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 March 15, 2004 (Date of earliest event reported) VESTA INSURANCE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 63-1097283 (State or 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) Item 9 and 12. Results of Operations and Financial Condition. On March 15, 2004, the Registrant reported its earnings for the quarter and year-ended December 31, 2003. Attached to this Current Report on Form 8-K is a copy of the Company's press release dated March 15, 2004. This release is being furnished to the Securities and Exchange Commission under Item 12. 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, thereto duly authorized. Dated as of March 15, 2004. VESTA INSURANCE GROUP, INC. By: /s/ Donald W. Thornton ------------------------------ Its: Senior Vice President -- General Counsel and Secretary Vesta Reports Fourth Quarter Results Incurs Primarily Non-Cash GAAP Charge for Arbitrations and Deferred Tax Asset; Enters Definitive Agreement to Sell its Life Insurance Business for $63.5 Million BIRMINGHAM, Ala., March 15 /PRNewswire-FirstCall/ -- Vesta Insurance Group, Inc. (NYSE: VTA) today reported results for its fourth quarter and full year ended December 31, 2003 that included a $118.8 million charge - $28.9 million cash and $89.9 million non-cash -- to write-off recoverables associated with a reinsurance arbitration ruling, and to establish a full valuation allowance for its entire net deferred tax asset in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The Company also announced that its Board of Directors has deferred consideration of cash dividends on its common stock until the Company's upcoming capital initiatives have been completed. In addition, Vesta announced that it has entered into a definitive agreement to sell American Founders Financial Corporation for approximately $63.5 million dollars. The transaction is subject to regulatory approval and is expected to close in the second quarter. The closing of the sale of American Founders will result in an estimated GAAP gain of $5 million and a statutory gain of approximately $19.5 million. On a statutory basis, the impact of writing down the reinsurance recoverables associated with the arbitration rulings is approximately $55.8 million. Including the impact of the potential sale of American Founders, statutory capital is estimated to be approximately $165 million at March 31, 2004, which is approximately 7% below the statutory capital level as of September 30, 2003. "While we are obviously disappointed with the write down of these recoverables, the negative exposure to these matters is now behind us and we can focus on the growing profitability of our continuing operations which produced excellent results in the fourth quarter and the second half of 2003 and in the first two months of 2004," said Norman W. Gayle, III, President and CEO. "The Board of Directors determined that deferring the payment of a cash dividend on our common stock is prudent, and we expect our current annual dividend rate of $0.10 per share per year to resume after our capital initiatives are completed. "Our insurance company strength is sound and we believe our financial position will improve dramatically with the sale of American Founders and the planned initial public offering of our non-standard auto insurance subsidiary, Affirmative Insurance Holdings, Inc. We expect to file a registration statement on Form S-1 in the next few days," said Gayle. As disclosed on March 2, 2004, an arbitration panel ruled against Vesta in a 6-year reinsurance dispute with NRMA Insurance, Ltd. concerning the 1997 20% whole account quota share contract. As a result of the ruling, Vesta incurred a previously announced $33.5 million pre-tax charge to fourth quarter earnings associated with the NRMA ruling. Vesta considered the NRMA ruling in the evaluation of the recoverability of other amounts due from the other participants on the same reinsurance treaty as well as another, unrelated treaty. Although there are distinct facts and circumstances underlying and affecting our disputes with those other participants, for financial reporting purposes, the Company concluded that those amounts may not ultimately be collected. Accordingly, we recorded an additional pre-tax charge of $32.4 million in the fourth quarter of 2003, $30.1 million of which was related to other balances