Attached files
| file | filename |
|---|---|
| EX-23.1 - EXHIBIT 23.1 - Atlas Financial Holdings, Inc. | a231anchorconsent.htm |
| EX-99.1 - EXHIBIT 99.1 - Atlas Financial Holdings, Inc. | anchorholdingsdecember31.htm |
| 8-K/A - 8-K/A - Atlas Financial Holdings, Inc. | form8-kareacquisitionofglo.htm |
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
December 31, 2014
The following unaudited pro forma combined financial statements are based on the audited historical consolidated financial statements of Atlas Financial Holdings, Inc. (“Atlas”) and Anchor Holdings Group, Inc. and Affiliates (“Anchor”), after giving effect to the acquisition of Anchor which was consummated on March 11, 2015. These estimates and assumptions are subject to change upon the finalization of valuations, which are contingent upon final appraisals, identifiable intangible assets and any other adjustments. Revisions to the preliminary purchase price allocation could result in significant deviation from the accompanying pro forma information. Atlas’ management believes that its assumptions provide a reasonable basis for presenting all of the significant effects of the transactions contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial information.
The following unaudited pro forma combined financial statements and explanatory notes present how the consolidated financial statements of Atlas may have appeared had the acquisition occurred on January 1, 2014 (with respect to the results of operations as reflected in the statement of comprehensive income) or as of December 31, 2014 (with respect to statement of financial position information). Certain amounts from Anchor’s historical financial statements have been reclassified to conform to Atlas’ presentation.
These unaudited pro forma combined financial statements have been derived from and should be read together with the audited historical financial statements and related notes of Atlas included in its annual report on Form 10-K for the year ended December 31, 2014 which has been filed with the Securities and Exchange Commission.
The unaudited pro forma combined financial information, as prepared by management, are presented for illustrative purposes only, and do not purport to represent what the results of operations or financial position of Atlas would have been had the acquisition actually occurred as of the dates indicated, nor is it indicative of future financial position or results of operations for any period.
Exhibit 99.2
ATLAS FINANCIAL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF FINANCIAL POSITION
As of December 31, 2014
(in $000's) | Historical - Audited | Pro Forma | Pro Forma | |||||||||||
Atlas | Anchor | Adjustments | Notes | Combined | ||||||||||
Assets | ||||||||||||||
Investments, available for sale | ||||||||||||||
Fixed income securities, at fair value | $ | 126,949 | $ | 40,586 | $ | 167,535 | ||||||||
Equity securities, at fair value | 2,093 | 2,093 | ||||||||||||
Other investments | 14,366 | 14,366 | ||||||||||||
Total Investments | 143,408 | 40,586 | — | 183,994 | ||||||||||
Cash and cash equivalents | 36,586 | 7,081 | (19,199 | ) | 2.a | 24,468 | ||||||||
Accrued investment income | 660 | 369 | 1,028 | |||||||||||
Accounts receivable and other assets | 49,770 | 9,498 | 59,268 | |||||||||||
Reinsurance recoverables on amounts paid | 2,230 | 383 | 2,613 | |||||||||||
Reinsurance recoverables on amounts unpaid | 18,421 | 11,838 | 30,259 | |||||||||||
Prepaid reinsurance premiums | 3,628 | 3,840 | 7,468 | |||||||||||
Deferred policy acquisition costs | 8,166 | 1,564 | 9,731 | |||||||||||
Deferred tax asset, net | 17,317 | 491 | 17,808 | |||||||||||
Intangible assets | 740 | 5,279 | 2.d. | 6,019 | ||||||||||
Software and office equipment, net | 2,819 | 24 | 2,843 | |||||||||||
Assets held for sale | 166 | 166 | ||||||||||||
Total Assets | $ | 283,911 | $ | 75,674 | $ | (13,920 | ) | $ | 345,665 | |||||
Liabilities | ||||||||||||||
Claims liabilities | $ | 102,430 | $ | 31,412 | $ | 133,842 | ||||||||
Unearned premiums | 58,950 | 18,660 | 77,611 | |||||||||||
Due to reinsurers and other insurers | 2,456 | 3,324 | 5,780 | |||||||||||
Note payable | — | 1,400 | 1,400 | |||||||||||
Other liabilities and accrued expenses | 10,676 | 2,958 | 13,634 | |||||||||||
Total Liabilities | $ | 174,512 | $ | 57,754 | $ | — | $ | 232,266 | ||||||
Shareholders’ Equity | ||||||||||||||
Preferred Shares | $ | 2,000 | $ | 4,000 | 2.b. | $ | 6,000 | |||||||
Ordinary voting common shares | 34 | 27 | (27 | ) | 2.c. | 34 | ||||||||
Restricted voting common shares | — | — | ||||||||||||
Additional paid-in capital | 196,079 | 2,440 | (2,440 | ) | 2.c. | 196,079 | ||||||||
Retained deficit | (88,794 | ) | 14,927 | (14,927 | ) | 2.c | (88,794 | ) | ||||||
Accumulated other comprehensive income (loss), net of tax | 80 | 527 | (527 | ) | 2.c. | 80 | ||||||||
Total Shareholders’ Equity | $ | 109,399 | $ | 17,920 | $ | (13,920 | ) | $ | 113,399 | |||||
Total Liabilities and Shareholders’ Equity | $ | 283,911 | $ | 75,674 | $ | (13,920 | ) | $ | 345,665 | |||||
See accompanying notes to unaudited pro forma combined financial statements.
