Attached files
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| EX-99.1 - EXHIBIT 99.1 - CNO Financial Group, Inc. | exhibit991-072014proforma.htm |
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 (Date of earliest event reported): July 1, 2014
CNO Financial Group, Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware | 001-31792 | 75-3108137 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
11825 North Pennsylvania Street
Carmel, Indiana 46032
(Address of Principal Executive Offices) (Zip Code)
(317) 817-6100
(Registrant's telephone number, including area code)
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:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | 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 July 1, 2014, CNO Financial Group, Inc. (the "Company") announced that it completed the previously announced sale of Conseco Life Insurance Company ("CLIC", an indirect wholly owned subsidiary of CNO) to Wilton Reassurance Company ("Wilton Re"). The transaction results in net proceeds of approximately $220 million based upon the estimated balance sheet of CLIC as of June 30, 2014 and after anticipated transaction costs and intercompany transactions completed in connection with the closing. Concurrent with the sale of CLIC, Bankers Life and Casualty Company ("Bankers Life", an indirect wholly owned subsidiary of CNO) recaptured the life insurance business written by Bankers Life that had been reinsured to Wilton Re. A copy of the Company's press release is attached hereto as Exhibit 99.1.
Item 9.01. | Financial Statements and Exhibits. |
(b) Pro Forma Financial Information.
CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On July 1, 2014, CNO Financial Group, Inc. (the "Company") announced that it completed the previously announced sale of Conseco Life Insurance Company ("CLIC", an indirect wholly owned subsidiary of CNO) to Wilton Reassurance Company ("Wilton Re"). Concurrent with the sale of CLIC, Bankers Life and Casualty Company ("Bankers Life", an indirect wholly owned subsidiary of CNO) recaptured the life insurance business written by Bankers Life that had been reinsured to Wilton Re.
The unaudited pro forma consolidated statement of operations of the Company for the three months ended March 31, 2014, and for the year ended December 31, 2013, presents the consolidated operating results of CNO as if the sale of CLIC and the Bankers Life reinsurance recapture had occurred on January 1, 2013. The unaudited pro forma consolidated balance sheet of the Company as of March 31, 2014, gives effect to the sale of CLIC and the Bankers Life reinsurance recapture as if they had occurred on March 31, 2014.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the three months ended March 31, 2014
(Dollars in millions, except per share data)
Actual | Pro forma | |||||||||||
March 31, | March 31, | |||||||||||
2014 | Adjustments | 2014 | ||||||||||
Revenues: | ||||||||||||
Insurance policy income | $ | 685.9 | $ | (53.5 | ) | (i) | $ | 641.2 | ||||
8.8 | (ii) | |||||||||||
Net investment income: | ||||||||||||
General account assets | 348.1 | (51.0 | ) | (i) | 300.9 | |||||||
1.9 | (ii) | |||||||||||
1.9 | (iii) | |||||||||||
Policyholder and reinsurer accounts and other special-purpose portfolios | 20.9 | .1 | (i) | 21.0 | ||||||||
Realized investment gains | 23.4 | (2.1 | ) | (i) | 21.3 | |||||||
Fee revenue and other income | 6.4 | — | 6.4 | |||||||||
Total revenues | 1,084.7 | (93.9 | ) | 990.8 | ||||||||
Benefits and expenses: | ||||||||||||
Insurance policy benefits | 690.3 | (83.6 | ) | (i) | 614.1 | |||||||
7.4 | (ii) | |||||||||||
Loss on sale of subsidiary | 278.6 | (278.6 | ) | (iv) | — | |||||||
Interest expense | 24.6 | (4.7 | ) | (i) | 19.9 | |||||||
Amortization | 66.7 | (2.0 | ) | (i) | 66.0 | |||||||
1.3 | (ii) | |||||||||||
Other operating costs and expenses | 194.1 | (5.8 | ) | (i) | 189.3 | |||||||
1.0 | (ii) | |||||||||||
Total benefits and expenses | 1,254.3 | (365.0 | ) | 889.3 | ||||||||
Income (loss) before income taxes | (169.6 | ) | 271.1 | 101.5 | ||||||||
Income tax expense: | ||||||||||||
Tax expense on period income | 39.0 | (2.6 | ) | (v) | 36.4 | |||||||
