UNITED STATES
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: August 26, 1997
SYMONS INTERNATIONAL GROUP, INC.
State of Incorporation:
Indiana
Commission File Number IRS Employer Id. Number
No. 1-12369 No. 35-1707115
Address of Principal Executive Offices:
4720 Kingsway Drive
Indianapolis, Indiana 46205
Telephone No.
(317) 259-6400
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 12, 1997, Symons International Group, Inc. ("Company") acquired from
GS Capital Partners II, L.P. and certain other investment funds affiliated with
Goldman, Sachs & Co. ("GSCP"), GSCP's 48% interest in the Company's nonstandard
automobile insurance business for $61 million in an all cash transaction. The
purchase price was determined through arm's-length negotiations.
The acquisition was financed by a $135 million offering ("Offering") of trust
preferred securities ("Preferred Securities") by SIG Capital Trust 1 which
closed on August 12, 1997. The Preferred Securities were offered pursuant to
Rule 144A of the Securities Act of 1993 and enabled SIG Capital Trust 1 to
invest $135 million in senior subordinated notes ("Sub Notes") of the Company.
Both the Preferred Securities and the Sub Notes will carry a 30-year term.
In addition to financing the $61 million acquisition from GSCP, the proceeds to
the Company from the Offering were used to (1) retire the approximately $45
million term debt incurred in March 1996, (ii) to provide additional capital to
the Company's operating insurance subsidiaries, (iii) general corporate
purposes, and (iv) pay expenses of the offering of the Preferred Securities.
The Preferred Securities have not been registered pursuant to applicable
securities laws and may not be offered or sold absent such registration or an
applicable exemption from registration requirements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
As of the date of filing of this Current Report on Form 8-K, it is impracticable
for the Registrant to provide the financial statements required by this Item
7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial statements
shall be filed by amendment to this Form 8-K no later than 60 days after August
27, 1997.
(b) Pro Forma Financial Information.
The following unaudited pro forma consolidated balance sheet and statements of
earning of the company for the year ended December 31, 1996 and as of and for
the six months ended June 30, 1997 present the financial position and results
for the Company as if the Offering had occurred as of January 1, 1996. 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 consolidated balance sheet and statements of earnings have been
derived from and should be read in conjunction with the historical Consolidated
six months ended June 30, 1997, and should be read in conjunction with the
accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet and
Statements of Earnings. The pro forma adjustments and pro forma consolidated
amounts are provided for informational purposes only.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations or financial position that
would have occurred had the Offering been consummated on the dates assumed, nor
is the pro forma information intended to be indicative of the Company's future
results.
Symons International Group, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands)
SIG Historical Pro Forma Pro Forma
As of June 30, 1997 Adjustments for the Offering
Assets
Investments $ 190,500 $ 24,228 (1) $ 214,728
Cash and cash equivalents 18,329 18,329
Receivables, net 176,045 176,045
Reinsurance recoverable on paid and unpaid
losses, net 70,694 70,694
Prepaid reinsurance premiums 73,927 73,927
Deferred policy acquisition costs 13,121 13,121
Deferred income taxes 2,899 118 (2) 3,017
Property and equipment 9,555 9,555
Investments in and advances to related parties 2,418 2,418
4,900 (3)
(1,116) (4)
2,034 (5)
Other 10,153 34,276 (6) 50,247
------ -------- ------
Total Assets $ 567,641 $ 64,440 $ 632,081
========= ======== =========
Liabilities:
Losses and loss adjustment expenses $ 137,924 $ 137,924
Unearned premiums 160,741 160,741
Reinsurance payable 100,475 100,475
Federal income tax payable 1,594 (391)(7) 1,203
Term debt 44,872 44,872 (8) 0
Other 23,411 23,411
------ ------
Total Liabilities 469,017 (45,263) 423,754
Minority interest
Preferred Securities 0 135,000 (9) 135,000
Equity in net assets of subsidiary 26,724 (26,724)(10) 0
Stockholders' Equity
Common stock 39,019 39,019
Additional paid-in capital 5,905 5,905
Unrealized gain/(loss) on investments, net 2,184 2,034 (5) 4,218
(725)(11) 24,185
Retained earnings 24,792 118 (2)
------ -------
71,900 1,427 73,327
------ ------- ------
Total Liabilities and Stockholders' Equity $ 567,641 $ 64,440 $ 632,081
========= ======== =========
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
Symons International Group, Inc.
