PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
July 29, 2004
(Date of earliest event reported)
VESTA INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 63-1097283 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
| 3760 River Run Drive | 35243 |
| Birmingham, Alabama | (Zip Code) |
| (Address of principal executive offices) |
(205) 970-7000
(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets.
On July 29, 2004, Affirmative Insurance Holdings, Inc. ("AIHI"), an indirect subsidiary of the Registrant, completed an initial public offering of its common stock. In the offering, including the sale of shares pursuant to the underwriters' exercise of an over-allotment option, AIHI sold 5,083,000 newly issued shares, and certain wholly owned subsidiaries of the Registrant, as selling stockholders, sold 4,312,500 shares of AIHI's common stock previously held by them. As a result of the offering, the Registrant's shares of AIHI as a percentage of AIHI's total shares outstanding declined from approximately 98% to approximately 43% as of July 29, 2004.
The shares of AIHI were sold in a firm commitment underwriting to several underwriters led by Piper Jaffray & Co. at an offering price of $14.00 per share, less an underwriters' discount of 7% and underwriting expense of approximately $800 thousand. There were no material relationships between these underwriters and the Registrant or any of its affiliates, any director or officer of the Registrant or any associate of any such director or officer, other than an advisory relationship with one of the underwriters pursuant to which the registrant may become obligated to pay customary financial advisory fees in connection with an unrelated transaction.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
| (a) | Financial Statements of Business Acquired | ||
| None. | |||
| (b) | Pro Forma Financial Information | ||
| Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2004 | |||
| Unaudited Pro Forma Condensed Consolidated Statement of Operations for Six Months | |||
| Ended June 30, 2004 | |||
| Unaudited Pro Forma Condensed Consolidated Statement of Operations for Year | |||
| Ended December 31, 2003 | |||
| (c) | Exhibits | ||
| None. | |||
The following unaudited pro forma financial information is intended to provide you with information about how the initial public offering of shares of Affirmative Insurance Holdings, Inc. may have affected our historical financial statements if the offering had been completed prior to the periods presented. We have made pro forma adjustments to our historical balance sheet to reflect the following:
We have made pro forma adjustments to our historical statement of operations to reflect the following:
We have not made any pro forma adjustments to reflect any additional investment income we may have received on the proceeds of the sale of our 4,312,500 shares of AIHI.
The following unaudited pro forma financial information does not necessarily reflect the results of operations that may have actually resulted had the offering occurred prior to the periods presented, nor should the following unaudited pro forma financial information be taken as necessarily indicative of our future results of operations.
| Historical |
Adjustments (a) |
Pro Forma | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets: | |||||||||||
| Fixed maturities available for sale - at fair value | $ | 686,931 | $ | (53,346 | ) | $ | 633,585 | ||||
| Fixed maturities - trading | 153,563 | -- | 153,563 | ||||||||
| Equity securities-at fair value | 30,491 | -- | 30,491 | ||||||||
| Investment in unconsolidated subsidiary | -- | 81,692 | 81,692 | ||||||||
| Policy loans | 56,422 | -- | 56,422 | ||||||||
| Other invested assets | 49,089 | -- | 49,089 | ||||||||
| Total investments | 976,496 | 28,346 | 1,004,842 | ||||||||
| Cash | 91,562 | 3,487 | (b) | 95,049 | |||||||
| Accrued investment income | 10,570 | (692 | ) | 9,878 | |||||||
| Premiums in course of collection | 135,052 | (85,685 | ) | 49,367 | |||||||
| Reinsurance balances receivable | 396,788 | (43,846 | ) | 352,942 | |||||||
| Reinsurance recoverable on paid losses | 76,840 | 4,193 | 81,033 | ||||||||