Valuation allowance for deferred tax assets and other tax items | 19.4 | (19.4 | ) | (iv) | — | |||||||
Net income (loss) | $ | (228.0 | ) | $ | 293.1 | $ | 65.1 | |||||
Earnings per common share: | ||||||||||||
Basic: | ||||||||||||
Weighted average shares outstanding | 220.3 | 220.3 | ||||||||||
Net income (loss) | $ | (1.03 | ) | $ | .30 | |||||||
Diluted: | ||||||||||||
Weighted average shares outstanding | 220.3 | 226.1 | ||||||||||
Net income (loss) | $ | (1.03 | ) | $ | .29 | |||||||
The accompanying notes are an integral part
of the pro forma consolidated financial statements.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 2013
(Dollars in millions, except per share data)
Actual | Pro forma | |||||||||||
December 31, | December 31, | |||||||||||
2013 | Adjustments | 2013 | ||||||||||
Revenues: | ||||||||||||
Insurance policy income | $ | 2,744.7 | $ | (218.3 | ) | (i) | $ | 2,564.2 | ||||
37.8 | (ii) | |||||||||||
Net investment income: | ||||||||||||
General account assets | 1,405.8 | (210.2 | ) | (i) | 1,209.4 | |||||||
6.2 | (ii) | |||||||||||
7.6 | (iii) | |||||||||||
Policyholder and reinsurer accounts and other special-purpose portfolios | 258.2 | (7.9 | ) | (i) | 250.3 | |||||||
Realized investment gains | 33.4 | (6.0 | ) | (i) | 27.4 | |||||||
Fee revenue and other income | 34.0 | (5.1 | ) | (i) | 28.9 | |||||||
Total revenues | 4,476.1 | (395.9 | ) | 4,080.2 | ||||||||
Benefits and expenses: | ||||||||||||
Insurance policy benefits | 2,839.7 | (339.1 | ) | (i) | 2,530.1 | |||||||
29.5 | (ii) | |||||||||||
Loss related to reinsurance transaction | 98.4 | — | 98.4 | |||||||||
Interest expense | 105.3 | (19.3 | ) | (i) | 86.0 | |||||||
Amortization | 296.3 | (8.8 | ) | (i) | 291.6 | |||||||
4.1 | (ii) | |||||||||||
Loss on extinguishment of debt | 65.4 | — | 65.4 | |||||||||
Other operating costs and expenses | 766.2 | (41.0 | ) | (i) | 729.6 | |||||||
4.4 | (ii) | |||||||||||
Total benefits and expenses | 4,171.3 | (370.2 | ) | 3,801.1 | ||||||||
Income before income taxes | 304.8 | (25.7 | ) | 279.1 | ||||||||
Income tax expense: | ||||||||||||
Tax expense on period income | 128.3 | (9.0 | ) | (v) | 119.3 | |||||||
Valuation allowance for deferred tax assets and other tax items | (301.5 | ) | — | (301.5 | ) | |||||||
Net income | $ | 478.0 | $ | (16.7 | ) | $ | 461.3 | |||||
Earnings per common share: | ||||||||||||
Basic: | ||||||||||||
Weighted average shares outstanding | 221.6 | 221.6 | ||||||||||
Net income | $ | 2.16 | $ | 2.08 | ||||||||
Diluted: | ||||||||||||
Weighted average shares outstanding | 232.7 | 232.7 | ||||||||||
Net income | $ | 2.06 | $ | 1.99 | ||||||||
The accompanying notes are an integral part
of the pro forma consolidated financial statements.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 2014
(Dollars in millions)
Actual | Pro forma | ||||||||||
March 31, | March 31, | ||||||||||
2014 | Adjustments | 2014 | |||||||||
ASSETS | |||||||||||
Investments | $ | 23,804.8 | $ | 154.9 | (vii) | $ | 23,959.7 | ||||
Cash and cash equivalents - unrestricted | 285.4 | 223.7 | (vi) | 481.1 | |||||||
(28.0 | ) | (vii) | |||||||||
Cash and cash equivalents held by variable interest entities | 140.3 | — | 140.3 | ||||||||
Accrued investment income | 259.3 | — | 259.3 | ||||||||
Present value of future profits and deferred acquisition costs | 1,268.1 | 29.9 | (vii) | 1,298.0 | |||||||
Reinsurance receivables | 3,072.8 | (154.9 | ) | (vii) | 2,917.9 | ||||||
Income tax assets, net | 870.7 | (2.8 | ) | (vii) | 867.9 | ||||||
Assets held in separate accounts | 10.0 | — | 10.0 | ||||||||
Other assets | 401.0 | — | 401.0 | ||||||||
Assets of subsidiary being sold | 4,346.3 | (4,346.3 | ) | (vi) | — | ||||||
Total assets | $ | 34,458.7 | $ | (4,123.5 | ) | $ | 30,335.2 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
Liabilities for insurance products | $ | 21,535.6 | $ | — | $ | 21,535.6 | |||||
Other liabilities | 727.4 | (6.1 | ) | (vii) | 721.3 | ||||||
Payable to reinsurer | — | — | — | ||||||||
Investment borrowings | 1,499.4 | — | 1,499.4 | ||||||||
Borrowings related to variable interest entities | 1,019.4 | — | 1,019.4 | ||||||||
Notes payable – direct corporate obligations | 844.1 | — | 844.1 | ||||||||
