-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BC1wnvjjpOgEg55yFgnPbXIPtpLFAU9eOzpUO+4z1GV6ny9wyb/FzO6Gau7xEkZj h1torfWfkao2NawfFkZXTA== 0001047469-99-002384.txt : 19990128 0001047469-99-002384.hdr.sgml : 19990128 ACCESSION NUMBER: 0001047469-99-002384 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981210 ITEM INFORMATION: FILED AS OF DATE: 19990127 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERIOR NATIONAL INSURANCE GROUP INC CENTRAL INDEX KEY: 0000810463 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 954610936 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-25984 FILM NUMBER: 99514257 BUSINESS ADDRESS: STREET 1: 26601 AGOURA RD STREET 2: ` CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8188801600 MAIL ADDRESS: STREET 1: 26601 AGOURA ROAD CITY: CALABASAS STATE: CA ZIP: 91302 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) January 27, 1999 (December 10, 1998) SUPERIOR NATIONAL INSURANCE GROUP, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-25984 95-4610936 - ------------------------------------------------------------------------------- (State or other (Commission (I.R.S. Employer jurisdiction File Number) Identification No.) of incorporation) 26601 Agoura Road, Calabasas, California 91302 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (818) 880-1600 --------------------------- - ------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The financial statements of the insurance operations of Business Insurance Group, Inc. required to be filed as part of this Report were filed with the Securities and Exchange Commission (the "SEC") on November 4, 1998 as part of the Registrant's Amendment No. 3 to Form S-1 on Form S-3 Registration Statement (Registration No. 333-58579) for the periods ended December 31, 1995, 1996 and 1997 and as of December 31, 1996 and 1997 located at pages F-53 to F-73, and as part of the Registrant's Form 10-Q filed with the SEC for the quarterly period ended September 30, 1998 and as of September 30, 1998 located at pages 22 to 30, and are incorporated herein by this reference. (b) PRO FORMA FINANCIAL INFORMATION. UNAUDITED PRO FORMA FINANCIAL INFORMATION The following Unaudited Pro Forma Financial Information of Superior National Insurance Group, Inc. (the "Company") for the nine months ended September 30, 1998 and the year ended December 31, 1997 presents the results of operations for the Company as if the acquisition of Business Insurance Group, Inc. (the "Acquisition") had been consummated as of the beginning of each period presented. The pro forma adjustments are based on available information and certain assumptions the Company currently believes are reasonable in the circumstances. The Unaudited Pro Forma Financial Information has been derived from and should be read in conjunction with the historical Consolidated Financial Statements and Notes of the Company for the nine months ended September 30, 1998 (unaudited), the year ended December 31, 1997, and the historical Combined Financial Statements and Notes of Business Insurance Group, Inc. ("BIG") for the nine months ended September 30, 1998 (unaudited), and the year ended December 31, 1997 incorporated by reference herein, as set forth in the Company's Form 10-K/A for the year ended December 31, 1997, in the Company's Form 10-Q for the period ended September 30, 1998, and in the Company's Registration Statement on Form S-3 (Amendment No. 3) (Registration No. 333-58579) as filed with the Securities and Exchange Commission on November 4, 1998, and should be read in conjunction with the accompanying Notes to Unaudited Pro Forma Financial Information. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have occurred had the Acquisition been consummated on the dates assumed, nor is the pro forma information intended to be indicative of the Company's future results of operations. 2 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 --------------------------------------------------- PURCHASE SUPERIOR ACCOUNTING PRO FORMA NATIONAL BIG ADJUSTMENT(1) COMBINED ---------- ---------- -------------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS Investments: Bonds and note: Available-for-sale, at market....................... $ 143,190 $ 228,265 $ $ 371,455 Held-to-maturity, at amortized value................ -- 9,488 9,488 Equity securities, at market........................... 4,753 -- 4,753 Real estate............................................ -- 29,332 (29,332)(a) -- Note from parent....................................... -- 10,000 (10,000)(b) -- Short-term investments, at cost........................ 2,330 -- 2,330 Other investments...................................... 