recoverable from other participants in the 20% whole account quota share contract. The total after-tax charge related to the reinsurance recoverables write-down in the fourth quarter is $43.4 million. The recording of this charge does not impact Vesta's intention to actively arbitrate with the other participants on the 20% whole account quota share contract. Additionally, the Company has filed a motion to vacate the NRMA arbitration award in U.S. District Court on the grounds of the evident partiality of the umpire. In connection with the filing of the annual report on Form 10-K for 2003, Vesta updated its SFAS No. 109 income tax analysis, to evaluate the recoverability of its deferred tax asset. In making this evaluation, the Company considered all available positive and negative evidence, including our past results, the existence of significant cumulative losses in recent years, and our estimate of future taxable income. While we anticipate being profitable in future periods, the combination of significant cumulative losses in recent years and uncertainty with respect to our ability to achieve sufficient taxable income to fully realize our year-end deferred tax asset balances within a reasonable timeframe, warrants the recording of a valuation allowance under SFAS No. 109. Accordingly, we incurred a $75.4 million dollar charge to earnings to reflect this valuation allowance. Also, based on the charges that the Company recorded in the fourth quarter, Vesta updated its goodwill evaluation, in connection with SFAS No. 142, "Goodwill and Other Intangible Assets." Based on this updated analysis, the Company concluded there was no indication of impairment as of December 31, 2003. In addition to its regularly scheduled conference call for March 16, Vesta management will hold a conference call today, Monday, March 15, at 10:30 am EST to discuss this press release. The conference call will be simultaneously webcast live online through Vesta's corporate website, www.vesta.com and http://www.firstcallevents.com/service/ajwz402091381gf12.html. To access this call via telephone, call 1-877-847-5345 and enter passcode 664731. Financial Results For the fourth quarter of 2003, the Company reported net operating earnings from continuing operations of $7.3 million, or $0.21 per share in the fourth quarter of 2003 compared to net operating earnings from continuing operations of $4.3 million, or $0.13 per share for the corresponding period in 2002. Net operating earnings from continuing operations is a non-GAAP measure which excludes certain items, such as realized gains and losses, severance payments, losses and awards from arbitration and litigation, deferred tax asset charge as well as gains on debt extinguishments. Net earned premiums for the quarter were $108.8 million compared to $132.9 million in the fourth quarter of 2002, which is reflective of Vesta's increased use of reinsurance. The net loss from continuing operations was $109.7 million, or $(3.13) per share for the quarter ending December 31, 2003 compared to net income from continuing operations of $1.0 million, or $0.03 per share in the fourth quarter of 2002. (A reconciliation of net operating earnings from continuing operations to net income from continuing operations is included herein.) For the twelve months ended December 31, 2003, net operating earnings from continuing operations were $10.4 million, or $0.30 per share compared to net operating earnings from continuing operations of $6.8 million, or $0.20 per share in 2002. For the year, the Company reported a net loss from continuing operations of $102.9 million, or $(2.95) per share compared to a net loss from continuing operations of $10.2 million or $(0.30) per share in 2002. (A reconciliation of the net operating earnings from continuing operations to net income from continuing operations is included herein.) Operational Results Vesta's standard property-casualty segment, which includes the residential property and standard auto businesses, posted net income from continuing operations of $4.3 million in the fourth quarter of 2003. Below are the standard property-casualty segment GAAP operational ratios for the three and twelve months ended December 31, 2003 and 2002. 