staff and concur that it is also an
appropriate presentation. We do not believe that this revision materially
changes the Statement of Cash Flows nor does it significantly change the trend
of cash flows previously presented. Therefore, we request that any change in
the
classification of changes in funds withheld liability be implemented in future
periodic reports beginning with the Form 10-Q for the quarter ending June 30,
2006.
****
If
you
have any questions regarding our response, please contact me directly at (215)
448-1430.
Sincerely,
/s/
Douglas N. Miller
Vice
President & Chief Accounting Officer
Cc: Fredrick
Crawford, Senior Vice President & Chief Financial Officer
Attachment
LINCOLN
NATIONAL CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
2005
2004
2003
(000s
omitted)
Cash
Flows from Operating Activities:
Net
income
$
831,055
$
707,009
$
511,936
Adjustments
to
reconcile net income to net cash provided by operating
activities:
Deferred
acquisition costs
(442,101
)
(354,066
)
(335,651
)
Premiums
and
fees receivable
(14,450
)
96,510
(139,173
)
Accrued
investment income
(1,279
)
(2,417
)
14,000
Policy
liabilities and accruals
(244,689
)
(470,845
)
16,054
Net
trading securities purchases, sales and maturities
(107,284
)
(64,401
)
(467,098
)
Gain
(loss) on reinsurance embedded derivative/trading
securities
(4,653
)
970
(4,118
)
Cumulative
effect of accounting change
-
37,695
392,541
Contractholder
funds
808,869
778,502
1,120,520
Pension
plan contribution
(94,900
)
(42,200
)
(67,205
)
Amounts
recoverable from reinsurers
141,202
300,820
(527,082
)
Increase
in
funds withheld liability
116,841
77,187
55,879
Federal
income taxes
137,350
134,934
222,617
Stock-based
compensation expense
51,623
55,635
59,313
Depreciation
78,219
61,116
65,627
Amortization
of
other intangible assets
75,049
130,040
88,153
Realized
loss
on investments and derivative instruments
22,115
57,248
19,191
Gain
on
sale of subsidiaries/business
(14,231
)
(135,015
)
-
Amortization
of
deferred gain
(77,010
)
(88,282
)
(75,842
)
Other
(172,831
)
(172,904
)
38,103
Net
Adjustments
257,840
400,527
475,829
Net
Cash Provided by Operating Activities
1,088,895
1,107,536
987,765
Cash
Flows from Investing Activities:
Securities-available-for-sale:
Purchases
(5,869,068
)
(9,323,526
)
(13,791,838
)
Sales
4,027,139
5,253,386
8,425,329
Maturities
2,368,255
2,468,286
3,071,282
Purchase
of other investments
(1,008,720
)
(1,937,871
)
(1,523,384
)
Sale
or maturity of other investments
1,153,481
2,188,422
1,768,833
Proceeds
from disposition of business
14,231
173,560
-
Other
23,231
23,515
(5,131
)
Net
Cash Provided By (Used in) Investing Activities
708,549
(1,154,228
)
(2,054,909
)
Cash
Flows from Financing Activities:
Long-term
debt
Redemption
of
debentures
(240,936
)
(126,621
)
-
Issuance
-
243,767
-
Junior
subordinated debentures issued to affiliated trusts
Retirement
/
call
-
-
(204,987
)
Issuance
-
-
145,275
Net
decrease in short-term debt
98,400
(22,476
)
(109,069
)
Universal
life and investment contract deposits
5,156,407
4,928,315
4,935,740
Universal
life and investment contract withdrawals
(4,455,699
)
(3,353,031
)
(2,746,914
)
Investment
contract transfers
(1,482,777
)
(1,336,438
)
(816,826
)
Increase
in cash collateral on loaned securities
45,009
181,013
112,236
Common
stock issued for benefit plans
90,824
82,033
12,699
Retirement
of common stock
(103,591
)
(350,229
)
-
Dividends
paid to shareholders
(255,085
)
(249,151
)
(240,348
)
Net
Cash Provided by (Used in) Financing Activities
(1,147,448
)
(2,818
)
1,087,806
Net
Increase (Decrease) in Cash and Invested Cash
649,996
(49,510
)
20,662
Cash
and Invested Cash at Beginning-of-Year
1,661,686
1,711,196
1,690,534
Cash
and Invested Cash at End-of-Year
$
2,311,682
$
1,661,686
$
1,711,196