<PAGE>
UNITED STATES
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 December 20, 1999
---------------------------
Commission File Number 0-20766
---------------------------
HCC Insurance Holdings, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0336636
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13403 Northwest Freeway, Houston, Texas 77040-6094
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 690-7300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 20, 1999, pursuant to that certain Agreement and Plan of
Merger (the "Merger Agreement") dated as of October 11, 1999, by and among
HCC Insurance Holdings, Inc. ("HCC"), Merger Sub of Delaware, Inc. ("Merger
Sub"), a wholly owned subsidiary of HCC, and The Centris Group, Inc.
("Centris"), Merger Sub was merged into Centris and as a result of such
merger, Centris became a wholly owned subsidiary of HCC. The merger was
effected following a tender offer by Merger Sub for all of the outstanding
Common Stock (including the associated common stock purchase rights) of
Centris at $12.50 per share.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired
The financial statements of Centris included in the following documents as
filed with the Securities and Exchange Commission (the "Commission") are
hereby incorporated by reference in this report on Form 8-K/A:
(1) The Annual Report on Form 10-K of The Centris
Group, Inc. for the fiscal year ended December 31, 1998 (Commission
File No. 001-12099).
(2) The Quarterly Report on Form 10-Q on the Centris
Group, Inc. for the period ended September 30, 1999 (Commission File
No. 001-12099).
(b) Pro forma financial information
The following unaudited pro forma combined financial information gives effect
to the acquisition of Centris by HCC in a transaction accounted for using the
purchase method of accounting. The unaudited pro forma combined balance sheet
is based on the individual balance sheets of HCC and Centris and has been
prepared to reflect the acquisition of Centris as if it had occurred on
September 30, 1999. The unaudited pro forma combined statements of earnings
from continuing operations are based on the individual statements of earnings
of HCC and Centris. They combine the results of continuing operations of HCC
and Centris for the nine months ended September 30, 1999 and for the year
ended December 31, 1998 as if the acquisition had occurred on January 1, 1998.
The unaudited pro forma combined financial information gives effect only to
the reclassifications and adjustments set forth in the accompanying notes. The
unaudited pro forma combined financial information is not necessarily
indicative of the results of continuing operations or of the financial
position of the combined companies for the periods presented, nor is it
necessarily indicative of HCC's future results of continuing operations or
financial position.
During the period September 30, 1999 through December 20, 1999, Centris
incurred significant losses, primarily as a result of adverse underwriting
results in its continuing and its discontinued operations. HCC's management
became aware of the potential of such results during the due diligence
process and gave effect to such expectations in the purchase price
calculation. These losses will increase the ultimate goodwill calculation by
approximately $21.7 million over the September 30, 1999 amount. Goodwill as
of the purchase date is estimated to be $98.4 million.
2
<PAGE>
The following pro forma financial information is included in this filing:
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1999.
Unaudited Pro Forma Combined Statement of Earnings from Continuing Operations
for the Nine Months Ended September 30, 1999.
Unaudited Pro Forma Combined Statement of Earnings from Continuing Operations
for the Year Ended December 31, 1998.
(c) Exhibits
13.1 Annual Report on Form 10-K of The Centris Group, Inc. for the
fiscal year ended December 31, 1998 (Commission File No. 001-12099) -
incorporated herein by reference.
13.2 Quarterly Report on Form 10-Q of The Centris Group, Inc. for the
period ended September 30, 1999 (Commission File No. 001-12099) -
incorporated herein by reference.