50 -- 50 ---------- ---------- -------- ---------- Total investments................................... 150,323 277,085 (39,332) 388,076 Cash and cash equivalents.............................. 16,882 477,810 29,332(a) 556,085 10,000(b) 15,238(c) 105,194(e) 182,520(f) (4,807)(g) (257,150)(h) (27,850)(h) (2,840)(h) 11,756(i) Reinsurance recoverables.................................. 82,978 309,903 392,881 Premiums receivable....................................... 26,366 78,296 104,662 Earned but unbilled premiums receivable................... 11,753 14,379 26,132 Accrued investment income................................. 1,813 7,254 9,067 Deferred policy acquisition costs......................... 747 22,790 23,537 Income tax receivable..................................... -- 15,238 (15,238)(c) -- Deferred income taxes..................................... 20,952 17,887 (17,887)(j) 20,952 Funds held by reinsurer................................... 4,993 -- 4,993 Prepaid reinsurance premiums.............................. 13,377 19,480 32,857 Receivable from related party reinsurer................... 14,070 14,070 Goodwill.................................................. 34,912 13,673 (13,673)(k) 34,912 Prepaid and other......................................... 25,679 21,850 47,529 ---------- ---------- -------- ---------- Total assets........................................... $ 404,845 $1,275,645 $(24,737) $1,655,753 ---------- ---------- -------- ---------- ---------- ---------- -------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Claim and claim adjustment expenses....................... $156,206 $675,705 $831,911 Unearned premiums......................................... 16,939 48,068 65,007 Reinsurance payable....................................... 21,607 116,272 137,879 Long-term debt............................................ 30 121,750 (121,750)(d) 105,224 105,194(e) Deferred credit-- negative goodwill....................... 86,911(h) 67,107 11,756(i) (17,887)(j) (13,673)(k) Policyholder dividends.................................... 1,335 5,473 6,808 Capital lease............................................. 6,503 -- 6,503 Discontinued operations liabilities....................... 9,480 9,480
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AS OF SEPTEMBER 30, 1998 --------------------------------------------------- PURCHASE SUPERIOR ACCOUNTING PRO FORMA NATIONAL BIG ADJUSTMENT(1) COMBINED ---------- ---------- -------------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Accounts payable and other liabilities.................... 30,183 55,376 (4,807)(g) 80,752 ---------- ---------- -------- ---------- Total liabilities...................................... 242,283 1,022,644 45,744 1,310,671 Trust preferred securities................................ 101,068 -- 101,068 Stockholders' equity Common stock.............................................. 35,682 167,416 192,983(f) 228,587 (167,416)(h) (78)(f) Paid-in capital warrants.................................. 2,206 -- 2,206 Accumulated other comprehensive income Unrealized gain on investments, net of taxes........... 1,919 5,122 (5,122)(h) 1,919 Retained earnings......................................... 28,171 80,463 121,750(d) 28,171 (202,213)(h) Less: Notes receivable from subscribed stock.............. -- -- (10,385)(f) (10,385) Less: Unearned compensation............................... (1,339) -- -- (1,339) Less: 245,000 shares of treasury stock at cost............ (5,145) -- -- (5,145) ---------- ---------- -------- ---------- Total stockholders' equity................................ 61,494 253,001 (70,481) 244,014 ---------- ---------- -------- ---------- Total liabilities and stockholders' equity................ $ 404,845 $1,275,645 $(24,737) $1,655,753 ---------- ---------- -------- ---------- ---------- ---------- -------- ----------
