Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-12338
VESTA INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 63-1097283 |
| (State of other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | 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)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of shares outstanding of the registrant's common stock,
$.01 par value, as of November 12, 2003
36,678,060
Vesta Insurance Group, Inc.
Index
| Part I | Financial Information | Page | |||
| Item 1 | Financial Statements: | ||||
| Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 | 1 | ||||
| Consolidated Statements of Operations and Comprehensive Income (Loss) for the | |||||
| Three Months and Nine Months Ended September 30, 2003 and 2002 | 2 | ||||
| Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2003 and 2002 | 3 | ||||
| Notes to Consolidated Financial Statements | 4 | ||||
| Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 | |||
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 20 | |||
| Item 4 | Controls and Procedures | 20 |
| Part II | Other Information | ||||
| Item 1 | Legal Proceedings | 21 | |||
| Item 2 | Changes in Securities | 23 | |||
| Item 3 | Defaults Upon Senior Securities | 23 | |||
| Item 4 | Submission of Matters to a Vote of Security Holders | 23 | |||
| Item 5 | Other Information | 23 | |||
| Item 6 | Exhibits and Reports on Form 8-K | 24 | |||
| Signatures | 25 |
| September 30, | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Fixed maturities available for sale - at fair value (cost: 2003 - $842,927; | ||||||||
| 2002 - $829,982) | $ | 873,498 | $ | 863,695 | ||||
| Equity securities-at fair value: (cost: 2003- $28,915; 2002- $26,072) | 31,406 | 27,055 | ||||||
| Mortgage loans | 9,320 | 12,124 | ||||||
| Policy loans | 59,306 | 61,278 | ||||||
| Short-term investments | 11,945 | 9,679 | ||||||
| Other invested assets | 41,981 | 39,262 | ||||||
| Total investments | 1,027,456 | 1,013,093 | ||||||
| Cash | 65,319 | 140,593 | ||||||
| Accrued investment income | 9,954 | 11,866 | ||||||
| Premiums in course of collection (net of allowances for losses | ||||||||
| of $897 in 2003 and 2002) | 132,863 | 128,799 | ||||||
| Reinsurance balances receivable | 390,722 | 355,054 | ||||||
| Reinsurance recoverable on paid losses | 72,188 | 79,334 | ||||||
| Deferred policy acquisition costs | 61,683 | 71,752 | ||||||
| Property and equipment | 19,827 | 22,123 | ||||||
| Deferred income taxes | 44,543 | 46,176 | ||||||
| Assets held for sale | -- | 9,598 | ||||||
| Goodwill | 135,737 | 122,742 | ||||||
| Other intangible assets | 11,588 | 12,128 | ||||||
| Other assets | 28,285 | 29,600 | ||||||
| Total assets | $ | 2,000,165 | $ | 2,042,858 | ||||
| Liabilities: | ||||||||
| Policy liabilities | $ | 670,723 | $ | 678,419 | ||||
| Losses and loss adjustment expenses | 330,042 | 322,320 | ||||||
| Unearned premiums | 326,438 | 306,782 | ||||||
| Federal Home Loan Bank advances | 162,501 | 176,793 | ||||||
| Reinsurance balances payable | 72,397 | 100,860 | ||||||
| Short term debt | 29,952 | 30,000 | ||||||
| Long term debt | 78,246 | 55,795 | ||||||
| Liabilities held for sale | -- | 5,632 | ||||||
| Other liabilities | 100,758 | 107,951 | ||||||
| Total liabilities | 1,771,057 | 1,784,552 | ||||||
| Commitments and contingencies: See Note B | ||||||||
| Deferrable Capital Securities | -- | 22,445 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $.01 par value, 5,000,000 shares authorized, issued: | ||||||||
| 2003 - 0 and 2002 - 0 | -- | -- | ||||||
| Common stock, $.01 par value, 100,000,000 shares authorized, issued: | ||||||||
| 2003 and 2002 - 38,143,037 | 381 | 381 | ||||||
| Additional paid-in capital | 248,372 | 248,372 | ||||||
| Accumulated other comprehensive income, (net of tax expense | ||||||||
| of $7,056 and $8,131 in 2003 and 2002, respectively) | 13,940 | 15,101 | ||||||
| Retained earnings | (8,956 | ) | (2,698 | ) | ||||
| Treasury stock (2,464,977 shares at cost at September 30, 2003 and | ||||||||
| December 31, 2002) | (18,250 | ) | (18,250 | ) | ||||
| Unearned stock | (6,379 | ) | (7,045 | ) | ||||
| Total stockholders' equity | 229,108 | 235,861 | ||||||
| Total liabilities, deferrable capital | ||||||||
| securities and stockholders' equity | $ | 2,000,165 | $ | 2,042,858 | ||||
See accompanying Notes to Consolidated Financial Statements
1
| Three months ended | Nine months ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||||||||||
| 2003 |
2002 |
2003 |
2002 | |||||||||||
| (unaudited) | (unaudited) | |||||||||||||
| Revenues: | ||||||||||||||
| Net premiums written | $ | 84,278 | $ | 143,568 | $ | 345,091 | $ | 437,567 | ||||||