23 Consent of Independent Auditors
THIS REPORT ON FORM 8-K/A (THE "REPORT") CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, WHICH ARE INTENDED TO BE COVERED BY THE SAFE HARBORS CREATED
THEREBY. INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS
NECESSARILY INVOLVE RISKS AND UNCERTAINTY, INCLUDING, WITHOUT LIMITATION, THE
RISK OF A SIGNIFICANT NATURAL DISASTER, THE INABILITY OF THE COMPANY TO
REINSURE CERTAIN RISKS, THE ADEQUACY OF ITS LOSS RESERVES, THE FINANCIAL
VIABILITY OF REINSURERS, THE EXPANSION OR CONTRACTION IN ITS VARIOUS LINES OF
BUSINESS, THE IMPACT OF INFLATION, THE IMPACT OF YEAR 2000 ISSUES, CHANGING
LICENSING REQUIREMENTS AND REGULATIONS IN THE UNITED STATES AND IN FOREIGN
COUNTRIES, THE ABILITY OF THE COMPANY TO INTEGRATE ITS RECENTLY ACQUIRED
BUSINESSES, THE EFFECT OF PENDING OR FUTURE ACQUISITIONS AS WELL AS
ACQUISITIONS WHICH HAVE RECENTLY BEEN CONSUMMATED, GENERAL MARKET CONDITIONS,
COMPETITION, LICENSING AND PRICING. ALL STATEMENTS, OTHER THAN STATEMENTS OF
HISTORICAL FACTS, INCLUDED OR INCORPORATED BY REFERENCE IN THIS REPORT THAT
ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE COMPANY EXPECTS OR
ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING, WITHOUT LIMITATION,
SUCH THINGS AS FUTURE CAPITAL EXPENDITURES (INCLUDING THE AMOUNT AND NATURE
THEREOF), BUSINESS STRATEGY AND MEASURES TO IMPLEMENT SUCH STRATEGY,
COMPETITIVE STRENGTHS, GOALS, EXPANSION AND GROWTH OF THE COMPANY'S
BUSINESSES AND OPERATIONS, PLANS, REFERENCES TO FUTURE SUCCESS, AS WELL AS
OTHER STATEMENTS WHICH MAY INCLUDE WORDS SUCH AS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "EXPECT," "INTEND," "PLAN," "PROBABLY" AND OTHER SIMILAR
EXPRESSIONS, CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD OVER TIME PROVE
TO BE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT WILL THEMSELVES PROVE TO
BE ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON
THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
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.
Dated: March 6, 2000 HCC INSURANCE HOLDINGS, INC.
----------------------------
(Registrant)
By: /s/ Edward H. Ellis, Jr.
-----------------------------
Edward H. Ellis, Jr.
Senior Vice President and
Chief Financial Officer
3
<PAGE>
HCC INSURANCE HOLDINGS, INC.
Unaudited Pro Forma Combined Balance Sheet
September 30, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- ----------------------------
HCC Insurance The Centris
Holdings, Inc. Group, Inc. Adjustments Combined
-------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Investments:
Fixed income securities, at market $ 390,832 $ 60,064 $ ( 79,000) B $ 371,896
Marketable equity securities, at market 1,140 8,943 10,083
Short-term investments, at cost 206,001 4,940 21,903 A 232,844
Other investments, at cost 1,724 - 1,724
----------- --------- ----------- -----------
Total investments 599,697 73,947 (57,097) 616,547
Cash 10,677 26,734 (21,903) A 15,508
Restricted cash and cash investments 82,611 33,484 116,095
Reinsurance recoverables 567,205 119,809 687,014
Premium, claims and other receivables 468,145 71,612 539,757
Assets held for transfer - 96,405 96,405
Ceded unearned premium 146,417 13,153 159,570
Deferred policy acquisition costs 41,819 (383) 4,147 A 45,583
Goodwill 159,608 4,350 (2,794) C 237,841
76,677 G
Other assets 77,832 36,308 (1,379) C 116,881
4,120 E
----------- --------- ----------- -----------
Total assets $ 2,154,011 $ 475,419 $ 1,771 $ 2,631,201
=========== ========= =========== ============
LIABILITIES
Loss and loss adjustment expense payable $ 668,807 $ 141,734 $ 810,541
Reinsurance balances payable 127,617 101,241 (71,534) A 157,324
Unearned premium 198,199 15,582 213,781
Pending transferable reinsurance - 96,405 96,405
Deferred ceding commissions 42,498 - 4,147 A 46,645
Premium and claims payable 431,895 - 71,534 A 503,429
Notes payable 189,559 25,000 70,500 B 285,059
Accounts payable and accrued liabilities 27,284 14,609 7,972 D 49,865
----------- --------- ----------- -----------
Total liabilities 1,685,859 394,571 82,619 2,163,049
SHAREHOLDERS' EQUITY
Common Stock 48,711 125 (125) F 48,711
Additional paid-in capital 175,564 46,574 (46,574) F 175,564
Retained earnings 242,355 43,459 (43,459) F 242,355
Accumulated other comprehensive income 1,522 (1,159) 1,159 F 1,522
Treasury stock - (8,151) 8,151 F -
----------- --------- ----------- -----------
Total shareholders' equity 468,152 80,848 (80,848) 468,152
----------- --------- ----------- -----------
Total liabilities and
shareholders' equity $ 2,154,011 $ 475,419 $ 1,771 $ 2,631,201
=========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
4
<PAGE>
HCC INSURANCE HOLDINGS, INC.
