UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): November 12, 2008
CONSECO, INC.
(Exact name of registrant as specified in its charter)
Delaware 001-31792 75-3108137
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
organization)
11825 North Pennsylvania Street
Carmel, Indiana 46032
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(Address of principal executive offices) (Zip Code)
(317) 817-6100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address,
if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.01. Completion of Acquisition or Disposition of Assets.
On November 12, 2008, Conseco Inc. (the "Company") announced that it
completed the previously announced transfer of Senior Health Insurance Company
of Pennsylvania, formerly known as Conseco Senior Health Insurance Company
("Senior Health"), to Senior Health Care Oversight Trust, an independent trust
(the "Trust"). In connection with the completion of the transfer, Conseco
contributed $175 million to the capital of Senior Health and the Trust, as
follows:
o A 6% Senior Note due 2013 in the principal amount of $125 million, the
principal of which is payable in five equal annual installments.
o A contribution of $11 million to the Trust to provide working capital
and to fund future operating expenses of the Trust.
o Cash and cash equivalents of $39 million, including a ceding
commission of $35.7 million paid by Conseco Life Insurance Company, in
connection with the assignment by Senior Health of its non-long term
care business to Conseco Life Insurance Company.
The transaction was subject to approval by the Pennsylvania Insurance
Department, which issued its order approving the transfer of ownership on
November 12, 2008. A copy of the Company's press release is attached hereto as
Exhibit 99.1.
In accordance with the requirements of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", the Company has determined that
the transfer of the stock of Senior Health to the Trust will be reported as a
discontinued operation in financial statements prepared after November 12,
2008. Rule 3-01 of Regulation S-X and related guidance requires a three-year
presentation of pro forma income statement information under this circumstance.
Accordingly, the Company is amending the pro forma financial statements
included in its Form 8-K dated November 12, 2008, to include pro forma
consolidated statement of operations for the years ended December 31, 2006 and
December 31, 2005.
Item 9.01. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
CONSECO, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
The unaudited pro forma consolidated statement of operations of Conseco for
the nine months ended September 30, 2008, and for the years ended December 31,
2007, 2006 and 2005 presents the consolidated operating results for Conseco as
if the transfer (the "Transfer") of the stock of Senior Health Insurance Company
of Pennsylvania ("Senior Health", formerly known as Conseco Senior Health
Insurance Company prior to its name change in October 2008) to an independent
trust had occurred on January 1, 2005. The unaudited pro forma consolidated
balance sheet of Conseco as of September 30, 2008, gives effect to the Transfer
as if it had occurred on September 30, 2008.
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the nine months ended September 30, 2008
(Dollars in millions, except per share data)
Adjustments
As relating to the Pro
reported Transfer forma
-------- -------- -----
Revenues:
Insurance policy income.............................................. $2,634.1 $(197.2) (1) $2,436.9
Net investment income (loss):
General account assets............................................. 1,069.3 (134.6) (1) 931.6
(3.1) (2)
Policyholder and reinsurer accounts and other
special-purpose portfolios....................................... (71.9) - (71.9)
Net realized investment losses....................................... (549.5) 382.2 (1) (167.3)
Fee revenue and other income......................................... 13.8 - 13.8
-------- ------- --------
Total revenues..................................................... 3,095.8 47.3 3,143.1
-------- ------- --------
Benefits and expenses:
Insurance policy benefits............................................ 2,639.6 (259.0) (1) 2,380.6
Interest expense..................................................... 74.1 2.3 (3) 76.4
Amortization......................................................... 303.5 (14.6) (1) 288.9
Gain on reinsurance recapture........................................ (30.5) 29.7 (1) (.8)
Other operating costs and expenses................................... 434.3 (44.0) (1) 390.3
-------- ------- --------
Total benefits and expenses........................................ 3,421.0 (285.6) 3,135.4
-------- ------- --------
Loss before income taxes........................................... (325.2) 332.9 7.7
Income tax expense (benefit):
Tax benefit on period income......................................... (111.5) 116.5 (4) 5.0
Valuation allowance for deferred tax assets.......................... 461.2 (431.2) (5) 30.0
-------- ------- --------
Net income (loss) applicable to common stock....................... $ (674.9) $ 647.6 $ (27.3)
======== ======= ========
Loss per common share:
Basic:
Weighted average shares outstanding.................................. 184.7 184.7
===== =====
Net loss............................................................. $(3.65) $(.15)
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Diluted:
Weighted average shares outstanding.................................. 184.7 184.7
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Net loss............................................................. $(3.65) $(.15)
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The accompanying notes are an integral part
of the pro forma consolidated financial statements.