Liabilities of subsidiary being sold | 4,122.6 | (4,122.6 | ) | (vi) | — | ||||||
Total liabilities | 29,748.5 | (4,128.7 | ) | 25,619.8 | |||||||
Commitments and Contingencies | |||||||||||
Shareholders' equity: | |||||||||||
Common stock ($0.01 par value, 8,000,000,000 shares authorized, shares issued and outstanding: March 31, 2014 – 219,266,947; December 31, 2013 – 220,323,823) | 2.2 | — | 2.2 | ||||||||
Additional paid-in capital | 4,054.7 | — | 4,054.7 | ||||||||
Accumulated other comprehensive income | 766.2 | — | 766.2 | ||||||||
Retained earnings (accumulated deficit) | (112.9 | ) | 5.2 | (vii) | (107.7 | ) | |||||
Total shareholders' equity | 4,710.2 | 5.2 | 4,715.4 | ||||||||
Total liabilities and shareholders' equity | $ | 34,458.7 | $ | (4,123.5 | ) | $ | 30,335.2 | ||||
The accompanying notes are an integral part
of the pro forma consolidated financial statements.
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Adjustments to the pro forma consolidated statement of operations are summarized below:
(i) | Amounts reflect the financial results of CLIC being sold to Wilton Re. |
(ii) | Amounts reflect the recapture by Bankers Life of a traditional life block previously reinsured to Wilton Re. |
(iii) | Net investment income has been adjusted to reflect the assumed higher invested assets resulting from the cash proceeds of $223.7 million from the sale of CLIC. The assumed investment yield was 3.4 percent. |
(iv) | Amounts eliminate the loss on sale of subsidiary and related tax impact as such amounts are assumed to have occurred prior to January 1, 2013. |
(v) | Reflects the tax adjustment for the pro forma adjustments at the approximate rate for the specific items. |
Adjustments to the pro forma consolidated balance sheet are summarized below:
(vi) | Amounts reflect the estimated net cash proceeds to be received and the assets and liabilities of CLIC to be sold as summarized below: |
Estimated net cash proceeds | $ | 223.7 | ||
Net assets sold: | ||||
Investments | $ | 3,925.6 | ||
Cash and cash equivalents - unrestricted | 50.0 | |||
Accrued investment income | 47.7 | |||
Present value of future profits | 15.8 | |||
Deferred acquisition costs | 39.0 | |||
Reinsurance receivables | 159.6 | |||
Income tax assets, net | 91.0 | |||
Other assets | 17.6 | |||
Assets of subsidiary being sold | 4,346.3 | |||
Liabilities for insurance products | 3,234.1 | |||
Other liabilities | 33.1 | |||
Investment borrowings | 383.5 | |||
Loss accrual | 471.9 | |||
Liabilities of subsidiary being sold | 4,122.6 | |||
Net assets sold | $ | 223.7 | ||
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CNO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(vii) | Amounts reflect the recapture of a block of traditional life insurance by Bankers Life, as if the recapture had occurred on March 31, 2014. The block had previously been 50 percent coinsured under an agreement with Wilton Re pursuant to which Bankers Life continued to service and administer the block. Bankers Life recaptured the 50 percent of the liabilities for insurance products previously ceded, and will recognize 100 percent of the profits from the block as they emerge over time. |
The following summarizes the net pro forma impacts of the reinsurance recapture (dollars in millions):
Recapture fee paid by Bankers Life | $ | (28.0 | ) | |
Net assets received in recapture: | ||||
Investments | 154.9 | |||
Present value of future profits and deferred acquisition costs | 29.9 | |||
Other liabilities | 6.1 | |||
Reinsurance receivables | (154.9 | ) | ||
Net assets received | 36.0 | |||
Pro forma gain before taxes | 8.0 | |||
Tax expense | 2.8 | |||
Pro forma net income | $ | 5.2 | ||
(d) Exhibits.
The following material is furnished as an exhibit to this Current Report on Form 8-K:
99.1 | Press release of CNO Financial Group, Inc. dated July 1, 2014. | ||
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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.
CNO Financial Group, Inc. | |||
Date: July 1, 2014 | |||
By: | /s/ John R. Kline | ||
John R. Kline | |||
Senior Vice President and Chief Accounting Officer | |||
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