Attached files
| file | filename |
|---|---|
| 8-K - 8-K - KINGSWAY FINANCIAL SERVICES INC | a8-ksaleofmendota.htm |
| EX-99.1 - EXHIBIT 99.1 - KINGSWAY FINANCIAL SERVICES INC | exhibit991pressreleasedate.htm |
Exhibit 99.2
Kingsway Financial Services Inc.
Unaudited Pro Forma Consolidated Financial Statements
On July 16, 2018, Kingsway America Inc. (the “Company” or “Kingsway”) announced it had entered into a definitive agreement to sell its non-standard automobile insurance companies Mendota Insurance Company, Mendakota Insurance Company and Mendakota Casualty Company (collectively "Mendota") to Premier Holdings, LLC. As a result of this announcement, the Company determined Mendota met the held for sale criteria and, therefore, classified Mendota as a discontinued operation. The results of Mendota’s operations were reported separately in the consolidated statements of operations for all periods presented as filed within the Form 10-Q filed with the SEC on August 8, 2018. The assets and liabilities of Mendota were presented as held for sale in the Company’s consolidated balance sheet as of June 30, 2018, as filed within the Form 10-Q filed with the SEC on August 8, 2018.
On October 18, 2018, the Company completed the previously announced sale of Mendota. The final aggregate purchase price of $28.6 million was redeployed primarily to acquire equity investments, limited liability investments, limited liability investment, at fair value and other investments, which were owned by Mendota at the time of the closing, and to fund $5 million into an escrow account to be used to satisfy potential indemnity obligations under the definitive stock purchase agreement.
The accompanying pro forma consolidated financial statements are presented to show the effects of the disposition of Mendota, including the receipt of proceeds from the sale, on the Company’s consolidated financial statements.
The following unaudited pro forma consolidated balance sheet of Kingsway as of June 30, 2018 is presented as if the disposition, as described in the notes to these unaudited pro forma consolidated financial statements, had occurred at June 30, 2018. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2017 and for the six months ended June 30, 2018 are presented as if the disposition had occurred on January 1, 2017. The unaudited pro forma consolidated financial statements are based on the historical financial statements of Kingsway for each period presented and in the opinion of the Company’s management, all adjustments and disclosures necessary for a fair presentation of the pro forma data have been made.
These unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the results of operations or financial condition that would have been achieved had the disposition been completed as of the dates indicated or of the results that may be obtained in the future. These unaudited pro forma consolidated financial statements and the notes thereto should be read together with Kingsway’s consolidated financial statements and the notes thereto as of and for the year ended December 31, 2017; Management’s Discussion and Analysis included in Kingsway’s Annual Report on Form 10-K for the year ended December 31, 2017; and Kingsway’s Quarterly Report on Form 10-Q as of and for the six months ended June 30, 2018.
Exhibit 99.2
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands, except share data)
June 30, 2018 (a) | Pro Forma Adjustments | Pro Forma | ||||||||||
Assets | ||||||||||||
Investments: | ||||||||||||
Fixed maturities, at fair value | $ | 11,361 | $ | — | $ | 11,361 | ||||||
Equity investments, at fair value | 2,189 | 284 | (b) | 2,473 | ||||||||
Limited liability investments | 5,217 | 18,427 | (b) | 23,644 | ||||||||
Limited liability investment, at fair value | 4,869 | 3,629 | (b) | 8,498 | ||||||||