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 2007
(Dollars in millions, except per share data)
Adjustments
As relating to the Pro
reported Transfer forma
-------- -------- -----
Revenues:
Insurance policy income............................................ $3,167.3 $(271.6) (1) $2,895.7
Net investment income (loss):
General account assets.......................................... 1,517.3 (166.8) (1) 1,344.1
(6.4) (2)
Policyholder and reinsurer accounts and
other special-purpose portfolios.............................. 19.3 - 19.3
Net realized investment losses .................................... (155.4) (2.6) (1) (158.0)
Fee revenue and other income....................................... 23.8 - 23.8
-------- ------- --------
Total revenues.................................................. 4,572.3 (447.4) 4,124.9
-------- ------- --------
Benefits and expenses:
Insurance policy benefits.......................................... 3,433.7 (518.4) (1) 2,915.3
Interest expense................................................... 117.3 4.5 (3) 121.8
Amortization....................................................... 449.3 (22.5) (1) 426.8
Costs related to a litigation settlement........................... 64.4 - 64.4
Loss related to an annuity coinsurance transaction................. 76.5 - 76.5
Other operating costs and expenses................................. 604.1 (63.7) (1) 540.4
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Total benefits and expenses..................................... 4,745.3 (600.1) 4,145.2
-------- ------- --------
Income (loss) before income taxes............................... (173.0) 152.7 (20.3)
Income tax expense (benefit):
Tax expense (benefit) on period income............................. (61.1) 53.4 (4) (7.7)
Valuation allowance for deferred tax assets........................ 68.0 - 68.0
-------- ------- --------
Net income (loss)............................................... (179.9) 99.3 (80.6)
Preferred stock dividends.............................................. 14.1 - 14.1
-------- ------- --------
Net income (loss) applicable to common stock.................... $ (194.0) $ 99.3 $ (94.7)
======== ======= ========
Earnings (loss) per common share:
Basic:
Weighted average shares outstanding............................. 173.4 173.4
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Net income (loss)............................................... $(1.12) $(.55)
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Diluted:
Weighted average shares outstanding............................. 173.4 173.4
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Net income (loss)............................................... $(1.12) $(.55)
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The accompanying notes are an integral part
of the pro forma consolidated financial statements.
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 2006
(Dollars in millions, except per share data)
Adjustments
As relating to the Pro
reported Transfer forma
-------- -------- -----
Revenues:
Insurance policy income............................................ $2,989.0 $(292.6) (1) $2,696.4
Net investment income (loss):
General account assets.......................................... 1,435.2 (155.6) (1) 1,274.6
(5.0) (2)
Policyholder and reinsurer accounts and
other special-purpose portfolios.............................. 71.2 - 71.2
Net realized investment losses .................................... (47.2) 7.0 (1) (40.2)
Fee revenue and other income....................................... 19.2 - 19.2
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Total revenues.................................................. 4,467.4 (446.2) 4,021.2
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Benefits and expenses:
Insurance policy benefits.......................................... 3,033.0 (354.3) (1) 2,678.7
Interest expense................................................... 73.5 6.0 (3) 79.5
Amortization....................................................... 441.6 (18.3) (1) 423.3
Loss on extinguishment of debt..................................... .7 - .7
Costs related to a litigation settlement........................... 174.7 - 174.7
Other operating costs and expenses................................. 576.7 (73.4) (1) 503.3
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Total benefits and expenses..................................... 4,300.2 (440.0) 3,860.2
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Income before income taxes...................................... 167.2 (6.2) 161.0
Tax expense on period income........................................... 61.2 (2.2) (4) 59.0
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Net income...................................................... 106.0 (4.0) 102.0
Preferred stock dividends.............................................. 38.0 - 38.0
-------- ------- --------
Net income applicable to common stock........................... $ 68.0 $ (4.0) $ 64.0
======== ======= ========
Earnings per common share:
Basic:
Weighted average shares outstanding............................. 151.7 151.7
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Net income...................................................... $ .45 $ .42
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Diluted:
Weighted average shares outstanding............................. 152.5 152.5
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Net income...................................................... $ .45 $ .42
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The accompanying notes are an integral part
of the pro forma consolidated financial statements.
