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 (Date of earliest event reported): March 31, 1999
Commission File Number 1-9627
ZENITH NATIONAL INSURANCE CORP.
[Exact name of registrant as specified in its charter]
Delaware 95-2702776
[State or other jurisdiction of [I.R.S. Employer
incorporation or organization] Identification No.]
21255 Califa Street, Woodland Hills, California 91367-5021
[Address of principal executive offices] [Zip Code]
(818) 713-1000
[Registrant's telephone number, including area code]
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ZENITH NATIONAL INSURANCE CORP.
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
Effective March 31, 1999, Zenith Insurance Company ("Zenith Insurance"), a
wholly-owned subsidiary of Zenith National Insurance Corp. ("Zenith"),
completed the sale of all of the issued and outstanding capital stock of
CalFarm Insurance Company ("CalFarm"), a wholly-owned subsidiary of Zenith
Insurance, for $275,639,000 in cash, subject to post-closing adjustments in
certain circumstances, to Nationwide Mutual Insurance Company. The estimated
gain on the sale, net of tax, is $103,449,000.
Prior to the closing, $63,864,000 of cash was transferred from Zenith
Insurance to CalFarm in connection with the cessation of CalFarm's
participation in the intercompany reinsurance pooling agreement (the "pooling
agreement") to which Zenith Insurance and its wholly-owned property-casualty
insurance subsidiaries were parties (the "de-pooling transaction"). Zenith
Insurance and its wholly-owned property-casualty affiliates, other than
CalFarm, will continue to participate in an intercompany reinsurance pooling
agreement.
After accounting for applicable taxes and expenses, the net proceeds from the
sale that will be available to Zenith Insurance for investment are
approximately $212,000,000, compared to cash and investments of approximately
$227,000,000 that will be excluded from Zenith's Consolidated Balance Sheet
with the sale of CalFarm.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Unaudited Pro Forma Financial Information
The unaudited pro forma condensed consolidated balance sheet of Zenith at
December 31, 1998 estimates the pro forma effect of the sale of CalFarm as if
the sale and related transactions had been consummated on that date. The
unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1998 estimates the pro forma effect of the sale as if
the sale and related transactions had occurred on January 1, 1998.
The pro forma information is based upon the historical financial statements
of Zenith and reflects all material adjustments necessary to reflect the
foregoing assumptions.
The pro forma information may not be indicative of the results of operations
and financial position of Zenith, as it may be in the future or as it might
have been had the transactions been consummated on the respective dates
assumed. The pro forma financial information should be read in conjunction
with Zenith's historical Consolidated Financial Statements and notes thereto
included in Item 8 of Zenith's 1998 Annual Report on Form 10-K.
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ZENITH NATIONAL INSURANCE CORP.
NOTE ON FORWARD-LOOKING INFORMATION
This report contains statements that constitute "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. The
words "believe", "estimate", "expect", "intend", "anticipate", and similar
expressions and variations thereof identify certain of such forward-looking
statements, which speak only as of the dates on which they were made. Zenith
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise. Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those indicated in the
forward-looking statements as a result of various factors. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those projected.
(c) Exhibits
10.1 Stock Purchase Agreement, dated as of February 22, 1999, between
Zenith Insurance Company and Nationwide Mutual Insurance Company.
(Herein incorporated by reference to Exhibit 10.1 to Zenith's Current
Report on Form 8-K dated February 22, 1999).
10.2 Amendment No. 1, dated as of March 31, 1999, to Stock Purchase
Agreement, dated as of February 22, 1999, between Zenith Insurance
Company and Nationwide Mutual Insurance Company.
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ZENITH NATIONAL INSURANCE CORP.
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET (UNAUDITED)
AS OF DECEMBER 31, 1998
Pro Forma Adjustments
---------------------
(Dollars in thousands, except per share data) Historical(a) (b) (c) Pro Forma
- -----------------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
Fixed maturities $ 770,427 $(145,761) $ $ 624,666
Equity securities 51,609 (1,889) 5,359 55,079
Short-term investments 187,123 (78,169) 275,639 384,593
Other investments 39,522 39,522
---------- --------- -------- ----------
Total Investments 1,048,681 (225,819) 280,998 1,103,860
Cash 1,998 (985) 1,013
Premiums receivable 133,631 (41,039) 92,592
Receivable from reins, state trust funds and
prepaid reinsurance premiums 373,045 (19,329) 353,716
Properties and equipment, less accumulated
depreciation 79,908 (20,541) 59,367
Federal income taxes 25,351 (5,874) (19,477) 0
Intangible assets 25,744 (2,937) 22,807
Other assets 130,368 (21,277) 109,091
---------- --------- -------- ----------
TOTAL ASSETS $1,818,726 $(337,801) $261,521 $1,742,446
---------- --------- -------- ----------
---------- --------- -------- ----------
(a) Historical information is as previously published in Zenith's 1998 Annual
Report on Form 10-K.
(b) To record the disposal of the previously consolidated assets of CalFarm,
including $63,864,000 transferred to CalFarm immediately prior to the closing
in connection with the cessation of CalFarm's participation in the pooling
agreement, net of tax.
(c) To record the sale of CalFarm, the receipt of sale proceeds, applicable
taxes and expenses, and the gain on the sale of $103,449,000.
