LINCOLN NATIONAL CORP FILES (8-K) Disclosing Results of Operations and Financial Condition, Non-Reliance on Previous Financials, Audits or Interim Review, Regulation FD Disclosure
Item 2.02. Results of Operations and Financial Condition.
The preliminary financial information in the section Preliminary Estimated
Impact of the Reinsurance Transaction Restatement in Item 7.01 of this Current
Report on Form 8-K is incorporated by reference into this Item 2.02.
Company Confirms 2023 Outlook
The restatement and other matters discussed in Item 4.02 of this Current Report
on Form 8-K do not affect our previously communicated 2023 outlook.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
As previously disclosed,The Lincoln National Life Insurance Company ("LNL"), a wholly owned subsidiary ofLincoln National Corporation (the "Company"), entered into a reinsurance agreement withSecurity Life of Denver Insurance Company (a subsidiary ofResolution Life that we refer to herein as "Resolution Life") that was effective as ofOctober 1, 2021 to reinsure liabilities under a block of in-force executive benefit and universal life insurance policies. The transaction was structured as coinsurance for the general account reserves and modified coinsurance for the separate account reserves. For the coinsurance portion of the transaction, the Company transferred both the insurance reserves and a portfolio of assets toResolution Life , which triggered a realized gain on the invested assets for the Company. As a result of the transaction, the Company recorded a deferred gain on the invested assets transferred pursuant to the transaction, recognizable over the projected life of the reinsured policies. The Company has determined that the realized gain should have been recognized at the time of the transfer of the assets and will correct the accounting treatment for theResolution Life transaction to reflect a one-time gain related to the transfer of assets rather than a deferred gain. The accounting for the Company's other reinsurance transactions is not affected by the correction of the accounting for theResolution Life transaction and there is no change to the Company's previously reported capital generated from the transaction. Revised for the correction of the accounting treatment for the fourth quarter of 2021 and full year 2022, the Company's financial results would have included a one-time gain of approximately$498 million in net income for the quarter endedDecember 31, 2021 , rather than amortizing approximately$25 million and$6 million of the gain that was reflected in net income during the year endedDecember 31, 2022 and the quarter endedDecember 31, 2021 , respectively. As of year-endDecember 31, 2022 andDecember 31, 2021 , the Company's stockholders' equity will increase by approximately$467 million and approximately$492 million , respectively, and the Company's leverage ratio as of year-endDecember 31, 2022 will improve by approximately 80 basis points as a result of the correction of the accounting treatment. As a result, onMarch 21, 2023 , the Board of Directors of the Company, after discussion with the Audit Committee, our senior leadership and independent registered public accounting firm,Ernst & Young LLP ("EY"), determined that our audited consolidated financial statements as of and for the annual periods endedDecember 31, 2021 andDecember 31, 2022 and for the quarterly periods endedMarch 31 ,June 30 andSeptember 30, 2022 (together, the "Prior Financial Statements") included in the associated Form 10-K filings and Form 10-Q filings with theSecurities and Exchange Commission ("SEC"), should no longer be relied upon solely as a result of the above-described accounting treatment with respect to timing for the recognition of investment gains related to the reinsurance transaction withResolution Life and will require restatement, and EY concurred. In addition, any previously issued or filed earnings releases, investor presentations or other communication describing the Company's Prior Financial Statements will be similarly impacted by the restatement. The restatement of the Prior Financial Statements will not impact the Company's distributable earnings, free cash flow, LNL's statutory filings, or year-end risk-based capital ratio. The restatement does not affect our previously communicated 2023 outlook.
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The Company intends to promptly file restated financial statements for the
fiscal years ended
financial information on Form 10-K/A. The restated financial information
presented in the Form 10-K/A will also include the correction of other
immaterial items. We expect to make this filing no later than
All estimates contained in this report are subject to change as management
completes the Form 10-K/A.
The Audit Committee has discussed the matters described in this Form 8-K with
its independent registered accounting firm, EY.
Item 7.01. Regulation FD Disclosure
Preliminary Estimated Impact of the Reinsurance Transaction Restatement
(Unaudited)
Set forth below is the preliminary estimated impact on certain items of the
correction of the accounting treatment for the fourth quarter 2021 reinsurance
transaction. It does not include the additional impact of the other immaterial
items that will be corrected as part of the restatement to be included in the
Form 10-K/A, as discussed above in Item 4.02.