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 2005
(Dollars in millions, except per share data)
Adjustments
As relating to the Pro
reported Transfer forma
-------- -------- -----
Revenues:
Insurance policy income............................................ $2,930.1 $(309.2) $2,620.9
Net investment income (loss):
General account assets.......................................... 1,390.4 (151.8) 1,236.4
(2.2)
Policyholder and reinsurer accounts and
other special-purpose portfolios.............................. (15.8) - (15.8)
Net realized investment losses .................................... (2.9) (.4) (3.3)
Fee revenue and other income....................................... 24.7 - 24.7
-------- ------- --------
Total revenues.................................................. 4,326.5 (463.6) 3,862.9
-------- ------- --------
Benefits and expenses:
Insurance policy benefits.......................................... 2,830.0 (303.5) 2,526.5
Interest expense................................................... 58.3 7.5 65.8
Amortization....................................................... 379.0 (21.0) 358.0
Loss on extinguishment of debt..................................... 3.7 - 3.7
Costs related to a litigation settlement........................... 18.3 - 18.3
Other operating costs and expenses................................. 552.9 (59.4) 493.5
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Total benefits and expenses..................................... 3,842.2 (376.4) 3,465.8
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Income before income taxes...................................... 484.3 (87.2) 397.1
Tax expense on period income........................................... 171.6 (30.5) 141.1
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Net income...................................................... 312.7 (56.7) 256.0
Preferred stock dividends.............................................. 38.0 - 38.0
-------- ------- --------
Net income applicable to common stock........................... $ 274.7 $ (56.7) $ 218.0
======== ======= ========
Earnings per common share:
Basic:
Weighted average shares outstanding............................. 151.2 151.2
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Net income...................................................... $1.82 $1.44
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Diluted:
Weighted average shares outstanding............................. 185.0 185.0
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Net income...................................................... $1.69 $1.38
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The accompanying notes are an integral part
of the pro forma consolidated financial statements.
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
as of September 30, 2008
(Dollars in millions)
ASSETS
Adjustments
As relating to the Pro
reported Transfer forma
-------- -------- -----
Total investments......................................................... $22,044.9 $(2,588.4) (6) $19,456.5
Cash and cash equivalents - unrestricted.................................. 352.3 (44.4) (6) 230.9
(77.0) (7)
Cash and cash equivalents - restricted.................................... 12.0 - (6) 12.0
Accrued investment income................................................. 351.5 (44.8) (6) 306.7
Value of policies inforce at the Effective Date........................... 1,631.1 (137.4) (6) 1,493.7
Cost of policies produced................................................. 1,859.0 - 1,859.0
Reinsurance receivables................................................... 3,412.4 (108.5) (6) 3,303.9
Income tax assets, net.................................................... 2,042.8 (263.2) (8) 1,779.6
Assets held in separate accounts.......................................... 22.0 - 22.0
Other assets.............................................................. 333.7 (7.1) (6) 326.6
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Total assets....................................................... $32,061.7 $(3,270.8) $28,790.9
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Liabilities for insurance products................................... $26,901.6 $(2,989.6) (6) $23,912.0
Other liabilities.................................................... 444.6 (13.1) (6) 431.5
Investment borrowings................................................ 823.9 - 823.9
Notes payable - direct corporate obligations......................... 1,187.6 125.0 (9) 1,312.6
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Total liabilities................................................ 29,357.7 (2,877.7) 26,480.0
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Commitments and Contingencies
Shareholders' equity:
Common stock......................................................... 1.9 - 1.9
Additional paid-in capital........................................... 4,076.0 - 4,076.0
Accumulated other comprehensive loss................................. (1,137.7) - (1,137.7)
Retained earnings (accumulated deficit)............................. (236.2) (393.1) (10) (629.3)
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Total shareholders' equity....................................... 2,704.0 (393.1) 2,310.9
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Total liabilities and shareholders' equity....................... $32,061.7 $(3,270.8) $28,790.9
========= ========= =========
The accompanying notes are an integral part
of the pro forma consolidated financial statements.