4 - ------------------ (1) Description of Pro Forma Adjustments. (a) Adjustment represents the sale of real estate to Foundation Health Systems, Inc. ("FHS") at current book value, pursuant to the Acquisition Agreement. (b) Adjustment represents Foundation Health Corporation's ("FHC") repayment of an intercompany promissory note including principal and interest, pursuant to the Acquisition Agreement. (c) Adjustment represents repayment of the income tax receivable due BIG by FHC, pursuant to the Acquisition Agreement. (d) Adjustment represents FHC's forgiveness of intercompany debt at the time of the Acquisition, pursuant to the Acquisition Agreement. (e) Adjustment represents $110.0 million term loan with Chase Manhattan Bank, net of transaction costs in the amount of $4.8 million, in connection with the Acquisition. (f) Adjustment represents the Equity Financings proceeds of $200 million less Employee Participation loans of $10.4 million which is shown as a contra equity account, net of transaction costs in the amount of $7.2 million, which include the $3.9 million transaction fee payable to IP under the Stock Purchase Agreement, in connection with the Acquisition. The Company paid a fee to affiliates of Insurance Partners, L.P., Insurance Partners (Offshore) Bermuda, L.P., and Capital Z Financial Services Fund II, L.P. ("IP II") consisting of the Commitment Fee Warrants, which are exercisable to purchase 734,000 shares of Common Stock at a purchase price of $16.75, in consideration of the Standby Commitment. A non-affiliate, Zurich Centre Group Holdings Limited, received 205,520 of these warrants in consideration of certain financing commitments to IP II. The Company incurred compensation expense for 620,010 shares issued to employees and consultants with an "in-the-money" value of $0.125 per share, which is the difference between the $16.875 per share market price at November 20, 1998, the day the Rights were exercised, and the $16.75 Subscription Price of the Rights. (g) Adjustment to settle intercompany payable arising in the ordinary course of business with FHS, pursuant to the Acquisition Agreement. (h) Adjustments represent $257.2 million paid to FHC to acquire BIG, plus $2.8 million paid in acquisition costs and a $27.9 million capital contribution as set forth in the Company's applications for regulatory approval of the Acquisition. In addition, corresponding adjustments to Common Stock and additional paid-in capital reflect the elimination of BIG's stockholders' equity interest. (i) Adjustment represents the sale of Business Insurance Company ("BICO") to Centre Solutions Holdings (Delaware) Limited for proceeds of $11.8 million. The Company will retain BICO's insurance business, infrastructure, liabilities, and employees. (j) Adjustment represents the elimination of the deferred tax asset related to the election under Section 338(h) of the Code taken by FHC. (k) Adjustment represents the elimination of BIG's goodwill existing prior to the Acquisition. 5 PRO FORMA FINANCIAL INFORMATION ACQUISITION OF BUSINESS INSURANCE GROUP, INC. BY SUPERIOR NATIONAL INSURANCE GROUP, INC. PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 ------------------------------------------------------- PRO FORMA ADJUST SUPERIOR MENTS INC. PRO FORMA NATIONAL BIG (DECR.)(1) COMBINED ------------ ------------ ------------ ------------- REVENUES: (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net premiums earned........ $ 60,952 $ 255,477 $ -- $ 316,429 Net investment income and capital gains......... 11,435 33,452 (1,827)(a) 43,060 Other income.... 402 402 ---------- ---------- -------- --------- Total revenues.... 72,387 289,331 (1,827) 359,891 EXPENSES: Claim and claim adjustment expenses, net of reinsurance.. 27,638 223,614 -- 251,252 Underwriting and general and administrative expenses............ 24,329 61,073 78(g) 85,480 Policyholder dividends.. 96 4,098 4,194 Goodwill amortization... 975 588 (588)(c) (855) (1,830)(d) Interest expense........ -- 7,077 (7,077)(e) 6,600 6,600(b) Loss on termination of financing transaction with a related party reinsurer............. -- -- -- Other expense........... 629 -- 629 ---------- ---------- -------- --------- Total expenses...... 53,667 296,450 (2,817) 347,300 ---------- ---------- -------- --------- Income (loss) before income taxes, preferred securities dividends and accretion, and extraordinary items... 18,720 (7,119) 990 12,591 Income tax expense (benefit)............. 6,936 (7,522) 4,576(f) 3,990 ---------- ---------- -------- --------- Income (loss) before preferred securities dividends and accretion, and extraordinary items................. $ 11,784 $ 403 $ (3,586) $ 8,601 ---------- ---------- -------- --------- ---------- ---------- -------- --------- BASIC EPS: Per Common Share: Income (loss) before preferred securities dividends and accretion, and extraordinary items................. $ 2.04 $ 0.49 Weighted average shares outstanding........... 5,779,978 17,723,863 DILUTED EPS: Per Common Share: Income (loss) before preferred securities dividends and accretion, and extraordinary items.................. $ 1.50 $ 0.43 Weighted average shares outstanding............ 7,837,997 19,891,731