3 Months Ended 12 Months Ended December 31, December 31, 2003 2002 2003 2002 Residential property combined ratio 88.6% 97.1% 102.4% 101.7% Standard auto combined ratio 94.8% 99.6% 96.7% 104.2% Standard property-casualty combined ratio 90.2% 98.1% 101.2% 102.5% Total catastrophe losses incurred (in millions) $4.6 $2.8 $32.4 $13.4 Impact of catastrophes on standard property-casualty combined ratio 7.0% 3.2% 10.4% 4.1% "Profitability in the standard property-casualty segment continues to improve," said Gayle. "Our decline in revenues is by design as we entered into a 50% quota share reinsurance agreement effective September 30, 2003 on our property business in our continuing states," said Gayle. The Company's non-standard auto underwriting business generated a GAAP combined ratio of 97.9% in the fourth quarter and 96.6% for 2003 compared to a 96.3% and a 97.0% combined ratio for the respective corresponding periods in 2002. The non-standard underwriting segment recognized approximately a $1.0 million in contingent commission expense in the fourth quarter due to consistently low loss ratio results. The non-standard agency operations produced a 17.0% pre-tax margin in the quarter, and a 12.7% margin for the full year 2003. The agency segment was positively impacted by approximately $3.0 million of contingent commissions that were recognized in the fourth quarter. Vesta incurred a net loss of $4.4 million for the full year for its discontinued health insurance and consulting businesses. In addition, the Company incurred an after-tax loss of $11.5 million to its discontinued assumed reinsurance and commercial lines, primarily due to a previously announced $6.1 million net loss in the second quarter from an arbitration with CIGNA Property and Casualty Insurance Company. Other Information In December 2003, Vesta completed a debt for equity swap and issued approximately 402,000 shares of common stock in exchange for $2.2 million face value of the Company's 8.525%, Deferrable Capital Securities due 2027. In addition, Vesta announced that David W. Lacefield has been elected to Senior Vice President of Vesta Insurance Group, in charge of the company's standard property-casualty operations. Lacefield joined Vesta in 2001 as president of TexasSelect. He began his insurance career in 1977 as a pricing analyst at USAA and is heavily experienced in product pricing and design, loss reserving, strategic planning, financial analysis, claims and insurance operations. Lacefield is a member of the Casualty Actuarial Society and the American Academy of Actuaries. Vesta also announced that Timothy A. Bienek, CFA, has joined Affirmative Insurance Holdings, Vesta's non-standard automobile agency and underwriting subsidiary, as Chief Financial Officer. Previously, Bienek was President, Chief Operating Officer and a Director of Hallmark Financial Services, a publicly traded insurance holding company. Bienek is a 20-year veteran of the property-casualty insurance industry having served in executive positions for Benfield Blanch, Allstate Insurance Company and TIG Holdings. The conference call on Tuesday, March 16, at 10:00 am EST will also be simultaneously webcast live online through Vesta's corporate website, www.vesta.com and http://www.firstcallevents.com/service/ajwz400350274gf12.html. About Vesta Insurance Group, Inc. Vesta, headquartered in Birmingham, Ala., is a holding company for a group of insurance and financial services companies that offer a wide range of consumer-based products. This news release contains statements concerning management's beliefs, plans or objectives for Vesta's future operations or financial performance, including anticipated transactions, dividend payments and continued segment growth and profitability. These statements, whether expressed or implied, are only predictions and should be considered "forward-looking statements" under applicable securities laws. You should be aware that Vesta's actual operations and financial performance, may differ materially from those reflected in these forward-looking statements. The main factors that could affect these forward- looking statements are that the planned sale of American Founders Financial Corporation does not receive regulatory approval, that the planned public offering of securities of Affirmative Insurance Holdings, Inc. does not price and close on the terms and schedule that we expect, we may experience catastrophic losses in excess of what we expect; we may experience frequency and severity of non-catastrophic losses in excess of what we expect; we may