Figures in millions
of dollars except earnings per share
AS REINSURANCE AS REINSURANCE
PREVIOUSLY TRANSACTION PREVIOUSLY TRANSACTION
REPORTED RESTATEMENT RESTATED REPORTED RESTATEMENT RESTATED
FY22 IMPACT FY22 FY21 IMPACT FY21
TOTAL ASSETS $ 335,437 $ - $ 335,437 $ 387,301 $ - $ 387,301
TOTAL LIABILITIES $ 331,336 $ (467 ) $ 330,869 $ 367,029 $ (492 ) $ 366,537
TOTAL STOCKHOLDERS' EQUITY $ 4,101 $ 467 $ 4,568 $ 20,272 $ 492 $ 20,764
NET (LOSS) INCOME $ (2,227 ) $ (25 ) $ (2,252 ) $ 1,405 $ 492 $ 1,897
NET (LOSS) INCOME PER SHARE
BASIC $ (13.02 ) $ (0.15 ) $ (13.17 ) $ 7.50 $ 2.63 $ 10.13
DILUTED $ (13.10 ) $ (0.14 ) $ (13.24 ) $ 7.43 $ 2.60 $ 10.03
ROE, INCLUDING AOCI -23.3 % 0.9 % -22.4 % 6.7 % 2.3 % 9.0 %
ROE, EXCLUDING AOCI1 -17.6 % 0.5 % -17.1 % 10.0 % 3.4 % 13.4 %
LEVERAGE RATIO2 31.2 % -0.8 % 30.4 % 25.8 % -0.7 % 25.1 %
1 Return on Equity ("ROE"), excluding accumulated other comprehensive income
("AOCI"), is a non-GAAP measure that measures how efficiently we generate
profits from the resources provided by our net assets. Management believes
ROE, excluding AOCI, is useful to investors because it eliminates the effect
of items that can fluctuate significantly from period to period, primarily
based on changes in interest rates. ROE, including AOCI, is the most directly
comparable GAAP measure. Refer to the table below for a reconciliation of the
denominator that is used in the calculation of the non-GAAP measure to its
most directly comparable GAAP measure:
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Figures in millions of dollars
AS REINSURANCE AS REINSURANCE
PREVIOUSLY TRANSACTION PREVIOUSLY TRANSACTION
REPORTED RESTATEMENT RESTATED REPORTED RESTATEMENT RESTATED
FY22 IMPACT FY22 FY21 IMPACT FY21
AVERAGE EQUITY,
INCLUDING AOCI $ 9,576 $ 480 $ 10,056 $ 20,999 $ 62 $ 21,061
AVERAGE AOCI $ (3,084 ) $ - $ (3,084 ) $ 6,944 $ - $ 6,944
AVERAGE EQUITY,
EXCLUDING AOCI $ 12,660 $ 480 $ 13,140 $ 14,055 $ 62 $ 14,117
2 Presented in the table below is the calculation for the leverage ratio:
Figures in millions of dollars
AS REINSURANCE AS REINSURANCE
PREVIOUSLY TRANSACTION PREVIOUSLY TRANSACTION
REPORTED RESTATEMENT RESTATED REPORTED RESTATEMENT RESTATED
FY22 IMPACT FY22 FY21 IMPACT FY21
LEVERAGE RATIO:
SHORT-TERM DEBT $ 500 $ - $ 500 $ 300 $ - $ 300
LONG-TERM DEBT $ 5,955 $ - $ 5,955 $ 6,325 $ - $ 6,325
TOTAL DEBT(1) $ 6,455 $ - $ 6,455 $ 6,625 $ - $ 6,625
PREFERRED STOCK $ 986 $ - $ 986 $ - $ - $ -
TOTAL DEBT AND
PREFERRED STOCK $ 7,441 $ - $
7,441
LESS:
OPERATING DEBT(2)
$ 867 $ - $
867
PRE-FUNDING OF UPCOMING
DEBT MATURITIES
$ 500 $ -$ 500 $ 300 $ -$ 300 25% OF CAPITAL SECURITIES AND SUBORDINATED NOTES$ 302 $ -$ 302 $ 302 $ -$ 302 50% OF PREFERRED STOCK$ 493 $ -$ 493 $ - $ - $ - CARRYING VALUE OF FAIR VALUE HEDGES AND OTHER ITEMS$ 164 $ -$ 164 $ 335 $ -$ 335 TOTAL NUMERATOR$ 5,115 $ -$ 5,115 $ 4,821 $ -$ 4,821 TOTAL STOCKHOLDERS' EQUITY, EXCLUDING UNREALIZED INVESTMENT GAINS (LOSSES)$ 11,457 $ 467$ 11,924 $ 13,598 $ 492$ 14,090 ADD: 25% OF CAPITAL SECURITIES AND SUBORDINATED NOTES$ 302 $ -$ 302 $ 302 $ -$ 302 LESS: 50% OF PREFERRED STOCK$ 493 $ -$ 493 $ - $ - $ -
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AS REINSURANCE AS REINSURANCE
PREVIOUSLY TRANSACTION PREVIOUSLY TRANSACTION
REPORTED RESTATEMENT RESTATED REPORTED RESTATEMENT RESTATED
FY22 IMPACT FY22 FY21 IMPACT FY21
TOTAL NUMERATOR $ 5,115 $ - $ 5,115 $ 4,821 $ - $ 4,821
TOTAL DENOMINATOR $ 16,381 $ 467 $ 16,848 $ 18,721 $ 492 $ 19,213
LEVERAGE RATIO 31.2 % -0.8 % 30.4 % 25.8 % -0.7 % 25.1 %
(1) Excludes obligations under certain financing arrangements and finance
leases of$664 million that are reported in other liabilities on our Consolidated Balance Sheets.