YEAR ENDED DECEMBER 31, 1997 --------------------------------------------------------------------- PRO FORMA SUPERIOR ADJUST NATIONAL PAC MENTS INC. PRO FORMA (2) RIM(3) BIG (DECR.)(1) COMBINED ------------ ------------ ------------ ------------ ------------- (RESTATED) (RESTATED) REVENUES: (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net premiums earned........ $ 140,920 $ 19,507 $ 515,272 $ -- $ 675,699 Net investment income and capital gains......... 12,674 1,449 44,724 (1,996)(a) 56,851 Other income.... -- -- 3,512 3,512 ---------- --------- ---------- ---------- ---------- Total revenues.... 153,594 20,956 563,508 (1,996) 736,062 EXPENSES: Claim and claim adjustment expenses, net of reinsurance.. 90,447 25,841 443,204 559,492 Underwriting and general and administrative expenses............ 37,695 10,769 170,070 78(g) 218,612 Policyholder dividends.. -- 1,006 793 1,799 Goodwill amortization... 1,039 -- 1,262 (1,262)(c) (1,401) (2,440)(d) Interest expense........ 6,335 589 8,326 (8,326)(e) 15,724 8,800(b) Loss on termination of financing transaction with a related party reinsurer............. 15,699 15,699 Other expense........... 817 -- -- -- 817 ---------- --------- ---------- ---------- ---------- Total expenses...... 152,032 38,205 623,655 (3,150) 810,742 ---------- --------- ---------- ---------- ---------- Income (loss) before income taxes, preferred securities dividends and accretion, and extraordinary items... 1,562 (17,249) (60,147) 1,154 (74,680) Income tax expense (benefit)............. 1,099 612 (29,506) 1,927(f) (25,868) ---------- --------- ---------- ---------- ---------- Income (loss) before preferred securities dividends and accretion, and extraordinary items................. $ 463 $(17,861) $ (30,641) $ (773) $ (48,812) ---------- --------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- BASIC EPS: Per Common Share: Income (loss) before preferred securities dividends and accretion, and extraordinary items................. $ 0.09 $ (2.84) Weighted average shares outstanding........... 5,249,736 17,193,621 DILUTED EPS: Per Common Share: Income (loss) before preferred securities dividends and accretion, and extraordinary items.................. $ 0.07 $ (2.57) Weighted average shares outstanding............ 7,016,165 18,960,050
6 - ------------------ (1) Description of Pro Forma Adjustments. (a) Adjustment represents the elimination of net investment income for real estate sold to FHC and interest on the promissory note from FHC, pursuant to the Acquisition Agreement. (b) Adjustment represents estimated interest expense on the $110.0 million term loan with Chase Manhattan Bank entered into in connection with the Acquisition. The Company is using an estimated interest rate of 8.0% for purposes of this calculation, which assumes the term loans agreement base rate equal to the LIBOR rate plus a 3.0% spread. A one percentage point change in the interest rate on such debt would result in an annual increase/decrease in interest expense of approximately $1.1 million. (c) Adjustment represents the elimination of the amortization of BIG's goodwill existing prior to the Acquisition. (d) Adjustment represents the amortization of the negative goodwill (deferred credit) on a straight line basis over 27.5 years. (e) Adjustment represents the elimination of the interest expense at a rate of 7.75% and 6.75% in 1998 and 1997, respectively, associated with $121.7 million of intercompany debt that will be settled by FHC at the time of the Acquisition. (f) Adjustment represents the amount required to adjust income tax expense (benefit) to the statutory rate in effect during the periods presented. (g) Adjustment reflects the compensation expense related to the Rights distribution and is calculated as the difference between the $16.875 per share market price on November 20, 1998, the day the Rights were exercised, and the $16.75 Subscription Price of the Rights. (2) The results of Superior National for the year ended December 31, 1997 include the results of SPCC (formerly The Pacific Rim Assurance Company) for periods subsequent to April 1, 1997. (3) Pac Rim Holding Corporation was acquired on April 11, 1997. The results of operations presented are for the period January 1, 1997 through March 31, 1997. 7 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. Date: January 27, 1999 SUPERIOR NATIONAL INSURANCE GROUP, INC. By: /s/ J. Chris Seaman ------------------------------ J. Chris Seaman Executive Vice President and Chief Financial Officer 8 -----END PRIVACY-ENHANCED MESSAGE-----