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PNX > SEC Filings for PNX > Form 8-K/A on 24-Apr-2013All Recent SEC Filings

Show all filings for PHOENIX COMPANIES INC/DE | Request a Trial to NEW EDGAR Online Pro

Form 8-K/A for PHOENIX COMPANIES INC/DE


24-Apr-2013

Non-Reliance on Previous Financials, Audits or Interim Review


Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

On November 7, 2012, management of the Company concluded that the Company's previously issued audited financial statements for the years ended December 31, 2011, 2010 and 2009 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 and the unaudited financial statements for the quarterly periods ended June 30, 2012, March 31, 2012 and September 30, June 30 and March 31 of 2011 included in the Company's Quarterly Reports on Form 10-Q (the "Previously Issued Financial Statements") filed with the United States Securities and Exchange Commission (the "SEC"), should no longer be relied upon and should be restated (the "Restatement") because of certain errors in the consolidated statement of cash flows in those financial statements. Management evaluated these errors and determined that they had a material impact on the Previously Issued Financial Statements. The errors to be corrected by the Restatement are not expected to have a material impact on the financial results of the Company's insurance company subsidiaries prepared in accordance with Statements of Statutory Accounting Principles and filed with the state insurance regulators, or the subsidiaries' risk based capital computations, for any of the periods noted.

Update of Restatement Timing

The Company has made significant progress on its financial statement restatement and will provide further updates on timing and estimated financial impact on or before May 31, 2013. As a result of the delay in completing the Restatement, the Company believes that it may not be able to timely file its Quarterly Reports on Form 10-Q for the first, second and third quarters of 2013. The Company's ability to complete the Restatementand resume a timely filing schedule with respect to its SEC filings reflecting the Restatementis subject to a number of contingencies, including but not limited to, whether the Company continues to identify errors in its consolidated financial statements, whether existing systems and processes can be timely updated, supplemented or replaced, and the number and complexity of, and periods covered by, the periodic reports that the Company will have to file with the SEC to reflect the Restatement.

The Company is seeking, pursuant to a solicitation of consents (the "Consent Solicitation") from holders of record as of 5:00 p.m. New York City time on April 23, 2013 (the "Holders") of the Company's outstanding 7.45% Quarterly Interest Bonds due 2032 (the "Securities"), the consent

of Holders representing a majority of the outstanding principal amount of the Securities to amend the indenture relating to the Securities (the "Indenture") and to provide a related waiver that will allow the Company to extend the date for providing its Delayed 2012 SEC Reports and its first, second and third quarter 2013 Forms 10-Q to the trustee under the Indenture (the "Trustee") to a date on or prior to December 31, 2013. However, even if the Company is successful in amending the Indenture and obtaining a waiver from the Holders, there can be no assurances that the Company will make its filings with the SEC or the Trustee by such date. The Company is providing additional information concerning the Consent Solicitation in a Current Report on Form 8-K dated April 24, 2013 and the exhibits thereto.

Information Regarding Currently Identified Errors, Adjustments and Reclassifications Relating to the Consolidated Statement of Cash Flows

During the preparation of the Company's Form 10-Q for the period ended September 30, 2012, certain errors were identified in the Company's consolidated statement of cash flows for the nine months ended September 30, 2012, as well as for the Previously Issued Financial Statements. These errors primarily consisted of (i) the incorrect classification of deposits and withdrawals of universal life and variable universal life products as cash flows used for continuing operations,
(ii) the incorrect classification of capitalized interest on policy loans as an investing activity, and (iii) certain other classification errors within cash flows, primarily from investing activities. In addition to these errors, the Company expects to make certain changes in presentation to enhance disclosure of certain cash activity.

The Company also expects to make reclassifications to correct the presentation of certain items as cash and cash equivalents on the Consolidated Balance Sheets in the Previously Issued Financial Statements, as appropriate. These corrections include the reclassification of restricted cash to other assets and certain negative cash balances from other liabilities. The Company expects these reclassifications to have a material impact on the total beginning and ending cash balances, as well as the total change in cash and cash equivalents reported on the consolidated statement of cash flows reported in the Previously Issued Financial Statements.

