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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
JUNE 29, 1998
(DATE OF EARLIEST EVENT REPORTED)
VESTA INSURANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
1-12338 63-1097283
(COMMISSION FILE NO.) (IRS EMPLOYER 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)
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Item 5. Other Events.
On June 29, 1998, the registrant issued a press release, a copy of which is
attached as Exhibit 99.1 to this Form 8-K and incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description of Document
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99.1 Press release dated June 29, 1998 issued by the
registrant.
SIGNATURE
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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 June 29, 1998.
VESTA INSURANCE GROUP, INC.
/s/ Norman W. Gayle III
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By: Norman W. Gayle III
Its: Executive Vice President and
Acting Chief Executive Officer
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EXHIBIT 99.1
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VESTA COMPLETES INTERNAL INVESTIGATION
- - CUMULATIVE IMPACT OF ACCOUNTING IRREGULARITIES IS $13.6 MILLION, TO BE
REFLECTED IN FIRST QUARTER 1998 AND FOURTH QUARTER 1997 RESULTS
- - COMPANY TO RESTATE HISTORICAL GAAP RESULTS TO REFLECT IMPACT OF
IRREGULARITIES, CORRECTION OF ACCOUNTING METHODOLOGY
- - VESTA HIRES JAMES E. TAIT, FORMER MANAGING PARTNER OF COOPERS & LYBRAND,
AS ACTING CHIEF FINANCIAL OFFICER
BIRMINGHAM, Ala., June 29 /PRNewswire/ -- Vesta Insurance Group, Inc. (NYSE:
VTA - news) announced today that it has concluded its internal investigation
into accounting irregularities and that its findings will result in an aggregate
$13.6 million net after-tax reduction (previously estimated at $15.25 million)
in previously reported net income for the first quarter ended March 31, 1998 and
the fourth quarter ended December 31, 1997.
The Company also announced that it will correct the method of accounting by
which it recognizes earned premium income in its reinsurance business, including
a revision of the actuarial information on which anticipated reinsurance
premiums and losses were calculated. These corrections will result in a
restatement of historical financial statements consisting of a cumulative $49
million reduction in reported net after-tax earnings for the period between 1993
and 1997. Accordingly, year-end 1997 stockholders' equity will be reduced by the
same amount. Of this amount, $29 million represents a timing difference in the
recognition of earned premium and the related premium revenues should be
reflected in earnings in 1998 and future periods. The remaining $20 million
represents the correction of the actuarial information used to project premiums
and loss reserves.
Similarly, the accounting correction will result in an additional $9.8 million
reduction of after-tax earnings and stockholders' equity at the end of the first
quarter of 1998.
The Company also announced today the appointment of James E. Tait as Senior
Vice President and acting Chief Financial Officer. Mr. Tait is President of Tait
Advisory Services, LLC and a former Managing Partner of Coopers & Lybrand,
specializing in insurance and financial services practices.
The Investigation
On June 1, 1998, the Company announced that it had hired outside counsel,
Shereff, Friedman, Hoffman & Goodman, LLP, to conduct an investigation of
accounting irregularities. These irregularities involved the inappropriate
reduction of reserves and the overestimation of premium income in the Company's
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reinsurance business. The vast majority of the $13.6 million results from fewer
than ten entries made between December 1997 and April 1998. $7.7 million of the
amount will be reflected as a reduction of 1997 reported net income and $5.9
million will reduce earnings for the first quarter of 1998. Approximately $6.1
million of the $13.6 million reflects a reduction of reserves in the first
quarter of 1998 that were subsequently reinstated, with the majority of the
remaining $7.5 million relating to overestimation of premium income.
On June 1, 1998, the Company also reported that it had received and accepted
the resignation of Robert Y. Huffman. Since that time, the Company has received
and accepted the resignation of two other persons.
Correction of Accounting Method and Actuarial Information
While not directly related to the accounting irregularities that were the
subject of its internal investigation, the Company, in consultation with its
auditors KPMG Peat Marwick, also reexamined the method of accounting that it had
been using in computing the earned reinsurance premiums included in its GAAP
financial statements.
