|[January 17, 2014]
Phoenix Cos. (NYSE:PNX) Announces GAAP Restatement Impact, Expected Filing Dates, Other Updates
HARTFORD, Conn. --(Business Wire)--
The Phoenix Companies, Inc. (NYSE:PNX) today announced an unaudited
estimated pre-tax decrease of $250 million to total stockholders' equity
reported at June 30, 2012 as a result of its previously announced GAAP
restatement. The decrease was primarily driven by a GAAP accounting
requirement that the company record additional universal life (UL)
reserves over the restatement period to cover expected losses that
otherwise would have been recorded in future periods.
The unaudited estimated impact of the correction of errors on income
(loss) from continuing operations before taxes for the years ended 2010
and 2011 and the first half of 2012 was $(71) million, $(53) million and
$(40) million, respectively.
Phoenix said it expects to file its 2012 Form 10-K with the Securities
and Exchange Commission (SEC (News - Alert)) by March 31, 2014 and become a timely SEC
filer with the filing of its second quarter 2014 Form 10-Q. The company
also provided other updates related to the restatement, including its
application to the New York Stock Exchange (NYSE) for another listing
extension and plans to commence another bondholder consent solicitation.
In addition, Phoenix said it has not identified any material prior
period adjustments that will be reflected in its principal operating
subsidiary's fourth quarter 2013 statutory financial statements as a
result of the GAAP restatement.
"We are approaching completion of the GAAP restatement, have sized the
restatement's pre-tax impact for the market and established dates to
file our delayed financial statements," said James D. Wehr, president
and chief executive officer.
"The magnitude of the pre-tax impact on stockholders' equity was
primarily driven by a reserve accounting error we identified late in the
restatement process. While it impacted previously reported GAAP results,
this accounting error did not affect previously reported statutory
results. We believe Phoenix's financial position, including capital and
liquidity, remains strong, and we will continue fulfilling long-term
promises to our policyholders just as we have for over 160 years," Mr.
"We are dedicating significant resources to completing the restatement
and becoming a timely filer and are committed to meeting our dates.
While this is an aggressive timetable, we know how important it is to
provide current GAAP financial information to the market," Mr. Wehr
said. "We appreciate the patience of all our stakeholders during a
complex and lengthy process and are now moving forward."
PRE-TAX IMPACT OF RESTATEMENT ON (News - Alert) TOTAL STOCKHOLDERS' EQUITY AND
INCOME (LOSS) FROM CONTINUING OPERATIONS
Phoenix initiated the restatement process to correct certain errors
relating to the classification of items on the consolidated statement of
cash flows in the prior periods. The restatement will include the
following additional adjustments:
Recording previously identified, non-material, out-of-period errors in
the appropriate historical periods.
Correcting additional errors affecting prior periods, including the
actuarial valuation of certain insurance liabilities and deferred
policy acquisition cost assets, including accounting for reserves
for certain UL contracts;
accounting for complex reinsurance transactions;
valuation of certain private debt securities and derivative
accounting for other invested assets; and
Adjusting the retrospective adoption of new accounting guidance for
deferred acquisition costs to reflect the impact of the correction of
the errors associated with the restatement on the adoption.
The estimated pre-tax impact of the restatement on total stockholders'
equity reported at June 30, 2012 is a decrease of $250 million,
primarily driven by a $204 million decrease resulting from the UL
reserve error described more fully below. Prior to announcing the
restatement, Phoenix reported $946.6 million in total stockholders'
equity at June 30, 2012, on an after-tax basis.
The estimated pre-tax impact of the restatement on total stockholders'
equity includes correction of errors cited in the table below, as well
as correction of errors identified in pre-tax income (loss) from
continuing operations in years prior to 2010, pre-tax income (loss) from
discontinued operations and pre-tax other comprehensive income.
The estimated impact of the restatement on income (loss) from continuing
operations before income taxes is set forth in the following table:
Unaudited estimated income (loss) from continuing operations before
($ in millions)
Correction of Errors
1 As previously disclosed in its first quarter 2012 Form
10-Q, Phoenix retrospectively adopted new accounting guidance for
deferred acquisition costs (ASU 2010.26: FASB amended guidance to
ASC (News - Alert) 944, Financial Services - Insurance) effective Jan. 1,
The UL GAAP reserve accounting issue was discovered late in the
restatement process and produced the most significant impact of all the
error corrections. Certain UL products have benefit features or
experience that produce profits in earlier periods followed by losses in
later periods. Even though the current expectations and experience
indicate the block of business is expected to generate cumulative net
profits, the company determined that it is required under GAAP
accounting to record additional reserves over the restatement period to
cover the expected losses that otherwise would have been recorded in
future periods. Accordingly, in consultation with external accounting
and actuarial advisors, the company is correcting the resulting errors.
These errors were not the result of any changes in assumptions or errors
in data or modeling. In addition, the experience of the block is
reflected in the statutory reserves, and the errors did not impact
previously reported statutory financial results.
Phoenix is in the process of assessing its disclosure controls and
procedures and internal control over financial reporting, and expects to
report multiple material weaknesses in its 2012 Form 10-K. The material
weaknesses identified to-date, which are described more fully in
Phoenix's Current Report on Form 8-K filed today, are principally
attributable to a lack of personnel with sufficient GAAP accounting
knowledge and a lack of precision in monitoring and review activities.
The material weaknesses relate to cash flow and cash reporting,
reinsurance accounting, actuarial finance and valuation, private
placement investments, derivative valuations, other invested assets and
other invested asset taxable income reporting. Phoenix has already taken
a number of remedial actions and is developing a comprehensive plan to
correct the remaining deficiencies.
