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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
DECEMBER 18, 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 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
The Board of Directors of Vesta Insurance Group, Inc. (the "Company")
adopted a resolution authorizing the Chairman of the Audit Committee, in his
discretion, (i) to dismiss KPMG Peat Marwick LLP ("KPMG") as the Company's
independent accountants, effective upon management's notification of KPMG of
such dismissal and (ii) concurrently with such dismissal, to engage
PricewaterhouseCoopers LLP ("PWC") as the Company's independent accountants
for the fiscal year ending December 31, 1998.
On December 18, 1998, the Company notified KPMG of the dismissal. Also
on December 18, 1998, the Company engaged PWC as the Company's independent
accountants, subject to PWC's normal client acceptance procedures. During the
two most recent fiscal years, and during the subsequent interim period preceding
the decision to change independent accountants, neither the Company nor anyone
on its behalf consulted PWC regarding either the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements,
and neither a written report nor oral advice was provided to the Company by PWC
with respect to any such consultation.
KPMG audited the Company's annual consolidated financial statements as
of and for each of the fiscal years ended December 31, 1993, 1994, 1995, 1996
and 1997 (the "Historical Financial Statements"). KPMG's auditors reports on
these Historical Financial Statements did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. However, in connection with the
Company's decision to restate the Historical Financial Statements in June, 1998,
KPMG advised the Company that it could no longer be associated with these
Historical Financial Statements. The Company subsequently issued restated
financial statements as of and for the fiscal years ended December 31, 1996 and
1997 (the "Restated Financial Statements"), which were filed with the Securities
and Exchange Commission as a current report on Form 8-K on August 20, 1998.
KPMG issued an auditors report on the Restated Financial Statements which did
not contain any adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope, or accounting principles.
During the Company's two most recent fiscal years, and in the subsequent
interim period, there have been no disagreements between the Company's
management and KPMG on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of KPMG, would have caused KPMG to make reference
to the matter in an auditors report. However, KPMG has advised the Company as
to certain issues regarding the financial presentation set forth in the
Company's Form 10-Q filed with the Securities and Exchange Commission on
November 16, 1998 that remain unresolved. Copies of letters dated November 18,
1998 and December 3, 1998 from KPMG summarizing these unresolved issues are
filed herewith as Exhibits 16.1 and 16.2.
As noted above, KPMG audited the Company's consolidated financial
statements for the period ended December 31, 1997, which audit was completed
March 27, 1998, except as to Note B,
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which is as of August 19, 1998. By letter dated December 3, 1998, KPMG informed
the Audit Committee of the Company's Board of Directors that, in connection with
said audit and their reviews of the 1998 quarterly financial statements, it had
noted certain matters involving internal controls that it considered to be
reportable conditions under applicable auditors' reporting standards.
The Company has requested KPMG to issue a letter addressed to the
Securities and Exchange Commission (the "Commission") stating that it agrees
with the above statements. KPMG has advised the Company that it will furnish
such a letter after this 8-K is filed with the Commission. When such letter is
received, the Company will file it as an amendment to this 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit 16.1 Letter from KPMG dated November 18, 1998 regarding
certain financial presentation issues.
Exhibit 16.2 Letter from KPMG dated December 3, 1998 regarding certain
financial presentation issues.
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 December 28, 1998.
VESTA INSURANCE GROUP, INC.
/s/ James E. Tait
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By: James E. Tait
Its: Executive Vice President and Chief Financial
Officer
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EXHIBIT 16.1
[Letter from KPMG dated November 18, 1998 regarding certain financial
presentation issues]
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[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
November 18, 1998
Board of Directors
Vesta Insurance Group, Inc.
As part of our engagement to conduct an audit of the Vesta Insurance Group's
December 31, 1998 financial statements, it is KPMG Peat Marwick LLP's (KPMG)
policy to conduct timely reviews of interim financial statements that are filed
in the Company's quarterly report on Form 10-Q. Such reviews are conducted in
accordance with standards established by the American Institute of Certified
Public Accountants.