Exhibit 99.2
ATLAS FINANCIAL HOLDINGS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF COMPREHENSIVE INCOME
For the Twelve Month Periods Ended December 31, 2014
(Dollars in thousands except for share and per share data)
Historical - Audited | Pro Forma | Pro Forma | |||||||||||
Consolidated Statements of Income | Atlas | Anchor | Adjustments | Notes | Combined | ||||||||
Net premiums earned | $ | 98,124 | $ | 31,545 | $ | 129,669 | |||||||
Net investment income | 3,110 | 1,113 | 4,223 | ||||||||||
Net investment (losses)/gains | 382 | 116 | 498 | ||||||||||
Other income | 2 | 490 | 492 | ||||||||||
Total revenue | 101,618 | 33,264 | — | 134,882 | |||||||||
Net claims incurred | 61,078 | 20,921 | 81,999 | ||||||||||
Acquisition costs | 14,048 | 4,089 | 18,137 | ||||||||||
Other underwriting expenses | 13,863 | 5,411 | (739 | ) | 3.a. | 18,534 | |||||||
Expenses incurred related to acquisitions | 694 | (694 | ) | 3.b. | — | ||||||||
Total expenses | 89,683 | 30,420 | (1,433 | ) | 118,670 | ||||||||
Income from operations before income tax expense | 11,935 | 2,844 | 1,433 | 16,212 | |||||||||
Income tax (benefit) expense | (5,767 | ) | 1,028 | 487 | 3.c. | (4,252 | ) | ||||||
Net income attributable to Atlas | 17,702 | 1,816 | 946 | 20,464 | |||||||||
Less: Preferred share dividends | 94 | 180 | 3.d. | 274 | |||||||||
Net income attributable to common shareholders | $ | 17,608 | $ | 1,816 | $ | 766 | $ | 20,190 | |||||
Basic weighted average common shares outstanding | 10,937,181 | 10,937,181 | |||||||||||
Earnings per common share, basic | $ | 1.61 | $ | 1.85 | |||||||||
Diluted weighted average common shares outstanding | 11,341,588 | 200,000 | 3.e | 11,541,588 | |||||||||
Earnings per common share, diluted | $ | 1.56 | $ | 1.77 | |||||||||
Consolidated Statements of Comprehensive Income | |||||||||||||
Net income attributable to Atlas | $ | 17,702 | $ | 1,816 | $ | 946 | $ | 20,464 | |||||
Other comprehensive income: | |||||||||||||
Changes in net unrealized gains | 2,029 | 369 | 2,398 | ||||||||||
Reclassification to income | 257 | 257 | |||||||||||
Effect of income tax | (777 | ) | (125 | ) | (903 | ) | |||||||
Other comprehensive income for the period | 1,509 | 243 | — | 1,752 | |||||||||
Total comprehensive income | $ | 19,211 | $ | 2,060 | $ | 946 | $ | 22,216 | |||||
See accompanying notes to unaudited pro forma combined financial statements.
Exhibit 99.2
Atlas Financial Holdings, Inc.
Notes to Unaudited Pro Forma Combined Financial Statements
Basis of Presentation
The unaudited pro forma combined financial information gives effect to the acquisition of Anchor as if it had occurred (i) on December 31, 2014 for the purposes of the unaudited pro forma combined statement of financial position and (ii) on January 1, 2014 for the purposes of the unaudited pro forma combined statements of comprehensive income for the year ended December 31, 2014. The unaudited pro forma combined financial information has been prepared by Atlas’ management. Certain amounts from Anchor’s historical combined financial statements have been reclassified to conform to Atlas’ presentation.
General
This unaudited pro forma combined financial information has been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”). The unaudited pro forma combined statement of financial position as of December 31, 2014 and the unaudited pro forma combined statements of comprehensive income for the year ended December 31, 2014 have been prepared using the following information:
audited historical consolidated financial statements of Atlas as of December 31, 2014, and;
audited historical combined financial statements of Anchor as of December 31, 2014, and;
such other supplementary information as considered necessary to reflect the proposed acquisition in the unaudited pro forma combined financial information.
Purchase Price and Related Considerations
On October 17, 2014, Atlas announced it had entered into a stock purchase agreement for the acquisition of Anchor from an unaffiliated third party. Such agreement was entered into on October 16, 2014, by and among Atlas and the unaffiliated third party (Seller). The Transaction was consummated on March 11, 2015.