Notes to Unaudited Pro Forma Combined Balance Sheet
Pro Forma Adjustments
- ---------------------
A To reclassify certain assets and liabilities to conform with the
balance sheet presentation of HCC.
B To reflect the sale of $79 million in fixed income securities and
issuance of $70.5 million in debt, the proceeds from which were used to
acquire Centris. There was no material gain or loss realized on the
sale of the fixed income securities.
C To adjust Centris assets to fair market value.
D To record additional liabilities, consisting of the following:
<TABLE>
<S> <C>
Contractual executive severance accrual $ 6,744,000
Restructuring severance accrual 321,000
Accrual for office space and
equipment not to be used in
continuing operations and other 907,000
----------------
Total $ 7,972,000
================
</TABLE>
E To record deferred income tax effects of the asset adjustments and
purchase accruals.
F To eliminate shareholders' equity of Centris.
G To record goodwill as if the purchase had occurred on September 30,
1999, which is calculated as follows:
<TABLE>
<S> <C>
Purchase price, including acquisition costs $ 149,500,000
Less net identifiable assets, at fair value (72,823,000)
--------------------
Total $ 76,677,000
====================
</TABLE>
The goodwill calculated as of September 30, 1999 differs from the
goodwill calculated as of the purchase date due to the decrease in
total shareholders' equity of Centris subsequent to September 30, 1999,
principally as a result of underwriting losses in its continuing and
discontinued operations. Goodwill as of the purchase date is estimated
to be $98.4 million.
5
<PAGE>
HCC INSURANCE HOLDINGS, INC.
Notes to Unaudited Pro Forma Combined Balance Sheet
(continued)
BASIS OF PRESENTATION
- ---------------------
Management believes the assumptions used provide a reasonable basis for
presenting all the significant effects of the combination on the historical
combined balance sheets of HCC and Centris, the pro forma adjustments give
appropriate effect to those assumptions and the pro forma adjustments are
properly applied in the unaudited pro forma combined balance sheet. However,
HCC is in the process of finalizing the purchase accounting for Centris and
certain pro forma adjustments may change.
6
<PAGE>
HCC INSURANCE HOLDINGS, INC.
Unaudited Pro Forma Combined Statement of Earnings from Continuing Operations
For the Nine Months Ended September 30, 1999
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------- ----------------------------------
HCC Insurance The Centris
Holdings, Inc. Group, Inc. Adjustments Combined
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Net earned premium $ 99,576 $ 58,468 $ $ 158,044
Management fees 69,717 28,197 ( 644) A 97,270
Commission income 44,742 - 644 A 45,386
Net investment income 22,866 5,393 (3,010) B 25,249
Net realized investment gain(loss) (266) 226 (40)
Managed and withdrawal lines - 39,167 (39,167) A -
Other operating income 20,928 - 20,928
---------------- ------------- ------------- ---------------
Total revenue 257,563 131,451 (42,177) 346,837
EXPENSE
Loss and LAE 77,756 57,708 135,464
Operating expense
Policy acquisition costs 3,490 17,941 21,431
Compensation expense 56,818 - 10,997 A 67,815
Provision for reinsurance 29,500 - 29,500
Managed and withdrawal lines - 39,167 (39,167) A -
Other operating expense 36,212 15,929 (10,997) A 44,019
2,875 D
---------------- ------------- ------------- ---------------
Net operating expense 126,020 73,037 (36,292) 162,765
Interest expense 9,217 2,583 3,987 C 15,787
---------------- ------------- ------------- ---------------
Total expense 212,993 133,328 (32,305) 314,016
---------------- ------------- ------------- ---------------
Earnings (loss) before income
tax provision 44,570 (1,877) (9,872) 32,821
Income tax provision (benefit) 14,456 1,439 (1,583) E 14,312
---------------- ------------- ------------- ---------------
Net earnings (loss) from
continuing operations $ 30,114 $ (3,316) $ (8,289) $ 18,509
================ ============= ============= ===============
BASIC EARNINGS (LOSS) PER SHARE DATA:
Income (loss) from continuing $ 0.62 $ (0.29) $ 0.38
operations
================ ============= ===============
Shares outstanding 48,950 11,603 48,950
================ ============= ===============
DILUTED EARNINGS (LOSS) PER SHARE
DATA:
Income (loss) from continuing $ 0.60 $ (0.29) $ 0.37
operations
================ ============= ===============
Shares outstanding 49,794 11,603 49,794
================ ============= ===============
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
7
<PAGE>
HCC INSURANCE HOLDINGS, INC.