| Change in unearned premiums | 43,023 | (11,697 | ) | 23,162 | (78,215 | ) | ||||||||
| Net premiums earned | 127,301 | 131,871 | 368,253 | 359,352 | ||||||||||
| Policy fees | 9,832 | 5,272 | 26,543 | 14,091 | ||||||||||
| Agency fees and commissions | 16,410 | 11,025 | 55,137 | 39,446 | ||||||||||
| Net investment income | 10,047 | 14,329 | 31,533 | 41,588 | ||||||||||
| Realized gains (losses) | (74 | ) | (1,284 | ) | 5,585 | (1,429 | ) | |||||||
| Other | 1,900 | 2,061 | 5,702 | 6,689 | ||||||||||
| Total revenues | 165,416 | 163,274 | 492,753 | 459,737 | ||||||||||
| Expenses: | ||||||||||||||
| Policyholder benefits | 5,250 | 4,148 | 15,554 | 18,899 | ||||||||||
| Losses and loss adjustment expenses incurred | 80,244 | 87,011 | 253,339 | 240,542 | ||||||||||
| Policy acquisition expenses | 23,329 | 24,526 | 69,555 | 64,169 | ||||||||||
| Litigation settlement and arbitration award charge | -- | 23,600 | -- | 23,600 | ||||||||||
| Operating expenses | 42,880 | 39,123 | 131,821 | 118,890 | ||||||||||
| Interest on debt | 3,283 | 3,576 | 9,847 | 11,422 | ||||||||||
| Deferrable capital distributions | 478 | -- | 478 | -- | ||||||||||
| Gain on debt extinguishment | -- | (2,998 | ) | -- | (4,378 | ) | ||||||||
| Total expenses | 155,464 | 178,986 | 480,594 | 473,144 | ||||||||||
| Income (loss) from continuing operations before income taxes and | ||||||||||||||
| minority interest | 9,952 | (15,712 | ) | 12,159 | (13,407 | ) | ||||||||
| Income tax expense (benefit) | 3,483 | (5,499 | ) | 4,255 | (4,693 | ) | ||||||||
| Minority interest, net of tax | 114 | 300 | 493 | 1,321 | ||||||||||
| Deferrable capital security distributions, net of tax | -- | 322 | 622 | 773 | ||||||||||
| Net income (loss) from continuing operations | 6,355 | (10,835 | ) | 6,789 | (10,808 | ) | ||||||||
| Loss from discontinued operations, net of tax | (2,011 | ) | (775 | ) | (10,372 | ) | (10,525 | ) | ||||||
| Net income (loss) | 4,344 | (11,610 | ) | (3,583 | ) | (21,333 | ) | |||||||
| Gain on redemption of preferred securities, net of tax | -- | -- | -- | 210 | ||||||||||
| Net income (loss) available to common shareholders | $ | 4,344 | $ | (11,610 | ) | $ | (3,583 | ) | $ | (21,123 | ) | |||
| Net income (loss) from continuing operations per share - Basic | $ | 0.18 | $ | (0.32 | ) | $ | 0.19 | $ | (0.32 | ) | ||||
| Net income (loss) available to common shareholders per share - Basic | $ | 0.12 | $ | (0.34 | ) | $ | (0.10 | ) | $ | (0.63 | ) | |||
| Net income (loss) from continuing operations per share - Diluted | $ | 0.18 | $ | (0.32 | ) | $ | 0.19 | $ | (0.32 | ) | ||||
| Net income (loss) available to common shareholders per share - Diluted | $ | 0.12 | $ | (0.34 | ) | $ | (0.10 | ) | $ | (0.63 | ) | |||
| Statements of Comprehensive Income (Loss) | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net income (loss) | $ | 4,344 | $ | (11,610 | ) | $ | (3,583 | ) | $ | (21,333 | ) | |||
| Other comprehensive income, net of tax: | ||||||||||||||
| Unrealized holding (losses) gains on available-for-sale | ||||||||||||||
| securities net of tax of $(2,789), $2,035, $1,374 | ||||||||||||||
| and $1,970, respectively | (5,287 | ) | 3,780 | 2,469 | 3,658 | |||||||||
| Less realized (losses) gains on available-for-sale | ||||||||||||||
| securities net of tax of $32, $(431), $1,998 | ||||||||||||||
| and $(258), respectively | (48 | ) | (801 | ) | 3,630 | (479 | ) | |||||||
| (5,239 | ) | 4,581 | (1,161 | ) | 4,137 | |||||||||
| Gain on redemption of preferred securities, net of tax | ||||||||||||||
| of $0, $0, $0 and $113 respectively | -- | -- | -- | 210 | ||||||||||
| Comprehensive loss | $ | (895 | ) | $ | (7,029 | ) | $ | (4,744 | ) | $ | (16,986 | ) | ||
See accompanying Notes to Consolidated Financial Statements
2
| Nine months ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 | |||||||
| (unaudited) | ||||||||
| Operating Activities: | ||||||||
| Net income | $ | (3,583 | ) | $ | (21,333 | ) | ||
| Adjustments to reconcile net loss to cash provided by (used in) operations | ||||||||
| Changes in: | ||||||||
| Loss and LAE reserves, and future policy liabilities | 26 | 44,949 | ||||||
| Unearned premium reserves | 19,656 | 85,635 | ||||||
| Reinsurance balances receivable | 7,081 | (2,931 | ) | |||||
| Premiums in course of collection | (4,064 | ) | (117,469 | ) | ||||
| Reinsurance recoverable on paid losses | 7,146 | (2,292 | ) | |||||
| Reinsurance balances payable | (55,395 | ) | 59,981 | |||||
| Other assets and liabilities | 33,975 | 58,487 | ||||||
| Policy acquisition costs deferred | (75,303 | ) | (103,646 | ) | ||||
| Policy acquisition costs amortized | < | |||||||