The Company filed its Form 10-Q with the Securities Exchange Commission (SEC) on
November 16, 1998. At the time of the filing, there were certain matters, as
follows, that were not resolved to our satisfaction. Such matters were
presented to the acting Controller, in the absence of the CFO, and the CEO prior
to the Company filing its Form 10-Q. We advised management at that time that we
would not associate ourselves with the Form 10-Q if the matters were not
resolved to our satisfaction and we would so advise the Board. Accordingly, we
wish to inform the Board of Directors that at this time, we are not associating
ourselves with the quarterly financial statements and related disclosures, as
filed in the Company's September 30, 1998 Form 10-Q.
The unresolved items include the following:
(1) The Company has identified certain adjustments related to accrued
contingent commission payables and intercompany transfers that have
not been fully recognized in the September 30, 1998 financial
statements. The impact, or a portion thereof, of these adjustments
may relate to prior period financial statements. With respect to
these adjustments, there is an internal memorandum written by the
Company's controller which, from a documentation standpoint, does
not bring full closure to the accounting treatment in the
September 30, 1998 financial statements.
(2) We believe the presentation on the face of the three month and nine
month 1998 income statements is not supported by generally accepted
accounted principles. (note - This is a presentation issue only and
would not require, based upon our current knowledge, an adjustment
to earnings. The financial statements include a detail footnote
explaining the nature of the adjustments.)
In addition, we noted that issues exist with respect to the completeness of
management's discussion and analysis of several period to period variances in
the results of operations and of management's discussion and analysis of
operations insofar as it relates to compliance with SEC interpretive guidance
regarding the status of the Company's Year 2000 remediation.
At the conclusion of our review procedures, we will require a signed
representation letter from appropriate members of the Company's senior
management team.
We would like to meet with the Board of Directors or its representative on or
before Monday November 23 to discuss the intended course of action to resolve
the above matter.
Very truly yours,
/S/ KPMG PEAT MARWICK LLP
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EXHIBIT 16.2
[Letter from KPMG dated December 3, 1998 regarding certain financial
presentation issues]
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[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
December 3, 1998
Audit Committee of the Board of Directors
Vesta Insurance Group
On November 18, 1998, we informed you of unresolved items with respect to the
quarterly financial statements and related disclosures as filed in the Company's
September 30, 1998 Form 10-Q.
Presented below are those items and the current status of our investigation into
these items:
(1) The Company has identified certain adjustments related to accrued
contingent commission payables and intercompany transfers that have not
been fully recognized in the September 30, 1998 financial statements.
The impact, or a portion thereof, of these adjustments may relate to
prior period financial statements. With respect to these adjustments,
there is an internal memorandum written by the Company's controller
which, from a documentation standpoint, does not bring full closure to
the accounting treatment in the September 30, 1998 financial statements.
Current Status
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KPMG has reviewed the Company's calculations related to accrued
contingent commission payables and believes that the need for an
additional fourth quarter expense charge as originally anticipated by
the Company, is not warranted based upon available information to date.
We are presenting to management our analysis for their review and
conclusion. As these accrued contingent commissions are based upon a
high degree of subjectivity, we suggest that Company officials refine
and reevaluate their estimation process during the fourth quarter.
Estimated accrued contingent commission payables may, as a result, be
subject to change.
(2) We believe the presentation on the face of the three month and nine
month 1998 income statements is not supported by generally accepted
accounting principles. (Note: This is a presentation issue only and
would notify require, based upon our current knowledge, an adjustment to
earnings. The financial statements include a detailed footnote
explaining the nature of the adjustments.)
Current Status
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KPMG continues to believe that the income statement presentation
discussed above is not in accordance with generally accepted accounting
principles nor in accordance with the rules and regulations of the
Securities and Exchange Commission. Attached as an Exhibit is our
detailed conclusion. In presenting the quarterly results of operations
in the Company's annual report on the Form 10-K for 1998, we would
require that the amounts as currently shown on the consolidated
statements of operations and comprehensive income be revised to
appropriately gross up the line item. "Other Expenses, Net" to the
respective revenue and expense accounts. We recognize that this
adjustment does not impact net income and it is fully disclosed in a
footnote; however, we strongly encourage the Company to amend its
September 30, 1998 Form 10-Q for this item. Advice of legal counsel
should be sought on this matter as it relates to the inconsistency
between the ultimately published 1998 Form 10-K and the September 30,
1998 Form 10-Q.
We would be pleased to discuss the above matters at your earliest convenience.
Very truly yours,
KPMG PEAT MARWICK LLP