Unaudited Pro Forma Consolidated Statement of Earnings
(in thousands)
SIG Historical
For the Six Months Pro Forma Pro Forma
Ended June 30, 1997 Adjustments for the Offering
Gross premiums written $ 279,065 $ 279,065
========= =========
Net premiums written $ 150,523 $ 150,523
========= =========
Net premiums earned $ 136.012 $ 136,012
Net investment income 5,276 5,276
Other income 10,791 10,791
Net realized capital gain/(loss) 1,684 1,684
----- -----
Total revenues 153,763 153,763
Losses and loss adjustment expenses 103,293 103,293
Policy acquisition and general and
administrative expenses 30,397 82 (12) 31,150
(116) (13)
788 (14)
Interest expense 2,744 (2,706) (15) 38
----- -------- --
Total expenses 136,434 (1,953) 134,481
------- -------- -------
Earnings before income taxes, minority
interest and extraordinary item 17,329 1,953 19,282
Provision for income taxes 6,183 959 (16) 7,024
(118)(17)
Minority interest:
Distributors on Preferred Securities 4,168 (18) 4,168
Equity in earnings of subsidiary 1,560 (1,560)(19)
----- --------
Net earnings from continuing
operations (20) $ 9,586 ($ 1,497) $ 8,089
======= ========= =======
Net earning per common share from continuing
operations-primary (20) $ 0.90 $ 0.76
Weighted average shares outstanding 10,617 10,617
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
Symons International Group, Inc.
Unaudited Pro Forma Consolidated Statement of Earnings
(in thousands)
SIG Historical
For the Year Pro Forma Pro Forma
Ended Dec. 31, 1996 Adjustments for the Offering
Gross premiums written $ 305,499 $ 305,499
========= =========
Net premiums written $ 209,592 $ 209,592
========= =========
Net premiums earned $ 191,759 $ 191,759
Net investment income 6,733 6,733
Other income 9,286 9,286
Net realized capital gain/(loss) (1,015) (1,015)
------- -------
Total revenues 206,763 206,763
Losses and loss adjustment expenses 137,109 137,109
Policy acquisition and general and
administrative expenses 42,013 163 (12) 43,648
(231) (13)
1,703 (14)
Interest expense 3,938 (3,927) (15) 11
----- -------- --
Total expenses 183,060 (2,292) 180,768
Earnings before income taxes, minority interest
and extraordinary item 23,703 2,292 25,995
Provision for income taxes 8,046 1,398 (16) 9,444
Minority interest:
Preferred Securities Distributions 8,336 (18) 8,336
Equity in net assets of subsidiary 2,401 (2,401) (19) 0
----- ------- -
Net earnings from continuing
operations (20) $ 13,256 ($ 5,041) $ 8,215
======== ========= =======
Net earning per common share from continuing
operations-primary (20) $ 1.76 $ 1.09
Weighted average shares outstanding 7,537 7,537
Notes to Unaudited Pro Forma Consolidated Financial Statements
(1) Application of the net proceeds from the Offering are invested as of
June 30, 1997 as follows:
(in thousands)
Offering Proceeds $ 135,000
Estimated fees and expenses (4,900)
Repayment of GGS Senior Credit Facility (44,872)
Purchase of Minority Interest in GGS Holdings (61,000)
--------
General corporate purposes $24,228
========
The pro forma statement of earnings for the six month ended June 30,
1997 and the year ended December 31, 1996 assumes no interest earnings
on funds remaining. However, the Company fully expects to invest such
funds.
(2) Deferred tax assets and retained earnings at June, 1997 increase by $
118,000 related to the elimination of the deferred tax liability on the
unremitted earnings of GGSH due to the purchase of the remaining
minority interest share of 48%.
(3) Other assets at June 30, 1997 increase by $ 4,900,000 representing
deferred Preferred Securities issuance costs to be amortized over their
term (30 years).
(4) Other assets at June 30, 1997 are reduced by $ 1,116,000 representing
the write-off of unamortized debt issuance costs in connection with the
GGS Senior Credit Facility that was repaid with the proceeds of the
Offering.