Unaudited Pro Forma Combined Statement of Earnings from Continuing Operations
For the Year Ended December 31, 1998
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------- --------------------------------
HCC Insurance The Centris
Holdings, Inc. Group, Inc. Adjustments Combined
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Net earned premium $ 143,100 $ 111,435 $ $ 254,535
Management fees 74,045 34,829 (772) A 108,102
Commission income 38,441 - 772 A 39,213
Net investment income 29,335 5,284 (4,013) B 30,606
Net realized investment gain 845 16,768 17,613
Other operating income 22,268 - 22,268
-------------- --------------- ------------- ----------------
Total revenue 308,034 168,316 (4,013) 472,337
EXPENSE
Loss and LAE 91,302 95,509 186,811
Operating expense
Policy acquisition costs 10,978 36,715 47,693
Compensation expense 56,077 - 13,396 A 69,473
Other operating expense 36,170 17,967 (13,396) A 44,575
3,834 D
-------------- --------------- ------------- ----------------
Net operating expense 103,225 54,682 3,834 161,741
Interest expense 6,021 2,151 5,316 C 13,488
-------------- --------------- ------------- ----------------
Total expense 200,548 152,342 9,150 362,040
-------------- --------------- ------------- ----------------
Earnings before income
tax provision 107,486 15,974 (13,163) 110,297
Income tax provision 35,208 6,088 (2,111) E 39,185
-------------- --------------- ------------- ----------------
Net earnings from continuing $ 72,278 $ 9,886 $ (11,052) $ 71,112
operations
============== =============== ============= ================
BASIC EARNINGS PER SHARE DATA:
Income from continuing operations $ 1.51 $ 0.82 $ 1.48
============== =============== ================
Shares outstanding 47,920 12,037 47,920
============== =============== ================
DILUTED EARNINGS PER SHARE DATA:
Income from continuing operations $ 1.48 $ 0.81 $ 1.45
============== =============== ================
Shares outstanding 48,936 12,278 48,936
============== =============== ================
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial information.
8
<PAGE>
HCC INSURANCE HOLDINGS, INC.
Notes to Unaudited Pro Forma Combined Statements of Earnings
from Continuing Operations
PRO FORMA ADJUSTMENTS
- ---------------------
A To reclassify certain revenues and expenses to conform with the statement
of earnings presentation of HCC.
B To recognize the reduction in investment income due to sale of fixed
income securities to finance the acquisition.
C To record interest expense at current rate (7.54%) on additional debt
($70.5 million) incurred to finance the acquisition.
D To record amortization expense based on an estimated $76.7 million of
goodwill, calculated as of September 30, 1999, amortized over 20 years.
The goodwill calculated as of September 30, 1999 differs from the
goodwill calculated at the purchase date due to the decrease in total
shareholders' equity of Centris subsequent to September 30, 1999,
principally as a result of underwriting losses in its continuing and
discontinued operations. Goodwill at the purchase date is estimated to be
$98.4 million, which would increase annual amortization by $1.1 million,
from $3.8 million to $4.9 million.
E To record income tax effects on reduced investment income and
additional interest expense. The difference between the statutory tax
rate and the effective tax rate is the result of non-taxable municipal
bond interest and the amortization of nondeductible goodwill.
BASIS OF PRESENTATION
- ---------------------
Management believes the assumptions used provide a reasonable basis for
presenting all the significant effects of the combination on the historical
combined statements of earnings from continuing operations of HCC and
Centris, the pro forma adjustments give appropriate effect to those
assumptions and the pro forma adjustments are properly applied in the
unaudited pro forma combined statements of earnings from continuing
operations. However, HCC is in the process of finalizing the purchase
accounting for Centris and certain pro forma amounts may change.
Centris sold its property/casualty reinsurance operation in June, 1999. For
the historical Centris statements of earnings included in this pro forma
financial information, Centris presented the statement of earnings effects of
its property/casualty reinsurance operations as a discontinued operation.
Accordingly, under the rules of the Securities and Exchange Commission, the
results of discontinued operations are not contained in the accompanying
unaudited pro forma combined statements of earnings from continuing
operations.
9
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
HCC Insurance Holdings, Inc.:
We consent to use of our audit report incorporated by reference herein dated
March 26, 1999, with respect to the consolidated financial statements of The
Centris Group, Inc. and subsidiaries as of December 31, 1998 and 1997, and
for each of the years in the three-year period ended December 31, 1998.
/s/ KPMG LLP
Los Angeles, California
March 6, 2000