During the course of the restatement process, the company has not
identified any instances of fraud or intentional misrepresentation in
the preparation of the financial statements that are being restated.
Phoenix is in the process of completing restatement adjustments to
certain previously disclosed financial information. As a result of this
process, all information presented herein is preliminary, unaudited,
pre-tax and subject to adjustments, which may be material. Given the
complexity of the company's tax position, including valuation allowance
and intra-period tax allocations, Phoenix does not have an estimate at
this time of the tax impact of the restatement adjustments.
UPDATE ON IMPACT OF RESTATEMENT ON STATUTORY FINANCIAL RESULTS
Phoenix has continued to file unaudited quarterly and annual statutory
financial statements with state insurance regulators on time. Phoenix
expects to file its year-end 2013 unaudited statutory financial
statements for its principal operating subsidiary, Phoenix Life
Insurance Company (PLIC), and other insurance subsidiaries with state
insurance regulators by the March 1, 2014 filing deadline.
Phoenix previously disclosed that PLIC made $(28.0) million of net prior
period adjustments to its statutory financial statements during the nine
months ended Sept. 30, 2013 as a result of the GAAP restatement process
and statutory and GAAP audits. Phoenix has not identified any material
prior period adjustments that will be reflected in the fourth quarter
2013 statutory financial statements of PLIC as a result of the GAAP
ADDITIONAL RESTATEMENT UPDATES
On Jan. 14, 2014, Phoenix applied for an additional extension for
continued listing and trading of the company's common stock on the NYSE.
On Sept. 27, 2013, Phoenix received an extension providing an additional
trading period up to Jan. 31, 2014, during which it can file its 2012
Form 10-K with the SEC. At that time, the NYSE said it may grant an
additional extension up to April 3, 2014.
Phoenix said it will seek the consent of bondholders holding the
majority in principal amount of its 7.45% Quarterly Interest Bonds Due
2032 (NYSE:PFX) to amend the indenture governing the bonds.
The amendment to the terms of the indenture would allow Phoenix to
extend the date to become a current filer to March 16, 2015, the filing
deadline for the 2014 Form 10-K.
Within the next 10 days, Phoenix plans to make available to its
bondholders a Consent Solicitation Statement and begin outreach to the
bondholders for consent to the amendment.
Phoenix previously obtained waivers from bondholders giving it
additional time to provide required SEC filings to the bond trustee. The
current waiver established a year-end 2013 deadline for being a current
filer, which must be cured or waived by the bondholders by March 7, 2014
to avoid a default.
Phoenix's 7.45% Quarterly Interest Bonds are a retail note issued in
2001 with approximately $253 million outstanding and are traded on the
NYSE under the symbol "PFX."
BACKGROUND ON RESTATEMENT
On Nov. 7, 2012, management concluded it should restate previously
issued audited financial statements for the years ended Dec. 31, 2011,
2010 and 2009 included in the company's 2011 Form 10-K, and the
unaudited financial statements for the first, second and third quarters
of 2011 and the first and second quarters of 2012 included in the
company's Quarterly Reports on Form 10-Q. Phoenix has not yet filed with
the SEC its third quarter 2012 Form 10-Q and its subsequent periodic
The 2012 Form 10-K will contain audited financial statements for the
years ended Dec. 31, 2012, 2011 and 2010 and interim unaudited financial
statements for each quarter during 2012 and 2011. It also will restate
and correct selected financial data for each of the years ended Dec. 31,
2011, 2010, 2009 and 2008.
UPDATE ON HOLDING COMPANY LIQUIDITY
Phoenix reported $166.8 million in holding company cash and unaffiliated
securities as of Dec. 31, 2013 after taking into account the net impact
of the following fourth quarter 2013 actions:
a $25.0 million dividend paid by PLIC;
the purchase of a $30.0 million surplus note from PHL Variable, a PLIC
a $45.0 million capital contribution to further benefit PHL Variable.
The capital provided by the holding company to PHL Variable is intended
to partially offset an anticipated net statutory reserve increase as a
result of its annual statutory asset adequacy analysis and to maintain
adequate statutory capital.
CURRENT REPORT ON FORM 8-K FILED TODAY
Phoenix filed a Current Report on Form 8-K today that provides
additional details regarding the drivers of the restatement, control
deficiencies and the NYSE listing extension request.
The Phoenix Companies, Inc. (NYSE:PNX) helps financial professionals
provide solutions, including income strategies and insurance protection,
to families and individuals planning for or living in retirement.
Founded as a life insurance company in 1851, Phoenix offers products and
services designed to meet financial needs in the middle income and mass
affluent markets. Its distribution subsidiary, Saybrus Partners, Inc.
offers solutions-based sales support to financial professionals and
represents Phoenix's products among key distributors, including
independent marketing organizations and brokerage general agencies.
Phoenix is headquartered in Hartford, Connecticut, and its principal
operating subsidiary, Phoenix Life Insurance Company, has its statutory
home office in East Greenbush, New York. As of Dec. 31, 2013, Phoenix
had 5.7 million outstanding shares of common stock. For more
information, visit www.phoenixwm.com.
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 for 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 and potential penalties that
may result from failure to timely file statutory financial statements
with state insurance regulators, and the Company's ability to satisfy
its requirements under, and maintain the listing of its shares on, the
NYSE. 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 provide updated information about the restatement in
the anticipated timeframe, 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
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 news release, 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 news release, such statements or
disclosures will be deemed to modify or supersede such statements in
this news release.
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