experience unfavorable developments in various litigation and in arbitrations with reinsurers which could cause us to adjust our estimates of reinsurance recoverables; or we may experience deterioration in premium volume in our standard property and casualty segment as a result of rating actions taken by A.M. Best. Please refer to the documents Vesta files from time to time with the Securities and Exchange Commission, specifically Vesta's most recent Form 10-K and Exhibit 99.1 attached thereto, which contains and identifies additional important factors that could cause the actual results to differ materially from those contained in the projections or forward-looking statements. Vesta Insurance Group, Inc 4th Quarter 2003 Segment Comparison (amounts in thousands) Standard Property- Non-Standard Life Insurance Casualty Agency 2003 2002 2003 2002 2003 2002 Revenues: Net premiums written $2,030 $2,338 $61,532 $59,091 -- -- (Increase) decrease in unearned premiums -- -- 1,660 28,433 -- -- Net premiums earned 2,030 2,338 63,192 87,524 -- -- Net investment income 6,862 7,759 -- -- -- -- Policy fees 605 622 2,974 1,369 Agents fees and commissions -- -- -- -- $38,089 $40,902 Other 625 581 139 58 -- -- Total revenues 10,122 11,300 66,305 88,951 38,089 40,902 Expenses: Policyholder benefits 5,526 4,048 -- -- -- -- Loss and LAE expenses incurred -- -- 39,386 54,902 -- -- Policy acquisition expenses 325 1,221 9,054 21,158 -- -- Operating expenses 2,110 1,912 11,215 11,112 31,402 38,299 Interest on debt 1,357 1,548 -- -- 206 151 Deferrable capital security distributions -- -- -- -- -- -- Total expenses 9,318 8,729 59,655 87,172 31,608 38,450 Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest 804 2,571 6,650 1,779 6,481 2,452 Income tax expense (benefit) 281 900 2,328 623 2,268 858 Deferrable capital security distributions, net of tax -- -- -- -- -- -- Minority interest in subsidiary, net of tax -- 236 -- -- 112 355 Net operating earnings (loss) from continuing operations $523 $1,435 $4,322 $1,156 $4,101 $1,239 Realized gains(loss), net of tax and minority interest 847 (15,629) Litigation settlement and arbitration award, net of tax Severance payment Deferred tax asset charge Gain on debt extinguishments, net of tax Net income (loss) from continuing operations $1,370 $(14,194) $4,322 $1,156 $4,101 $1,239 Non-Standard Underwriting Corp & Other Eliminations 2003 2002 2003 2002 2003 2002 Revenues: Net premiums written $40,114 $47,477 (Increase) decrease in unearned premiums 3,488 (4,425) Net premiums earned 43,602 43,052 Net investment income -- -- $2,296 $4,238 -- $(151) Policy fees 5,657 3,736 -- -- -- -- Agents fees and commissions -- -- -- -- $(24,596)(18,183) Other 538 758 306 263 -- -- Total revenues 49,797 47,546 2,602 4,501 (24,596) (18,334) Expenses: Policyholder benefits -- -- -- -- -- -- Loss and LAE expenses incurred 29,501 26,395 -- -- -- -- Policy acquisition expenses 13,889 12,954 -- -- (9,265) (5,317) Operating expenses 4,816 5,713 4,704 3,779 (15,331) (12,866) Interest on debt -- -- 1,682 1,952 -- (151) Deferrable capital security distributions -- -- 392 -- -- -- Total expenses 48,206 45,062 6,778 5,731 (24,596) (18,334) Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest 1,591 2,484 (4,176) (1,230) -- -- Income tax expense (benefit) 557 869 (1,462) (431) -- -- Deferrable capital security distributions, net of tax -- -- -- 308 -- -- Minority interest in subsidiary, net of tax -- -- -- -- -- -- Net operating earnings (loss) from continuing operations $1,034 $1,615 $(2,714) $(1,107) -- -- Realized gains (loss), net of tax and minority interest 578 2,209 Litigation settlement and arbitration award, net of tax (43,365) 9,471 Severance payment (2,714) Deferred tax asset charge (75,399) Gain on debt extinguishments, net of tax 393 3,301 Net income (loss) from continuing operations $1,034 $1,615 $(120,507) $11,160 -- -- Consolidated 2003 2002 Revenues: Net premiums written $103,676 $108,906 (Increase) decrease in unearned premiums 5,148 24,008 Net premiums earned 108,824 132,914 Net investment income 9,158 11,846 Policy fees 9,236 5,727 Agents fees and commissions 13,493 22,719 Other 1,608 1,660 Total revenues 142,319 174,866 Expenses: Policyholder benefits 5,526 4,048 Loss and LAE expenses incurred 68,887 81,297 Policy acquisition expenses 14,003 30,016 Operating expenses 38,916 47,949 Interest on debt 3,245 3,500 Deferrable capital