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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 20, 2000
FRONTIER INSURANCE GROUP, INC.
(Exact name of registrant as specified in charter)
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<S> <C> <C>
DELAWARE 0-15022 14-1681606
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
195 LAKE LOUISE MARIE ROAD 12775-8000
ROCK HILL, NEW YORK (Zip Code)
(Address of principal executive
offices)
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Registrant's telephone number, including area code: (914) 796-2100
NOT APPLICABLE
(Former name or former address, if changed since last report)
Amending Item 7.(b) Proforma Financial Information
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Pro Forma Financial Information
The following pro forma condensed consolidated financial
statements of the Company are filed as part of this report:
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<CAPTION>
Description of Document Page Number
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<S> <C>
Introduction....................................................... 3
Pro forma Condensed Consolidated Balance Sheet
at September 30, 1999 (Unaudited).................................. 4
Pro forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 1999 (Unaudited)........... 5
Pro forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1998 (Unaudited)................... 6
Notes to Pro Forma Condensed Consolidated Financial
Statements......................................................... 7
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet
at September 30, 1999 gives effect to the disposition by Frontier Insurance
Group, Inc. ("the Company") of Lyndon Insurance Group, Inc. ("Lyndon") as if the
disposition had occurred at September 30, 1999 and the unaudited pro forma
condensed consolidated statements of operations for the nine months ended
September 30, 1999 and for the year ended December 31, 1998 give effect to such
disposition as if the disposition had occurred on January 1, 1998. The unaudited
pro forma results do not reflect the gain on the sale of Lyndon of approximately
$9.8 million. Unaudited pro forma financial information does not purport to be
indicative of either the results of future operations or the results of
operations that would have occurred had the disposition been consummated on the
dates indicated.
The unaudited pro forma financial statements should be read in
conjunction with the Company's historical consolidated financial statements and
notes thereto previously filed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, and the Quarterly Report on Form 10-Q for the
nine months ended September 30, 1999.
3
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Frontier Insurance Group, Inc. and Subsidiaries
Pro Forma Balance Sheet
September 30, 1999
Unaudited - (dollar amounts in thousands)
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<CAPTION>
Historical Lyndon Pro Forma Pro Forma
Consolidated Adjustment Adjustments Consolidated
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<S> <C> <C> <C> <C>
Assets
Investments:
Fixed maturity securities, available for sale $1,258,379 ($250,078) $80,000(1) $1,088,301
Equity securities, available for sale 71,721 (11,358) 60,363
Limited investment partnerships 34,683 (130) 34,553
Equity investees 18,443 (694) 17,749
Real estate and mortgage loans 8,049 0 8,049
Short-term investments 87,652 (24,978) 62,674
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Total investments 1,478,927 (287,238) 80,000 1,271,689
Cash 22,828 (3,368) 4,910(1) 24,370
Premiums and agents' balances receivable 184,548 (18,835) 165,713
Reinsurance recoverables on:
Paid losses and loss adjustment expenses 52,851 (12,567) 40,284
Unpaid losses and loss adjustment expenses 465,787 (22,209) 443,578
Prepaid reinsurance premiums 168,975 (69,380) 99,595
Accrued investment income 17,418 (3,578) 13,840
Deferred policy acquistion costs 124,785 (55,757) 69,028
Federal income tax recoverable 1,772 4,738 6,510
Deferred federal income taxes 7,216 0 7,216
Property, equipment and software 65,589 (2,138) 63,451
Intangible assets 61,188 (17,774) 43,414
Other assets 31,219 (10,186) 21,033
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Total assests $2,683,103 ($498,292) $84,910 $2,269,721
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Liabilities and Shareholders' Equity
Liabilities:
Policy liabilities:
Unpaid losses $ 926,485 ($ 43,771) $882,714
Unpaid loss adjustment expenses 329,349 (416) 328,933
Unearned premiums 626,714 (263,330) 363,384
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Total policy liabilities 1,882,548 (307,517) 1,575,031
Funds withheld under reinsurance contracts 172,443 (1,011) 171,432
Bank debt 132,300 0 (75,000)(1) 57,300
Reinsurance balances payable 79,952 (7,956) 71,996
Cash dividend payable to shareholders 2,434 0 2,434
Other liabilities 67,587 (31,668) 35,919
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Total liabilities 2,337,264 (348,152) (75,000) 1,914,112
Guranteed preferred beneficial interest in
Company's convertible subordinated debentures 167,297 0 167,297
Total shareholders' equity 178,542 (150,140) 159,910(1) 188,312
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Total liabilities and shareholders' equity $ 2,683,103 ($ 498,292) $ 84,910 $2,269,721
================================================================
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Frontier Insurance Group, Inc. and Subsidiaries