| Deferred policy acquisition costs | 48,397 | (12,560 | ) | 35,837 | |||||||
| Property and equipment | 20,739 | (6,882 | ) | 13,857 | |||||||
| Goodwill and other intangibles | 149,488 | (79,490 | ) | 69,998 | |||||||
| Other assets | 21,670 | (5,187 | ) | 16,483 | |||||||
| Total assets | $ | 1,927,602 | $ | (198,316 | ) | $ | 1,729,286 | ||||
| Liabilities: | |||||||||||
| Policy liabilities | $ | 672,827 | $ | -- | $ | 672,827 | |||||
| Losses and loss adjustment expenses | 364,801 | (56,122 | ) | 308,679 | |||||||
| Unearned premiums | 326,924 | (82,874 | ) | 244,050 | |||||||
| Federal Home Loan Bank advances | 164,003 | -- | 164,003 | ||||||||
| Reinsurance balances payable | 41,103 | (7,918 | ) | 33,185 | |||||||
| Line of credit | 30,000 | -- | 30,000 | ||||||||
| Long term debt | 75,932 | -- | 75,932 | ||||||||
| Other liabilities | 131,969 | (63,250 | ) | 68,719 | |||||||
| Total liabilities | 1,807,559 | (210,164 | ) | 1,597,395 | |||||||
| Stockholders' equity: | |||||||||||
| Common stock, $.01 par value, 100,000,000 shares authorized, | |||||||||||
| 38,559,541shares issued | 386 | -- | 386 | ||||||||
| Additional paid-in capital | 246,302 | -- | 246,302 | ||||||||
| Accumulated other comprehensive income, net | 2,471 | 684 | 3,155 | ||||||||
| Accumulated deficit | (105,153 | ) | 11,164 | (c) | (93,989 | ) | |||||
| Treasury stock (2,479,977 shares at cost at June 30, 2004) | (18,263 | ) | -- | (18,263 | ) | ||||||
| Unearned stock | (5,700 | ) | -- | (5,700 | ) | ||||||
| Total stockholders' equity | 120,043 | 11,848 | 131,891 | ||||||||
| Total liabilities and stockholders' equity | $ | 1,927,602 | $ | (198,316 | ) | $ | 1,729,286 | ||||
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
| Historical |
Adjustments (a) |
Pro Forma | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | |||||||||||
| Net premiums written | $ | 245,437 | $ | (127,917 | ) | $ | 117,520 | ||||
| Change in unearned premiums | 8,701 | (2,689 | ) | 6,012 | |||||||
| Net premiums earned | 254,138 | (130,606 | ) | 123,532 | |||||||
| Policy fees | 17,767 | (12,166 | ) | 5,601 | |||||||
| Agency fees and commissions | 33,432 | (33,432 | ) | -- | |||||||
| Net investment income | 18,753 | (590) | (d) | 18,163 | |||||||
| Realized gains | 2,507 | -- | 2,507 | ||||||||
| Equity in net earnings of investee | -- | 5,488 | 5,488 | ||||||||
| Other | 1,699 | (358 | ) | 1,341 | |||||||
| Total revenues | 328,296 | (171,664 | ) | 156,632 | |||||||
| Expenses: | |||||||||||
| Policyholder benefits | 11,361 | -- | 11,361 | ||||||||
| Losses and loss adjustment expenses incurred | 175,322 | (90,423 | ) | 84,899 | |||||||
| Policy acquisition expenses | 35,540 | (27,525 | ) | 8,015 | |||||||
| Litigation settlement and arbitration award gain | (3,846 | ) | -- | (3,846 | ) | ||||||
| Operating expenses | 72,805 | (38,381 | ) | 34,424 | |||||||
| Interest on debt | 5,856 | (383 | ) | 5,473 | |||||||
| Deferrable capital security distributions | 863 | -- | 863 | ||||||||
| Total expenses | 297,901 | (156,712 | ) | 141,189 | |||||||
| Income (loss) from continuing operations before income taxes, minority interest, | |||||||||||
| and deferrable capital securities | 30,395 | (14,952 | ) | 15,443 | |||||||
| Income tax expense (benefit) | 2,773 | -- | 2,773 | ||||||||
| Minority interest, net of tax | 478 | (478 | ) | -- | |||||||
| Net income from continuing operations | $ | 27,144 | $ | (14,474 | ) | $ | 12,670 | ||||
| Net income (loss) from continuing operations per share - Basic | $ | 0.77 | $ | (0.41 | ) | $ | 0.36 | ||||
| Net income (loss) from continuing operations per share - Diluted | $ | 0.76 | $ | (0.41 | ) | $ | 0.36 | ||||
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
| Historical |
Adjustments (a) |
Pro Forma | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | |||||||||||
| Net premiums written | $ | 448,768 | $ | (179,584 | ) | $ | 269,184 | ||||
| Change in unearned premiums | 28,310 | 12,173 | 40,483 | ||||||||
| Net premiums earned | 477,078 | (167,411 | ) | 309,667 | |||||||
| Policy fees | 35,779 | (22,036 | ) | 13,743 | |||||||
