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Item 4.02
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Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
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On February 8, 2022, the Company concluded that an error was made in the computation of basic and diluted GAAP earnings per share for the three and six months ended June 30, 2021 and the three and nine months ended September 30, 2021 (the “Affected Periods”). The error, which resulted from the Company’s failure to consider in the calculation of basic and diluted GAAP earnings per share the participating nature of the Company’s Series A preferred stock, appeared in the Company’s unaudited interim financial statements included in its (i) Quarterly Report on Form 10-Q for the six months ended June 30, 2021, filed with the SEC on July 29, 2021 (the “Q2 10-Q”), and (ii) Quarterly Report on Form 10-Q for the nine months ended September 30, 2021, filed with the SEC on October 28, 2021 (the “Q3 10-Q”, and together with the Q2 10-Q, the “Interim Reports”).
On February 8, 2022, the Audit Committee of the Board of Directors of the Company, in consultation with management of the Company, concluded that the unaudited interim financial statements appearing in the Interim Reports should no longer be relied upon and should be restated with respect to basic GAAP earnings per share and diluted GAAP earnings per share for the Affected Periods.
Other than basic and diluted GAAP earnings per share for the Affected Periods, the restatements do not impact the Company’s consolidated statements of operations for the Affected Periods, nor do they impact the Company’s statements of comprehensive income, balance sheets, statements of cash flows or statements of equity for the Affected Periods. Additionally, the changes to basic and diluted GAAP earnings per share do not affect compliance with the financial covenants contained in the Company’s outstanding debt instruments or compliance with any other agreement of the Company or its subsidiaries.
The following tables present the effect of the restatement on the Company's earnings per share for the Affected Periods.
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Three months ended June 30, 2021
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Six months ended June 30, 2021
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As reported
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Adjustment
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As restated
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As reported
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Adjustment
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As restated
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(Dollars in millions except per share amounts)
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Basic earnings per share:
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Net Income
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$
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409
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$
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—
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$
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409
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$
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304
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$
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—
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$
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304
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Less: preferred stock dividend
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(24)
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—
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(24)
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(24)
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—
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(24)
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Net income available for distribution
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385
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—
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385
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280
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—
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280
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Less: earnings allocated to participating securities
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—
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(271)
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(271)
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—
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(150)
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(150)
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Net income available to common shareholders
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$
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385
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$
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(271)
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$
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114
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$
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280
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$
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(150)
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$
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130
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Weighted average common shares outstanding - Basic
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69,667,651
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—
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69,667,651
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72,862,102
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—
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72,862,102
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EPS – Basic
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$
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5.53
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$
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(3.90)
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$
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1.63
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$
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3.84
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$
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(2.05)
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$
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1.79
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Diluted earnings per share:
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Method used:
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If-converted
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If-converted
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Net income available to common shareholders
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$
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409
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$
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—
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$
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409
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$
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304
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$
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—
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$
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304
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Weighted average common shares outstanding - Basic
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69,667,651
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—
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69,667,651
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72,862,102
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—
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72,862,102
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Dilutive effect of unvested RSUs and other contingently issuable shares
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—
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—
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—
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—
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—
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—
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Dilutive effect of participating securities
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166,086,887
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81,682,075
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247,768,962
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83,502,247
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164,266,715
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247,768,962
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Weighted average common shares outstanding – Diluted
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235,754,538
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235,754,538
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81,682,075
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317,436,613
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156,364,349
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156,364,349
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164,266,715
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320,631,064
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EPS – Diluted
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$
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1.73
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$
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(0.44)
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$
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1.29
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$
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1.94
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$
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(0.99)
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$
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0.95
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Three months ended September 30, 2021
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Nine months ended September 30, 2021
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As reported
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Adjustment
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As restated
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As reported
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Adjustment
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As restated
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(Dollars in millions except per share amounts)
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Basic earnings per share:
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Net Income
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$
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63
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$
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—
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$
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63
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$
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367
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$
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—
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$
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367
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Less: preferred stock dividend
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(36)
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—
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(36)
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(60)
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—
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(60)
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Net income available for distribution
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27
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—
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27
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307
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—
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307
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Less: earnings allocated to participating securities
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—
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(21)
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(21)
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—
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(203)
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(203)
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Net income available to common shareholders
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$
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27
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$
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(21)
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$
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6
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$
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307
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$
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(203)
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$
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104
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Weighted average common shares outstanding - Basic
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65,056,274
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—
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65,056,274
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70,802,999
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—
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70,802,999
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EPS – Basic
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$
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0.42
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$
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(0.33)
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$
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0.09
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$
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4.34
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$
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(2.88)
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$
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1.46
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Diluted earnings per share:
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Method used:
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Two-class (1)
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If-converted
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Net income available to common shareholders
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$
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63
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$
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(57)
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$
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6
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$
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367
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$
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—
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$
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367
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Weighted average common shares outstanding - Basic
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65,056,274
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—
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65,056,274
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70,802,999
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—
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70,802,999
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Dilutive effect of unvested RSUs and other contingently issuable shares
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25,069
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—
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25,069
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8,289
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—
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8,289
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Dilutive effect of participating securities
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247,763,126
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—
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247,763,126
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138,852,987
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108,915,975
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247,768,962
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Weighted average common shares outstanding – Diluted
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312,844,469
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—
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312,844,469
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209,664,275
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108,915,975
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318,580,250
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EPS – Diluted
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$
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0.20
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$
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(0.11)
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$
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0.09
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$
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1.75
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$
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(0.60)
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$
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1.15
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(1) The dilutive effect of participating securities is presented here merely for reference. The denominator for the calculation of diluted earnings per share under the two-class method is comprised of the weighted average common shares outstanding - basic, and the dilutive effect of unvested RSUs and other contingently issuable shares.
The Company is restating the impacted financial information for the Affected Periods in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Annual Report”). The Company is disclosing the impact of such restatements of the Affected Periods in its Annual Report, which the Company will file with the SEC immediately following the filing of this Current Report on Form 8-K.
The Audit Committee discussed the matters disclosed in this Current Report on Form 8-K with the Company’s independent registered accounting firm, Deloitte SA (“Deloitte”).
As a result of the error made in the computation of basic and diluted GAAP earnings per share for the Affected Periods, the management of the Company determined that a material weakness in internal control over financial reporting existed as at December 31. Following the completion of the year ended December 31, 2021, the Company has taken certain remediation steps with respect to the material weakness, which are described in the Annual Report.