Pro Forma Statement of Operations
For the nine months ended
September 30, 1999 Unaudited - (dollar amounts in thousands, except
per share data)
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<CAPTION>
Historical Lyndon Pro Forma Pro Forma
Consolidated Adjustment Adjustments Consolidated
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Premiums earned $ 428,358 $ (56,962) $ $ 371,396
Net investment income 58,059 (11,874) -- 46,185
Net realized gains 5,415 (691) 4,724
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Total net investment income 63,474 (12,565) -- 50,909
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Net proceeds from company owned life insurance -- -- -- --
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Total revenues 491,832 (69,527) -- 422,305
Expenses
Losses 249,216 (30,855) -- 218,361
Loss adjustment expenses 139,705 (3,552) -- 136,153
Amortization of policy acquisition costs 96,811 (11,583) -- 85,228
Underwriting and other expenses 78,081 (12,681) 926(2) 66,326
Minority interest in income of subsidiary trust 8,230 -- -- 8,230
Interest expense 5,262 -- -- 5,262
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Total expenses 577,305 (58,671) 926 519,560
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Income (loss) before income taxes (85,473) (10,856) (926) (97,255)
Provision for income taxes:
State 990 (3,045) -- (2,055)
Federal 56,590 (47) (324)(3) 56,219
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Total income tax expense (benefit) 57,580 (3,092) (324) 54,164
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Net income (loss) $(143,053) $(7,764) $ (602) $(151,419)
====================================================
Fully diluted loss per common share $ (4.05) $ (4.29)
====================================================
Fully diluted weighted average shares outstanding 35,323 35,323
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Frontier Insurance Group, Inc. and Subsidiaries
Pro Forma Statement of Operations
For the year ended December 31, 1998
Unaudited - (dollar amounts in thousands, except per share data)
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<CAPTION>
Historical Lyndon Pro Forma Pro Forma
Consolidated Adjustment Adjustments Consolidated
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Premiums earned $493,054 $(101,221) $ $391,833
Net investment income 73,528 (16,333) -- 57,195
Net realized gains 3,010 (424) 2,586
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Total net investment income 76,538 (16,757) -- 59,781
Net proceeds from company owned life
insurance 4,400 -- -- 4,400
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Total revenues 573,992 (117,978) -- 456,014
Expenses
Losses 274,748 (50,762) -- 223,986
Loss adjustment expenses 168,105 (5,608) -- 162,497
Amortization of policy acquisition costs 122,813 (21,091) -- 101,722
Underwriting and other expenses 87,270 (14,896) 1,772(2) 74,146
Minority interest in income of subsidiary trust 10,966 -- -- 10,966
Interest expense 965 -- -- 965
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Total expenses 664,867 (92,357) 1,772 574,282
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Income (loss) before income taxes (90,875) (25,621) (1,772) (118,268)
Provision for income taxes:
State 743 (37) -- 706
Federal (41,576) (7,846) (620)(3) (50,042)
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Total income tax expense (benefit) (40,833) (7,883) (620) (49,336)
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Net income (loss) (50,042) (17,738) (1,152) (68,932)
===============================================
Fully diluted loss per common share $ (1.34) $ (1.85)
===============================================
Fully diluted weighted average shares outstanding 37,293 37,293
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1.) The total sales price for Lyndon was $163.5 million which, after
deducting approximately $3.6 million in related selling costs, resulted
in net proceeds to the Company of approximately $159.9 million. Upon
receipt of the net proceeds, the Company repaid $75 million of its
credit facility and infused $80 million into Frontier Insurance
Company, which subsequently purchased fixed maturity securities with
such funds.
Although not reflected in the Pro Forma Condensed Consolidated
Statements of Operations, had the $159.9 million in net proceeds
been available for investment at January 1, 1998, and assuming pre-tax
yields of 5.3% and 6.6% for the nine-months ended September 30, 1999
and the year ended December 31, 1998, respectively, net investment
income would have been increased by approximately $6.4 million and
$10.6 million, respectively during those periods.
2.) Underwriting and other expenses have been increased to reflect the
reversal of corporate overhead expenses allocated to Lyndon related
to accounting, actuarial, investment management, human resource,
information technology and executive support. Such expenses were
allocated based on time studies, personnel count, premium volume
and invested assets, as appropriate.
3.) Federal income taxes have been recorded to reflect the net tax effect
of the pro forma adjustments.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned hereunto duly authorized.
Frontier Insurance Group, Inc.
By: /s/ Harry W. Rhulen
------------------------------------------
Harry W. Rhulen
President and Chief Executive Officer
Dated: February 25, 2000
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