-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AaxlZT0qoXWKsq1F3JKQone7phWI/48it9gZomJv9o6uSoVu/ZNknSpST8OXHyIq dRdKxVp9uE02FfyFVmGw6g== 0000950159-06-000907.txt : 20061103 0000950159-06-000907.hdr.sgml : 20061103 20060616125324 ACCESSION NUMBER: 0000950159-06-000907 CONFORMED SUBMISSION TYPE: CORRESP PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20060616 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN NATIONAL CORP CENTRAL INDEX KEY: 0000059558 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 351140070 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: CORRESP BUSINESS ADDRESS: STREET 1: 1500 MARKET STREET STE 3900 STREET 2: CENTRE SQUARE WEST TOWER CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2154481475 MAIL ADDRESS: STREET 1: 1500 MARKET STREET STE 3900 STREET 2: CENTRE SQUARE TOWER CITY: PHILADELPHIA STATE: PA ZIP: 19102 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
  
 
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