<PAGE>
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.
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(Exact name of registrant as specified in its charter)
Delaware 0-25984 95-4610936
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
26601 Agoura Road, Calabasas, California 91302
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 880-1600
---------------------------
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(Former name or former address, if changed since last report.)
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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.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------------------------------
PURCHASE
SUPERIOR ACCOUNTING PRO FORMA
NATIONAL BIG ADJUSTMENT(1) COMBINED
---------- ---------- -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
---------------------------------------------------
PURCHASE
SUPERIOR ACCOUNTING PRO FORMA
NATIONAL BIG ADJUSTMENT(1) COMBINED
---------- ---------- -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
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
---------- ---------- -------- ----------
---------- ---------- -------- ----------
</TABLE>
4
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(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.
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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
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
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PRO
FORMA
ADJUST
SUPERIOR MENTS INC. PRO FORMA
NATIONAL BIG (DECR.)(1) COMBINED
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
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PRO
FORMA
SUPERIOR ADJUST
NATIONAL PAC MENTS INC. PRO FORMA
(2) RIM(3) BIG (DECR.)(1) COMBINED
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
(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
</TABLE>
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<PAGE>
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(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
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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.
Date: January 27, 1999 SUPERIOR NATIONAL INSURANCE
GROUP, INC.
By: /s/ J. Chris Seaman
------------------------------
J. Chris Seaman
Executive Vice President and
Chief Financial Officer
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