(2) We have categorized as operating debt the senior notes issued in October
2007 and
structured solution to reduce the strain on increasing statutory reserves
associated with secondary guarantee universal life insurance and term
policies.
The information furnished under Items 2.02 and 7.01 shall not be deemed "filed"
for the purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities of that Section. The
information in Items 2.02 and 7.01 of this Current Report shall not be
incorporated by reference into any registration statement or other document
pursuant to the Securities Act of 1933, as amended, except as otherwise
expressly stated in such filing.
Forward-Looking Statements - Cautionary Language
Certain statements made in this filing 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. Forward-looking statements
may contain words like: "anticipate," "believe," "estimate," "expect,"
"project," "shall," "will" and other words or phrases with similar meaning in
connection with a discussion of future operating or financial performance. In
particular, these include statements relating to future actions, performance or
financial results, including without limitation, statements regarding the
Company's expectations and preliminary estimates of the impact of the
restatement on the Company's Prior Financial Statements; the scope of the
restatement; the belief that the restatement will not affect the Company's
previously reported capital generated from the transaction, the Company's
distributable earnings, free cash flow, LNL's statutory filings, or year-end
risk-based capital ratio; the belief that the restatement does not affect the
Company's previously communicated 2023 outlook; and the expected timing of the
filing of the restated financial statements. Lincoln claims the protection
afforded by the safe harbor for forward-looking statements provided by the
PSLRA.
Forward-looking statements are subject to risks and uncertainties. Actual
results could differ materially from those expressed in or implied by such
forward-looking statements due to a variety of factors, including: risks related
to the timely and correct completion and filing of the restated financial
statements and the risk that additional information may become known prior to
the expected filing with the SEC of the restated financial statements described
herein or that other subsequent events may occur that would require the Company
to make additional adjustments to its financial statements or delay the filing
of the restated financial statements.
Our most recent Annual Report on Form 10-K, as well as other reports that we
file with the SEC , include additional risk factors that could affect our future
actions, businesses and financial performance and results. Moreover, we operate
in a rapidly changing and competitive environment. New risk factors emerge from
time to time, and it is not possible for management to predict all such risk
factors or to assess the effect of all risk factors on our businesses or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as a prediction of actual results. In addition,
Lincoln disclaims any obligation to update any forward-looking statements to
reflect events or circumstances that occur after the date of this report.
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REINSURANCE GROUP OF AMERICA INC FILES (8-K) Disclosing Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
LINCOLN NATIONAL LIFE INSURANCE CO /IN/ FILES (8-K) Disclosing Non-Reliance on Previous Financials, Audits or Interim Review
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