security distributions 392 -- Total expenses 130,969 166,810 Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest 11,350 8,056 Income tax expense (benefit) 3,972 2,819 Deferrable capital security distributions, net of tax -- 308 Minority interest in subsidiary, net of tax 112 591 Net operating earnings (loss) from continuing operations $7,266 $4,338 Realized gains (loss), net of tax and minority interest 1,425 (13,420) Litigation settlement and arbitration award, net of tax (43,365) 9,471 Severance payment - (2,714) Deferred tax asset charge (75,399) - Gain on debt extinguishments, net of tax 393 3,301 Net income (loss) from continuing operations $(109,680) $976 Vesta Insurance Group, Inc 2003 Year-to-Date Segment Comparison (amounts in thousands) Standard Property- Life Insurance Casualty 2003 2002 2003 2002 Revenues: Net premiums written $8,806 $10,506 $260,378 $354,618 (Increase) decrease in unearned premiums -- -- 40,483 (34,351) Net premiums earned 8,806 10,506 300,861 320,267 Net investment income 28,330 36,020 -- -- Policy fees 2,295 3,536 11,448 5,201 Agents fees and commissions -- -- -- -- Other 2,830 1,602 750 509 Total revenues 42,261 51,664 313,059 325,977 Expenses: Policyholder benefits 21,080 23,283 -- -- Loss and LAE expenses incurred -- -- 207,800 221,549 Policy acquisition expenses 1,021 2,720 63,637 72,208 Operating expenses 9,517 9,757 44,480 39,933 Interest on debt 5,631 6,304 -- -- Deferrable capital security distributions -- -- -- -- Total expenses 37,249 42,064 315,917 333,690 Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest 5,012 9,600 (2,858) (7,713) Income tax expense (benefit) 1,754 3,360 (1,000) (2,700) Deferrable capital security distributions, net of tax -- -- -- -- Minority interest in subsidiary, net of tax -- 742 -- -- Net operating earnings (loss) from continuing operations $3,258 $5,498 $(1,858) $(5,013) Realized gains (loss), net of tax 1,560 (14,355) Litigation settlement and arbitration award, net of tax Severance payment Deferred tax asset charge Gain on debt extinguishments, net of tax Net income (loss) from continuing operations $4,818 $(8,857) $(1,858) $(5,013) Non-Standard Non-Standard Agency Underwriting 2003 2002 2003 2002 Revenues: Net premiums written -- -- $179,584 $181,349 (Increase) decrease in unearned premiums -- -- (12,173) (19,872) Net premiums earned -- -- 167,411 161,477 Net investment income -- -- -- -- Policy fees 22,036 11,090 Agents fees and commissions $145,919 $131,224 -- -- Other -- -- 2,890 5,363 Total revenues 145,919 131,224 192,337 177,930 Expenses: Policyholder benefits -- -- -- -- Loss and LAE expenses incurred -- -- 114,426 100,278 Policy acquisition expenses -- -- 49,962 50,109 Operating expenses 126,593 118,445 18,706 16,943 Interest on debt 767 1,012 -- -- Deferrable capital security distributions -- -- -- -- Total expenses 127,360 119,457 183,094 167,330 Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest 18,559 11,767 9,243 10,600 Income tax expense (benefit) 6,496 4,118 3,235 3,710 Deferrable capital security distributions, net of tax -- -- -- -- Minority interest in subsidiary, net of tax 605 894 -- -- Net operating earnings (loss) from continuing operations $11,458 $6,755 $6,008 $6,890 Realized gains (loss), net of tax Litigation settlement and arbitration award, net of tax Severance payment Deferred tax asset charge Gain on debt extinguishments,net of tax Net income (loss) from continuing operations $11,458 $6,755 $6,008 $6,890 Corp & Other Eliminations 2003 2002 2003 2002 Revenues: Net premiums written (Increase) decrease in unearned premiums Net premiums earned Net investment income $12,361 $18,392 -- $(1,012) Policy fees -- -- -- -- Agents fees and commissions -- -- $(96,809) (76,078) Other 841 907 -- -- Total revenues 13,202 19,299 (96,809) (77,090) Expenses: Policyholder benefits -- -- -- -- Loss and LAE expenses incurred -- -- -- -- Policy acquisition expenses -- -- (28,821) (34,100) Operating expenses 17,920 20,257 (67,988) (41,978) Interest on debt 6,441 8,618 -- (1,012) Deferrable capital security distributions 871 -- -- -- Total expenses 25,232 28,875 (96,809) (77,090) Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest (12,030) (9,576) -- -- Income tax expense (benefit) (4,210) (3,352) -- -- Deferrable capital security distributions, net of tax 622 1,081 -- -- Minority interest in subsidiary, net of tax -- -- -- -- Net operating earnings (loss) from continuing operations $(8,442) $(7,305) -- -- Realized gains (loss), net of tax 3,494 (266) Litigation settlement and arbitration award, net of tax (43,365) (5,869) Severance payment (2,714) Deferred tax asset charge (75,399) Gain on debt extinguishments, net of tax 393 6,160 Net income (loss) from continuing operations $(123,319) $(9,994) -- -- Consolidated 2003 2002 Revenues: Net premiums written $448,768 $546,473 (Increase) decrease in unearned premiums 28,310 (54,223) Net premiums earned 477,078 492,250 Net investment income 40,691 53,400 Policy fees 35,779 19,827 Agents fees and commissions 49,110 55,146 Other 7,311 8,381 Total revenues 609,969 629,004 Expenses: Policyholder benefits 21,080 23,283 Loss and LAE expenses incurred 322,226 321,827 Policy acquisition expenses 85,799 90,937 Operating expenses 149,228 163,357 Interest on debt 12,839 14,922 Deferrable capital security distributions 871 -- Total expenses 592,043 614,326 Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest 17,926 14,678 Income tax expense (benefit) 6,275 5,136 Deferrable capital security distributions, net of tax 622 1,081 Minority interest in subsidiary, net of tax 605 1,636 Net operating earnings (loss) from continuing operations $10,424 $6,825 Realized gains (loss), net of tax 5,054 (14,621) Litigation settlement and arbitration award, net of tax (43,365) (5,869) Severance payment - (2,714) Deferred tax asset charge (75,399) Gain on debt extinguishments, net of tax 393 6,160 Net income (loss) from continuing operations $(102,893) $(10,219) Vesta Insurance Group, Inc Fourth Quarter and Year-to-Date Results (amounts in thousands, except share data) 3 Months Ended 12 Months Ended December 31, December 31, 2003 2002 2003 2002 Revenues: Net premiums written $103,676 $108,906 $448,768 $546,473 (Increase) decrease in unearned premiums 5,148 24,008 28,310 (54,223) Net premiums earned 108,824 132,914 477,078 492,250 Net investment income 9,158 11,846 40,691 53,400 Policy fees 9,236 5,727 35,779 19,827 Agents fees and commissions 13,493 22,719 49,110 55,146 Other 1,608 1,660 7,311 8,381 Total revenues 142,319 174,866 609,969 629,004 Expenses: Policyholder benefits 5,526 4,048 21,080 23,283 Loss and LAE expenses incurred 68,887 81,297 322,226 321,827 Policy acquisition expenses 14,003 30,016 85,799 90,937 Operating expenses 38,916 47,949 149,228 163,357 Interest on debt 3,245 3,500 12,839 14,922 Deferrable capital securities distributions 392 - 871 - Total expenses 130,969 166,810 592,043 614,326 Income (loss) from continuing operations before income taxes, deferrable capital securities, and minority interest 11,350 8,056 17,926 14,678 Income taxes 3,972 2,819 6,275 5,136 Deferrable capital securities distributions, net of tax - 308 622 1,081 Minority interest in subsidiary, net of tax 112 591 605 1,636 Net operating earnings (loss) from continuing operations 7,266 4,338 10,424 6,825 Litigation settlement and arbitration award (loss), net of tax (43,365) 9,471 (43,365) (5,869) Realized gains (losses), net of tax and minority interest 1,425 (13,420) 5,054 (14,621) Severance payment - (2,714) - (2,714) Deferred tax asset charge (75,399) - (75,399) - Gain on debt extinguishments, net of tax 393 3,301 393 6,160 Net income (loss) from continuing operations (109,680) 976 (102,893) (10,219) Gain (loss) from health insurance discontinued operations, net of tax (1,745) (6,254) (4,075) (6,411) Gain (loss) from consulting discontinued operations, net of tax 63 (1,081) (361) (1,180) Loss from discontinued property- casualty operations, net of tax (3,871) (4,519) (11,489) (14,401) Net income (loss) before cumulative effect of change in accounting principle (115,233) (10,878) (118,818) (32,211) Cumulative effect of change in accounting principle (1,167) - (1,167) - Net income (loss) (116,400) (10,878) (119,985) (32,211) Gain on redemption of preferred securities, net of tax - 350 - 560 Income (loss) available to common shareholders $(116,400) $(10,528) $(119,985) $(31,651) Weighted average shares outstanding for the period 35,070 34,190 34,917 33,793 Net operating earnings (loss) from continuing operations earnings per share $0.21 $0.13 $0.30 $0.20 Realized gains (losses) per share $0.04 $(0.39) $0.14 $(0.43) Net income (loss) from continuing operations per share $(3.13) $0.03 $(2.95) $(0.30) Income (loss) available to common shareholders per share $(3.32) $(0.31) $(3.44) $(0.94) Vesta Insurance Group, Inc Condensed Consolidated Balance Sheet (amounts in thousands, except per share amounts) December 31, 2003 December 31, 2002 Assets: Invested assets $986,072 $1,013,093 Cash 92,376 140,593 Other assets 833,966 889,172 Total assets $1,912,414 $2,042,858 Liabilities: Future policy benefits $668,298 $678,419 Losses and loss adjustment expenses 355,555 322,320 Unearned premiums 329,773 306,782 Long term debt 75,932 55,795 Line of credit 30,000 30,000 Other liabilities 341,258 391,236 Total liabilities 1,800,816 1,784,552 Deferrable capital securities - 22,445 Stockholders' equity 111,598 235,861 Total liabilities and stockholders' equity $1,912,414 $2,042,858 Equity per share* $3.09 $6.61 Shares outstanding at period end 36,066 35,678 * At December 31, 2003 and December 31, 2002, unrealized gains and losses on fixed income securities, after-tax totaled approximately $12.0 million and $15.1 million, respectively, which represents $0.33 and $0.42, respectively of book value per share. Vesta Insurance Group, Inc Reconciliation of Net Operating Earnings from Continuing Operations to Net Income (amounts in thousands, except share data) 3 Months Ended 12 Months Ended December 31, December 31, 2003 2002 2003 2002 Net operating earnings (loss) from continuing operations $7,266 $4,338 $10,424 $6,825 Special items: Litigation settlement and arbitration award (loss), net of tax (43,365) 9,471 (43,365) (5,869) Realized gains (losses), net of tax and minority interest 1,425 (13,420) 5,054 (14,621) Severance payment - (2,714) - (2,714) Deferred tax asset charge (75,399) - (75,399) - Gain on debt extinguishments, net of tax 393 3,301 393 6,160 Net income (loss) from continuing operations $(109,680) $976 $(102,893) $(10,219) Gain (loss) from health insurance discontinued operations, net of tax (1,745) (6,254) (4,075) (6,411) Gain (loss) from consulting discontinued operations, net of tax 63 (1,081) (361) (1,180) Loss from discontinued property- casualty operations, net of tax (3,871) (4,519) (11,489) (14,401) Net income (loss) before cumulative effect of change in accounting principle $(115,233) $(10,878) $(118,818) $(32,211) Cumulative effect of change in accounting principle (1,167) - (1,167) - Net income (loss) (116,400) (10,878) (119,985) (32,211) Gain on redemption of preferred securities, net of tax - 350 - 560 Income (loss) available to common shareholders $(116,400) $(10,528) $(119,985) $(31,651) Diluted earnings per share: Net operating earnings (loss) $0.21 $0.13 $0.30 $0.20 Special items: Litigation settlement and arbitration award (loss), net of tax $(1.24) $0.27 $(1.24) $(0.17) Realized gains (losses), net of tax and minority interest $0.04 $(0.39) $0.14 $(0.43) Severance payment $- $(0.08) $- $(0.08) Deferred tax asset charge $(2.15) $- $(2.16) $- Gain on debt extinguishments, net of tax $0.01 $0.10 $0.01 $0.18 Net income (loss) from continuing operations $(3.13) $0.03 $(2.95) $(0.30) Gain (loss) from health insurance discontinued operations, net of tax $(0.05) $(0.18) $(0.12) $(0.19) Gain (loss) from consulting discontinued operations, net of tax $0.00 $(0.03) $(0.01) $(0.03) Loss from discontinued property- casualty operations, net of tax $(0.11) $(0.14) $(0.33) $(0.43) Net income (loss) before cumulative effect of change in accounting principle $(3.29) $(0.32) $(3.41) $(0.95) Cumulative effect of change in accounting principle $(0.03) $- $(0.03) $- Net income (loss) $(3.32) $(0.32) $(3.44) $(0.95) Gain on redemption of preferred securities, net of tax $- $0.01 $- $0.01 Income (loss) available to common shareholders $(3.32) $(0.31) $(3.44) $(0.94) Shares used in computing per share amounts: Weighted average shares outstanding for the period 35,070 34,190 34,917 33,793 The above table reconciles the Company's GAAP results to net operating earnings/ (loss). Management believes that net operating earnings/(loss) provides investors with a useful indicator to gauge possible future performance because it eliminates the effects of items that could cause significant impact to the Company's financial results from one period to another. SOURCE Vesta Insurance Group, Inc. -0- 03/15/2004 /CONTACT: Charles R. Lambert, Vice President - Investor Relations of Vesta Insurance Group, +1-205-970-7030, CLambert@vesta.com/ /Web site: http://www.vesta.com / (VTA) CO: Vesta Insurance Group, Inc. ST: Alabama IN: INS FIN SU: ERN CCA