CONSECO AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On November 12, 2008, Conseco and CDOC, Inc. ("CDOC"), a wholly owned
subsidiary of Conseco (and together with Conseco, the "Conseco Parties"),
completed the transfer of the stock of Senior Health to Senior Health Care
Oversight Trust, an independent trust (the "Independent Trust") for the
exclusive benefit of Conseco Senior's long-term care policyholders. Consummation
of the transaction was subject to the approval of the Pennsylvania Insurance
Department.
In addition to the transfer of the Senior Health stock, the Conseco Parties
contributed $175 million of additional capital to Senior Health and the
Independent Trust. The $175.0 million capital contribution consisted of cash and
cash equivalents of $50 million and a note payable of $125.0 million. The note
has a five-year maturity date; a 6 percent interest rate; and requires annual
principal payments of $25.0 million. As a condition of the order from the
Pennsylvania Insurance Department approving the Transfer, Conseco agreed that it
would not pay cash dividends on its common stock while any portion of the $125
million note remained outstanding.
Adjustments to the pro forma consolidated statement of operations to give
effect to the Transfer as of January 1, 2005, are summarized below:
(1) Such amount reflects the impact of the long-term care business being
transferred to the Independent Trust.
(2) Net investment income is adjusted to reflect the income lost as a
result of a $50 million capital contribution to the Independent Trust
and Senior Health and $27 million of assumed transaction expenses. Net
investment income in 2006, 2007 and in the 2008 period is further
adjusted to reflect payments on the note payable of $25 million, $50
million and $75 million, respectively.
(3) Interest expense in 2007 is adjusted to reflect additional interest
expense on the $125 million note payable at an assumed interest rate
of 6 percent. Interest expense in 2006, 2007 and in the 2008 period
also reflects payments on the note payable of $25 million, $50 million
and $75 million, respectively.
(4) Reflects the tax adjustment for the pro forma adjustments at the
approximate rate for the specific item.
(5) Reduces the deferred tax valuation allowance previously recognized as
a result of the Transfer transactions.
Adjustments to the pro forma consolidated balance sheet to give effect to
the Transfer as of September 30, 2008, are summarized below:
(6) Such amount reflects the impact of the long-term care business being
transferred to the Independent Trust.
(7) Cash and cash equivalents are adjusted to reflect a $50 million
capital contribution to the Independent Trust and Senior Health and
$27 million of assumed transaction expenses.
(8) All of the applicable pro forma balance sheet adjustments are tax
affected at the appropriate rate. Deferred tax assets are netted
against deferred tax liabilities.
(9) Notes payable are increased to reflect the issuance of a $125 million
note payable to Senior Health.
(10) Amount represents the additional loss expected to be recognized
subsequent to September 30, 2008 (after the completion of the
Transfer).
(d) Exhibits.
The following materials are furnished as exhibits to this Current Report on
Form 8-K:
99.1 Press release of Conseco, Inc. dated November 12, 2008.
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, hereunto duly authorized.
CONSECO, INC.
November 18, 2008
By: /s/ John R. Kline
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John R. Kline
Senior Vice President and
Chief Accounting Officer