(continued)
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ZENITH NATIONAL INSURANCE CORP.
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET (UNAUDITED)
AS OF DECEMBER 31, 1998
Pro Forma Adjustments
---------------------
(Dollars in thousands, except per share data) Historical(a) (b) (c) Pro Forma
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES:
Policy liabilities and accruals:
Unpaid losses and loss expenses $997,647 $(121,716) $ $875,931
Unearned premiums 157,965 (95,422) 62,543
Payable to banks and other notes payable 19,255 19,255
Senior notes payable, less unamortized
issue costs 74,596 74,596
Payable to RISCORP 52,952 52,952
Federal income taxes 43,328 43,328
Other liabilities 96,018 (11,919) 6,000 90,099
---------- --------- ------- ---------
TOTAL LIABILITIES 1,398,433 (229,057) 49,328 1,218,704
---------- --------- ------- ---------
REDEEMABLE SECURITIES:
Company-obligated, mandatorily redeemable
capital securities of Zenith National Insurance
Capital Trust I, holding solely 8.55%
Subordinated Deferrable Interest Debentures
due 2028, of Zenith National Insurance Corp.,
less unamortized issue cost and discount 73,341 73,341
---------- --------- ------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, none issued and outstanding
Common stock 24,970 24,970
Additional paid-in capital 270,679 270,679
Retained earnings 188,243 103,449 291,692
Accumulated other comprehensive income -
net unrealized appreciation on investments,
net of deferred tax expense 9,596 9,596
---------- --------- ------- ---------
493,488 0 103,449 596,937
Less treasury stock (146,536) (146,536)
---------- --------- ------- ---------
TOTAL STOCKHOLDERS' EQUITY 346,952 0 103,449 450,401
---------- --------- ------- ---------
TOTAL LIABILITIES, REDEEMABLE
SECURITIES AND STOCKHOLDERS'
EQUITY $1,818,726 $(229,057) $152,777 $1,742,446
---------- --------- -------- ----------
---------- --------- -------- ----------
(a) Historical information is as previously published in Zenith's 1998 Annual
report on Form 10-K.
(b) To record the disposal of the previously consolidated liabilities and
equity of CalFarm, including $63,864,000 transferred to CalFarm immediately
prior to the closing in connection with the cessation of CalFarm's
participation in the pooling agreement, net of tax.
(c) To record the sale of CalFarm, the receipt of sale proceeds, applicable
taxes and expenses, and the gain on the sale of $103,449,000.
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ZENITH NATIONAL INSURANCE CORP.
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
Pro Forma
(Dollars in thousands, except per share data) Historical(a) Adjustments (b)(c) Pro Forma
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED REVENUES:
Premiums earned $529,855 $(221,814) $308,041
Net investment income 53,593 (11,087) 42,506
Realized gains on investments 11,602 (1,851) 9,751
Real estate sales 37,737 37,737
Service fee income 3,992 3,992
-------- --------- --------
Total revenues 636,779 (234,752) 402,027
EXPENSES:
Loss and loss adjustment expenses incurred 382,890 (148,595) 234,295
Policy acquisition costs 96,937 (49,000) 47,937
Other underwriting and operating expenses 85,299 (19,987) 65,312
Policyholders' dividends and participation 516 516
Real estate construction and operating costs 36,374 36,374
Interest expense 5,928 5,298
-------- --------- --------
Total expenses 607,944 (217,582) 390,362
Income before federal income tax expense 28,835 (17,170) 11,665
Federal income tax expense 9,735 (5,970) 3,765
-------- --------- --------
NET INCOME $ 19,100 $(11,200) 7,900
-------- --------- --------
-------- --------- --------
EARNINGS PER SHARE:
Basic $ 1.12 $ 0.46
-------- --------
-------- --------
Diluted 1.11 0.46
-------- --------
-------- --------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 17,035 17,035
-------- --------
-------- --------
Diluted 17,158 17,158
-------- --------
-------- --------
(a) Historical information is as previously published in Zenith's 1998 Annual
report on Form 10-K.
(b) To record the disposal of the previously consolidated revenue and expenses
of CalFarm. The estimated gain on the sale of CalFarm, net of applicable
taxes and expenses, has not been reflected in the pro forma adjustments since
such gain on sale would be a non-recurring transaction.
(c) CalFarm's income from underwriting in 1998 was $4,232,000 before tax, or
$2,754,000 after tax. Since CalFarm was acquired by Zenith in 1985,
CalFarm's cumulative combined ratio was 100% and its cumulative underwriting
income was approximately zero. In addition to the loss of any underwriting
income provided by CalFarm, Zenith's consolidated net income would be
reduced by the investment income on the net reduction of consolidated
investments of approximately $15,000,000 caused by the sale of CalFarm.
Estimated investment income after tax on such decrease would have been
$546,000. Based on a reduction in underwriting income of $2,754,000 after
tax and a reduction in investment income of $546,000, pro forma net income
for 1998 would be $15,800,000, or $0.92 per share (diluted).
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ZENITH NATIONAL INSURANCE CORP.
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, thereunto duly authorized.
ZENITH NATIONAL INSURANCE CORP.
Registrant
Date: April 15, 1999 /s/ Fredricka Taubitz
--------------------------------
Fredricka Taubitz
Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
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