The total estimated purchase price at March 11, 2015 for all of Anchor’s outstanding shares was $24.7 million, purchased with a combination of cash and Atlas preferred shares. Consideration consisted of a $20.7 million in cash, of which 90% was paid directly to the Seller and 10% was held in escrow (the "escrow hold-back") pending the final audit of the combined Anchor financial statements, and $4.0 million of Atlas preferred shares (consisting of a total of 4 million preferred shares with a liquidation price of $1.00 per share). We have contractual protections to offset up to $4.0 million of future reserve development. We have also agreed to provide the Seller up to $1.0 million in additional contingent consideration related to the profitability of certain lines of business.
The adjusted purchase price at March 11, 2015 is based on the audited historical combined financial statements of Anchor as of December 31, 2014 and was $23.2 million, or $19.2 million in cash and $4.0 million of Atlas preferred shares (consisting of a total of 4 million preferred shares with a liquidation price of $1 per share). The cash difference between the estimated purchase price and the adjusted purchase price, or $1.5 million, will be settled through the escrow hold-back.
Through its wholly owned insurance subsidiary, Global Liberty Insurance Company of New York, Anchor has historically underwritten personal insurance products that will not be underwritten by Atlas and are currently being non-renewed under Anchor.
Atlas began consolidating Anchor effective March 11, 2015. The purchase consideration is allocated to the assets acquired and liabilities assumed, including separately identified intangible assets, based on their fair values as of the close of the acquisition. Direct costs of the acquisition are accounted for separately from the business combination and are expensed as incurred. As the values of certain assets and liabilities are preliminary in nature, they are subject to adjustment as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles, fixed assets, deferred taxes and loss reserves. The valuations will be finalized within nine months of the
Exhibit 99.2
close of the acquisition. When the valuations are finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in adjustments to separately identifiable intangible assets and goodwill.
1. For purposes of presentation in the unaudited pro forma combined financial information, the allocation of the adjusted purchase consideration is as follows:
Adjusted Purchase Consideration (in ‘000s) | |||
Cash | $ | 19,199 | |
Preferred Stock | 4,000 | ||
Adjusted Purchase Price | $ | 23,199 | |
Pro Forma Preliminary Allocation of Adjusted Purchase Price (in ‘000s) | |||
Cash and investments | $ | 47,667 | |
Other current assets | 25,928 | ||
Property and equipment | 24 | ||
Deferred policy acquisition costs | 1,564 | ||
Deferred tax assets | 491 | ||
Goodwill | 5,279 | ||
Total Assets | $ | 80,953 | |
Claims liabilities | $ | 31,412 | |
Unearned premiums | 18,660 | ||
Accounts payable and other liabilities | 7,682 | ||
Total Liabilities | $ | 57,754 | |
The adjusted purchase consideration amounts outlined above have been determined based upon the audited financial statements of Anchor as of December 31, 2014 and comply with terms of the October 16, 2014 stock purchase agreement.
The value of certain assets and liabilities acquired are subject to adjustment as additional information is obtained, including, but not limited to, valuation of separately identifiable intangibles (i.e. customer relationships and lists, trademarks and brands, state licenses, non-compete agreements, among other items) and deferred taxes. The valuations will be finalized within 12 months of the close of the acquisition (not including loss reserve consideration). The changes upon finalization to the pro forma preliminary allocation of adjusted purchase price may result in an adjustment to identifiable intangible assets and goodwill.
2. Adjustments to the Unaudited Pro Forma Combined Statements of Financial Position are as follows:
a. Cash consideration paid to Seller per the terms of the SPA.
b. Issuance of $4.0 million of Atlas preferred shares, consisting of a total of 4 million preferred shares, were issued to Seller according to the terms of the stock purchase agreement. The preferred shares accrue dividends on a cumulative basis whether or not declared by the Board of Directors at the rate of $0.045 per share per year (4.5%) and may be paid in cash or in additional preferred shares at the option of Atlas. Upon liquidation, dissolution or winding-up of Atlas, holders of preferred shares receive the greater of $1.00 per share plus all declared and unpaid dividends or the amount they would receive in liquidation if the preferred shares had been converted to ordinary voting common shares immediately prior to liquidation. Preferred shares are convertible into ordinary voting common shares at the option of the holder at any date that is after the five year anniversary date of issuance at the rate of 0.05 ordinary voting common shares for each preferred share. The conversion rate is subject to change if the number of ordinary voting common shares or restricted voting common shares changes. The preferred shares are redeemable at the option of Atlas at a price of $1.00 per share plus accrued and unpaid dividends commencing at two years from the issuance date.
Exhibit 99.2
c. Elimination of Anchor equity accounts in consolidation.
d. Goodwill created based on purchase price versus fair value differential.
3. Adjustment to the Unaudited Pro Forma Combined Statements of Comprehensive Income are as follows:
a. Elimination of Seller (owner) expenses related to salary and benefits as a result of the elimination of this executive position and the Company's decision not to rehire for this role.
b. Elimination of expenses incurred in 2014 related to the acquisition of Anchor.
c. Tax expense related to the elimination of the expenses outlined above computed using the statutory rate of 34%
d. Accrued dividends on the additional 4,000,000 preferred shares
e. Weighted average ordinary shares upon preferred share conversion used in diluted weighted average share calculation