SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): September 6, 2004
FINANCIAL INDUSTRIES CORPORATION
(Exact name of Registrant as specified in charter)
Texas 0-4690 74-2126975
(State or other jurisdiction (Commission file number) (I.R.S. employer
of incorporation) identification no.)
6500 River Place Blvd., Building One
Austin, Texas 78730
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 404-5000
Former name or former address, if changed since last report - Not Applicable
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
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Item 4.02 - Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review
Upon reviewing the estimated adjustments and write-offs described in Item
8.01, below, management and the audit committee concluded on September 6, 2004,
that, while the work to finalize the amount of such adjustments and write-offs
has not been completed, the Company will be required to restate its
shareholders' equity as reported in its quarterly report on Form 10-Q as of
September 30, 2003. The Company currently estimates that these adjustments and
write-offs may aggregate up to $49 million, after taxes. The shareholders'
equity as of September 30, 2003, as reported, is $160.5 million. Corresponding
adjustments to other accounts in these financial statements may also be
required.
As described in Item 8.01, below, the write-offs and other profit and loss
adjustments relate primarily to periods prior to 2003. Although the Company has
not completed its work, and has not yet determined the exact amount of the
adjustment to shareholders' equity as of September 30, 2003, or the amount by
which the estimated write-offs and adjustments will affect the Company's
financial statements included in the Company's quarterly report on Form 10-Q as
of September 30, 2003, the Company nonetheless cautions investors that the
financial statements for the nine-month period ended September 30, 2003, and the
three-month periods ended September 30, 2003, June 30, 2003, and March 31, 2003,
should no longer be relied upon.
Currently, the Company has not completed its work to determine the
reporting periods to which such write-offs and adjustments relate and the
amounts of such write-offs and adjustments for each period. However, as a result
of the additional work done recently, management and the audit committee
concluded on September 9, 2004, that restatements of its balance sheets will
occur, and it is likely that some of its other financial statements will be
restated, with respect to periods prior to 2003. Accordingly the Company
cautions investors that the financial statements for the years 1999 to 2002
should no longer be relied upon.
The Company's management and audit committee have discussed these matters
with the Company's independent registered public accounting firm.
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Item 8.01 - Other Events
The Company has continued to work on its financial statements for the year
ended December 31, 2003, and for the quarters ended March 31, 2004, and June 30,
2004.
As previously disclosed, the Company has tentatively identified certain
balance sheet accounts that it expects will need to be written off or adjusted.
Although the Company's work on these matters is ongoing, it currently estimates
that these write-offs and adjustments in the aggregate will total approximately
$9 million, before estimated taxes. While these relate principally to periods
prior to 2003 and relate to certain receivables, equipment and other assets, the
Company has also identified adjustments to various liability accounts. The
Company is continuing to perform additional reviews of its balance sheet
accounts to determine whether additional adjustments to its financial statements
may be required.
In addition, the Company has continued its previously-disclosed review of
intercompany accounts among itself and its affiliates that may not have been
adequately reconciled. The Company is performing a detailed analysis of a net
cumulative out-of-balance condition in the intercompany accounts that it
currently estimates would result in an aggregate write down of approximately $10
million, before estimated taxes. These write-offs also relate primarily to
periods prior to 2003.
During the course of the work on its financial statements, the Company has
undertaken an analysis of deferred policy acquisition costs (DAC) and present
value of future profits on acquired businesses (PVFP). The Company's accounting
policy, in accordance with generally accepted accounting principles, has been to
record the present value of future profits on acquired businesses and to defer
and amortize the costs of acquiring new business, which are principally first
year commissions and certain expenses of the policy issuance and underwriting
departments, which vary with and are primarily related to the production of new
business. The Company's analysis has related to the method of amortization of
such costs as well as the recoverability of such costs. Although the Company has
not completed its analysis, it currently expects that it will retroactively
correct amortization calculations for a substantial portion of these costs,
which approximate $30 million as of September 30, 2003. These adjustments are
currently estimated to result in aggregate write-offs of approximately $20
million, before estimated taxes. These write-offs also relate primarily to
periods prior to 2003.
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Also as part of its analysis of DAC and PVFP, the Company is reviewing the
accounting for its remaining DAC and PVFP, of $47 million and $25 million,
respectively, as recorded at September 30, 2003. Although this analysis is
ongoing, the Company expects that it will refine its methods with regard to DAC
and PVFP recoverability calculations. The Company has not yet determined the
amount of, or reached a conclusion regarding the effective periods for, any
write-offs. If a write-off occurs, management estimates that it could be upwards
of $22 million.
The above-described estimated adjustments and write-offs could aggregate
upwards of $61 million, before estimated taxes. It is unlikely that the Company
will be realizing a full statutory rate tax benefit for these write-offs.
Depending upon the circumstances, the Company may not be able to realize any tax
benefits with respect to certain periods. In addition, the otherwise resulting
tax benefit may result in deferred tax assets that are not realizable. The
Company currently estimates that its maximum realizable tax benefit is $12
million.
The Company emphasizes that it is continuing its reviews and analyses, and,
accordingly, refinements to the adjustments and write-offs described herein or
additional adjustments to its financial statements beyond those described herein
may be required as a result of these efforts. Further adjustments and write-offs
could also occur during the completion of the audit of the Company's financial
statements by its independent auditors.
The Company's work is being conducted by its internal accounting staff, as
well as several accounting and actuarial consultants. The incremental expenses
incurred through August 31, 2004, in connection with this work approximate $3
million, and are not included in the above-described adjustments.
In connection with its work, the Company has identified several material
control weaknesses which it is in the process of remediating. Accordingly, there
is uncertainty as to the Company's ability to complete its remediation process
and satisfy its required self-assessment procedures under Section 404(a) of the
Sarbanes-Oxley Act on a timely basis.
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The Company's management and audit committee have discussed these matters
with the Company's independent registered public accounting firm.
As provided by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, Financial Industries Corporation cautions that
the statements in this Form 8-K relating to matters that are not historical
factual information are forward-looking statements that represent management's
belief and assumptions based on currently available information. The information
contained in this report relating to the amount and periods of balance sheet
accounts that may need to be written off or adjusted, any after-tax effects, the
amount of the net cumulative out-of-balance condition in the intercompany
accounts, the amount and periods of write-offs of DAC and PVFP, possible
additional adjustments to the financial statements, the non-reliance on
financial statements for prior periods, restatement of financial statements,
amount and realization of tax benefits and deferred tax assets, and the
contingencies and uncertainties to which the Company may be subject, as well as
other statements including words such as "anticipate," "believe," "plan," "may",
"estimate," "expect," "intend," and other similar expressions constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. Such statements are made based upon management's current expectations and
beliefs and are subject to known and unknown risks, uncertainties and other
factors that could cause actual results to differ from those contemplated by the
forward-looking statements, including the timing, completion and results of the
Company's reviews and audits. Investors should not place undue reliance on
forward-looking statements. Each forward-looking statement speaks only as of the
date of the particular statement, and the Company undertakes no obligation to
publicly update or revise any forward-looking statements. There can be no
assurance that other factors not currently anticipated by management will not
also materially and adversely affect the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FINANCIAL INDUSTRIES CORPORATION
Date: September 9, 2004 By: /s/ J. Bruce Boisture
_____________________________________
President and Chief Executive Officer
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