As previously reported, one of the Company's subsidiaries changed the method
for determining such premiums for statutory purposes for the 1997 year and going
forward, after discussions with the Alabama Department of Insurance. The Company
now has concluded that it is appropriate for it to use the same method of
accounting in its GAAP financial statements as is used for statutory purposes
and for the same method to be applied consistently for prior periods.
Previously, for statutory and GAAP purposes, earned premiums were recognized in
the fiscal year in which reinsurance treaties were entered into. The terms of
these treaties frequently bridge two fiscal years; under the statutory method of
accounting now being used for GAAP purposes as well, the premiums will be
recognized as earned over the treaty year. This change will result in a net
after-tax reduction of previously reported earnings and stockholders' equity of
$29 million for 1997 and prior periods and the recognition of associated premium
revenues in future periods.
As a result of discussions with the Alabama Department of Insurance, one of
the Company's subsidiaries also revised the actuarial information that it used
in computing the premium income and related loss reserves for its reinsurance
business, reducing the after-tax income related to earned premiums by
approximately $20 million. While the Company previously believed, based upon
advice received, that this revision was immaterial to its financial statements,
the Company, in consultation with KPMG Peat Marwick, now has concluded that in
conjunction with the other restatement being made, the effect of the revised
actuarial method should be included in its historical financial statements. The
Company's auditors have withdrawn their prior accountants' reports and are
expected to report on the restated financial statements when issued.
Business Suffered Little Adverse Effects, Financial Strength Unaffected, Says
Acting CEO Norman Gayle.
"We are pleased that we have been able to conclude our examination and
evaluation of these complex matters expeditiously," said Norman W. Gayle, III,
acting Chief Executive Officer of the Company. "We are grateful that during the
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period that our investigation was being conducted, our primary and reinsurance
business suffered little adverse effects. Our entire organization picked up the
burden of assisting the inquiries without losing focus on our core business. Our
business partners have expressed support for our Company as an outgrowth of the
strong relationships we have built up over the years.
"The financial impact of the matters covered by the internal investigation and
accounting changes do not affect the financial strength of Vesta," continued Mr.
Gayle. "The bulk of the changes have already been reflected in the financial
statements of our operating subsidiaries. After giving effect to all of these
adjustments, Vesta continues to have stockholders' equity in excess of $300
million and is in compliance with all of its financial covenants in its loan
agreements. Our financial position and our franchise remain strong.
James Tait to Join Management Team as Acting Chief Financial Officer
"To assist us in pursuing our plans for our business, we are delighted to have
James E. Tait joining us as acting Chief Financial Officer. Jim's nearly three
decades of experience in accounting and management and in-depth knowledge of
insurance company accounting, administration and quality control will be
invaluable as we work to position the company for continued solid financial
performance well into the future," Mr. Gayle said. Mr. Tait joins Vesta from
Tait Advisory Services, LLC, where he has been serving as President since 1996.
He also worked for more than 25 years with Coopers & Lybrand, where he most
recently served as Managing Partner for the Midstates Region, responsible for
all operations in the Business Assurance, Tax and Financial Advisory Services
segments delivered to regional clients. He also held a number of other positions
at Coopers & Lybrand, including Partner in charge of its Insurance Industry Team
and Partner in charge of the Central Region Financial Services Team. His
experience includes audit, accounting, financial reporting, SEC and other
advisory services as well as quality control and administration. Mr. Tait holds
a Bachelors of Science degree in Accounting from University of Alabama and a
Juris Doctor from Birmingham School of Law.
Vesta Insurance Group, Inc., headquartered in Birmingham, Alabama, is a
holding company for a group of property and casualty insurance companies that
offer reinsurance and primary insurance for personal and commercial risk.
Any statement contained in this release that is not a historical fact, or that
might otherwise be considered an opinion or projection concerning the Company or
its business, whether expressed or implied, is meant as and should be considered
a forward-looking statement as that term is defined in the Private Securities
Litigation Reform Act of 1996. Forward-looking statements are based on the
assumptions and opinions concerning a variety of known and unknown risks. If any
of these assumptions or opinions prove incorrect, any forward-looking statements
made on the basis of such assumptions or opinions may also prove materially
incorrect in one or more respects.
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