Information Regarding Currently Identified Errors, Adjustments and Reclassifications Relating to the Consolidated Balance Sheet and Statement of Income and Other Comprehensive Income

As part of the Restatement, the Company is adjusting the Previously Issued Financial Statements for errors identified and corrected during prior periods, and recording the adjustments in the appropriate historical period. The Company also has identified, assessed for materiality and corrected additional errors affecting prior periods including actuarial valuation of certain insurance liabilities and deferred policy acquisition cost assets, accounting for complex reinsurance transactions, and valuation of certain private debt securities and derivative instruments. The Company expects that it will continue to identify, assess for materiality and correct additional errors during the course of the Restatement, some of which may be material and adverse. Some errors which have been identified have not yet been quantified or analyzed completely.

Retrospective Adoption of Amended Accounting Guidance

As disclosed in the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2012, in October 2010, the Financial Accounting Standards Board (the "FASB") issued amended guidance to ASC 944, "Financial Services - Insurance", to address the diversity in practice for accounting for costs associated with acquiring or renewing insurance contracts. The amendment clarifies the definition of acquisition costs (i.e., costs which qualify for deferral) to include only incremental direct costs that result directly from, and are essential to, a contract and would not have been incurred by the insurance entity had the contract transaction not occurred. Therefore, only costs related to successful efforts of acquiring a new, or renewal, contract should be deferred. This guidance was retrospectively adopted on January 1, 2012 and such retrospective adoption will result in amendments to previously reported balances in all applicable reporting periods as if the guidance was applied at the inception of all policies in force. Adjustments for the retrospective adoption will reflect the impact of the adoption after consideration of the correction of errors identified in connection with the Restatement.

Additional Information

The Audit Committee and management discussed these matters with the Company's independent registered public accounting firm. The Company's previously issued audited financial statements and other financial information for the years ended December 31, 2011, 2010, and 2009, and the Company's interim financial statements for the periods ended June 30, 2012, March 31, 2012, September 30, 2011, June 30, 2011 and March 31, 2011 will be restated in one or more future filings with the SEC.

Since November 7, 2012 and in connection with the Restatement, the Company has identified additional errors, many of which have secondary impacts, such as the effect of these adjustments on deferred policy acquisition costs, and it has also identified limitations in existing systems and processes that will need to be updated, supplemented or replaced.

The Company continues to assess its disclosure controls and procedures and internal control over financial reporting. Management believes that it has currently identified multiple material weaknesses that will be reported in the Delayed 2012 Form 10-K.

Cautionary Statement Regarding Forward-Looking Statements

The foregoing contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We intend these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws relating to forward-looking statements. These forward-looking statements include statements relating to, or representing management's beliefs about, our future transactions, strategies, operations and financial results, including, without limitation, our expectation to provide information within anticipated timeframes. Such forward-looking statements often contain words such as "will," "anticipate," "believe," "plan," "estimate," "expect," "intend," "is targeting," "may," "should" and other similar words or expressions. Forward-looking statements are made based upon management's current expectations and beliefs and are not guarantees of future performance. Our ability to

complete the Restatement and resume a timely filing schedule with respect to our SEC filings reflecting the Restatement is subject to a number of contingencies, including but not limited to, whether we continue to identify errors in our consolidated financial statements, whether existing systems and processes can be timely updated, supplemented or replaced, and the number and complexity of, and periods covered by, the periodic reports that we will have to file with the SEC to reflect the Restatement. Our actual business, financial condition or results of operations may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others, those risks and uncertainties described in any of our other filings with the SEC. Certain other factors which may impact our business, financial condition or results of operations or which may cause actual results to differ from such forward-looking statements are discussed or included in our periodic and other reports filed with the SEC and are available on our website at www.phoenixwm.com under "Investor Relations". You are urged to carefully consider all such factors. We do not undertake or plan to update or revise forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this discussion, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If we make any future public statements or disclosures which modify or impact any of the forward-looking statements contained in or accompanying this discussion, such statements or disclosures will be deemed to modify or supersede such statements in this discussion.

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