(5) Goodwill and equity at June 30, 1997 increased by $ 2,034,000 for the
after tax effects of the elimination of the minority interest portion
of the unrealized loss on investments held for sale.
(6) Goodwill at June 30, 1997 is increased by $ 34,276,000 for the excess
of the purchase price of the minority interest share, over the minority
interest liability of $ 26,724,000 as the entire excess purchase price
is applied to goodwill as all identifiable assets approximate fair
value. Total goodwill at June 30, 1997, including that existing prior
to the Offering aggregates $ 36,390,000.
(7) Income taxes payable at June 30, 1997 are reduced by $ 391,000 for the
tax effect of the write-off of the debt issuance costs associated with
the term debt repaid from the proceeds of the Offering.
(8) Existing term debt is completely repaid with the proceeds of the
Offering.
(9) Issuance of Preferred Securities from the Offering.
(10) Minority interest liability at June 30, 1997 is eliminated with the
purchase of the minority interest share from the proceeds of the
Offering.
(11) Retained earnings at June 30, 1997 is reduced by $ 725,000 for the
after tax effects of the write-off of the debt issuance costs
associated with the GGS Senior Credit Facility repaid from the proceeds
of the Offering.
(12) Policy acquisition and general and administrative expenses for the six
months ended June 30, 1997 and the year ended December 31, 1996 are
increased by $ 82,000 and $ 163,000, respectively, for the amortization
of the Preferred Securities issuance costs. Such costs are amortized
over the life of the Preferred Securities of thirty years.
(13) Policy acquisition and general and administrative expenses for the six
months ended June 30, 1997 and the year ended December 31, 1996 are
decreased by $ 116,000 and $ 231,000, respectively, for the
amortization of the debt issuance costs associated with the GGS Senior
Credit Facility.
(14) Policy acquisition and general and administrative expenses for the six
months ended June 30, 1997 and the year ended December 31, 1996 are
increased by $ 788,000 and $ 1,703,000, respectively, for the
amortization of goodwill created by the excess of the purchase price of
the minority interest share in excess of the minority interest
liability. Goodwill is amortized over a 25-year period on a straight
line basis based upon management's estimate of the expected benefit
period.
(15) Interest expense for the six months ended June 30, 1997 and the year
ended December 31, 1996 is decreased by $ 2,706,000 and $ 3,927,000,
respectively, for the interest incurred on the GGS Senior Credit
Facility which was repaid from the proceeds of the Offering.
(16) All applicable pro forma adjustments to operations are tax affected at
a rate of 35%. Amortization on goodwill is added back to earnings in
determining the provision for income taxes as goodwill amortization is
non-deductible for tax purposes.
(17) Income tax expense for the six month ended June 30, 1997 is reduced by
$ 118,000 for the elimination of the deferred tax effects of the
unremitted earnings to SIG of GGSH due to the purchase of the remaining
minority interest.
(18) Distributions on Preferred Securities for the six months ended June 30,
1997 and the year ended December 31, 1996, net of income taxes at 35%,
of $ 4,168,000 and $ 8,336,000, respectively, were based on an interest
rate of 9.50%.
(19) Minority interest earnings are eliminated with the purchase of the
remaining minority interest share.
(20) Net earnings and earnings per common share from continuing operations
for the six months ended June 30, 1997 and the year ended December 31,
1996 exclude ($ 725,000)($ 0.07) per share and ($ 801,000)($ 0.08),
respectively, for the effects of the write-off of debt issuance costs
incurred on the GGS Senior Credit Facility upon repayment of that debt
from the proceeds of the Offering. Such amounts will be presented as
extraordinary items in accordance with GAAP.
(c) Exhibits.
As of the date of filing of this Current Report on Form 8-K, it is impracticable
for the Registrant to provide all the exhibits required by the provisions of
Item 601 of Regulation S-K. In accordance with Item 601 of Regulation S-K, such
exhibits shall be filed by amendment to this Form 8-K no later than 60 days
after August 27, 1997.
SIGNATURE
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 thereunto duly authorized.
Date: August 27, 1997
SYMONS INTERNATIONAL GROUP, INC.
By: __/s/ Gary P. Hutchcraft______________
Gary P. Hutchcraft
Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit No. 99 Press Release of Transaction