| Agency fees and commissions | 49,110 | (49,110 | ) | -- | |||||||
| Net investment income | 40,691 | (189 | ) (d) | 40,502 | |||||||
| Realized gains (losses) | 7,776 | -- | 7,776 | ||||||||
| Gain on sale of subsidiary | -- | 11,164 | (c) | 11,164 | |||||||
| Equity in net earnings of investee | -- | 7,420 | 7,420 | ||||||||
| Other | 7,311 | (2,890 | ) | 4,421 | |||||||
| Total revenues | 617,745 | (223,052 | ) | 394,693 | |||||||
| Expenses: | |||||||||||
| Policyholder benefits | 21,080 | -- | 21,080 | ||||||||
| Losses and loss adjustment expenses incurred | 322,226 | (114,426 | ) | 207,800 | |||||||
| Policy acquisition expenses | 85,799 | (21,141 | ) | 64,658 | |||||||
| Litigation settlement and arbitration award charge | 65,920 | -- | 65,920 | ||||||||
| Operating expenses | 149,228 | (77,311 | ) | 71,917 | |||||||
| Interest on debt | 12,839 | (767 | ) | 12,072 | |||||||
| Deferrable capital distributions | 871 | -- | 871 | ||||||||
| Gain on debt extinguishment | (602 | ) | -- | (602 | ) | ||||||
| Total expenses | 657,361 | (213,645 | ) | 443,716 | |||||||
| Income (loss) from continuing operations before income taxes, minority | |||||||||||
| interest and deferrable capital securities distributions | (39,616 | ) | (9,407 | ) | (49,023 | ) | |||||
| Income tax expense (benefit) | 62,050 | (2,221 | ) | 59,829 | |||||||
| Minority interest, net of tax | 605 | (605 | ) | -- | |||||||
| Deferrable capital security distributions, net of tax | 622 | -- | 622 | ||||||||
| Income (loss) from continuing operations | $ | (102,893 | ) | $ | (6,581 | ) | $ | (109,474 | ) | ||
| Net loss from continuing operations per share - Basic | $ | (2.95 | ) | $ | (0.19 | ) | $ | (3.14 | ) | ||
| Net loss from continuing operations per share - Diluted | $ | (2.95 | ) | $ | (0.19 | ) | $ | (3.14 | ) | ||
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
| (a) | Adjustments reflect the impact from the Company's aggregate sale of 4,312,500 shares of Affirmative Insurance Holdings, Inc. ("AIHI") common stock, which became effective July 29, 2004. The Company's sale of these shares resulted in a reduction of the Company's ownership of AIHI from approximately 98% to approximately 43%. The Company's remaining 43% ownership in AIHI is reflected in the unaudited pro forma condensed consolidated financial statements using the equity method of accounting. As such, AIHI's assets and liabilities as of June 30, 2004 are eliminated and the Company's remaining 43% ownership of AIHI is reflected as investment in unconsolidated subsidiary. Additionally, the adjustments to the statement of operations for the year ended December 31, 2003 and the six months ended June 30, 2004 reflect the elimination of revenues and expenses related to the Company's non-standard underwriting and non-standard agency segments as reflected in the Company's segment footnote for the applicable period. The Company's 43% share of the operating results of AIHI is reflected as equity in net earnings of investee on the accompanying statements of operations. |
The accompanying unaudited pro forma condensed consolidated balance sheet reflects the AIHI initial public offering as if it had occurred as of June 30, 2004. The accompanying unaudited pro forma condensed consolidated statement of operations reflect the AIHI initial public offering as if it had occurred as of January 1, 2003. |
| (b) | Adjustment reflects the elimination of AIHI's cash balance as of June 30, 2004, offset by an increase in cash of $55.4 million, reflecting the net proceeds received by the Company in conjunction with the sale of 4,312,500 shares of AIHI common stock. |
| (c) | Adjustment reflects the realized gain related to the Company's sale of 4,312,500 shares of AIHI common stock. |
| (d) | We have not made any pro forma adjustments to reflect any additional investment income we may have received on the proceeds of $55.4 million from our sale 4,312,500 shares of AIHI. |
SIGNATURE
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, thereto duly authorized.
Dated as of August 12, 2004.
VESTA INSURANCE GROUP, INC.
By: /s/ Donald W. Thornton
Its: Senior Vice President --
General Counsel and Secretay