Other investments, at cost which approximates fair value | 1,916 | 1,400 | (b) | 3,316 | ||||||||
Short-term investments, at cost which approximates fair value | 151 | — | 151 | |||||||||
Total investments | 25,703 | 23,740 | 49,443 | |||||||||
Cash and cash equivalents | 24,713 | 2,546 | (c) | 27,259 | ||||||||
Investment in investee | 4,947 | — | 4,947 | |||||||||
Accrued investment income | 161 | — | 161 | |||||||||
Service fee receivable, net of allowance for doubtful accounts | 5,173 | — | 5,173 | |||||||||
Other receivables, net of allowance for doubtful accounts | 7,907 | — | 7,907 | |||||||||
Deferred acquisition costs, net | 6,662 | — | 6,662 | |||||||||
Property and equipment, net of accumulated depreciation | 105,246 | — | 105,246 | |||||||||
Goodwill | 80,112 | — | 80,112 | |||||||||
Intangible assets, net of accumulated amortization | 79,519 | — | 79,519 | |||||||||
Other assets | 3,592 | — | 3,592 | |||||||||
Assets held for sale | 138,804 | (138,804 | ) | (d) | — | |||||||
Total Assets | $ | 482,539 | $ | (112,518 | ) | $ | 370,021 | |||||
Liabilities and Shareholders' Equity | ||||||||||||
Liabilities: | ||||||||||||
Unpaid loss and loss adjustment expenses: | ||||||||||||
Property and casualty | $ | 2,594 | $ | — | $ | 2,594 | ||||||
Vehicle service agreements | 2,615 | — | 2,615 | |||||||||
Total unpaid loss and loss adjustment expenses | 5,209 | — | 5,209 | |||||||||
Note payable | 184,567 | — | 184,567 | |||||||||
Bank loan | 4,417 | — | 4,417 | |||||||||
Subordinated debt, at fair value | 52,822 | — | 52,822 | |||||||||
Net deferred income tax liabilities | 28,796 | — | 28,796 | |||||||||
Deferred service fees | 41,221 | — | 41,221 | |||||||||
Income taxes payable | 2,801 | — | 2,801 | |||||||||
Accrued expenses and other liabilities | 10,946 | — | 10,946 | |||||||||
Liabilities held for sale | 112,866 | (112,866 | ) | (d) | — | |||||||
Total Liabilities | 443,645 | (112,866 | ) | 330,779 | ||||||||
Class A preferred stock, no par value; unlimited number authorized; 222,876 issued and outstanding at June 30, 2018; redemption amount of $5,572 | 5,477 | — | 5,477 | |||||||||
Shareholders' Equity: | ||||||||||||
Common stock, no par value; unlimited number authorized; 21,708,190 issued and outstanding at June 30, 2018 | — | — | — | |||||||||
Additional paid-in capital | 356,609 | — | 356,609 | |||||||||
Accumulated deficit | (364,917 | ) | (297 | ) | (e) | (365,214 | ) | |||||
Accumulated other comprehensive income | 36,322 | 645 | (d) | 36,967 | ||||||||
Shareholders' equity attributable to common shareholders | 28,014 | 348 | 28,362 | |||||||||
Noncontrolling interests in consolidated subsidiaries | 5,403 | — | 5,403 | |||||||||
Total Shareholders' Equity | 33,417 | 348 | 33,765 | |||||||||
Total Liabilities, Class A preferred stock and Shareholders' Equity | $ | 482,539 | $ | (112,518 | ) | $ | 370,021 | |||||
See accompanying notes to unaudited pro forma consolidated financial statements.
Exhibit 99.2
Unaudited Pro Forma Consolidated Statement of Operations
(in thousands, except per share data)
Year Ended June 30, 2018 (a) | Pro Forma Adjustments | Pro Forma | |||||||||
Revenues: | |||||||||||
Service fee and commission income | $ | 19,670 | — | 19,670 | |||||||
Rental income | 6,682 | — | 6,682 | ||||||||
Net investment loss | (613 | ) | — | (613 | ) | ||||||
Net realized gains | 9 | — | 9 | ||||||||
Gain on change in fair value of equity investments | 614 | — | 614 | ||||||||
Other income | 1,308 | — | 1,308 | ||||||||
Total revenues | 27,670 | — | 27,670 | ||||||||
Operating expenses: | |||||||||||
Loss and loss adjustment expenses | 4,247 | — | 4,247 | ||||||||
Commissions | 1,817 | — | 1,817 | ||||||||
Cost of services sold | 3,716 | — | 3,716 | ||||||||
General and administrative expenses | 14,702 | — | 14,702 | ||||||||
Leased real estate segment interest expense | 3,098 | — | 3,098 | ||||||||
Total operating expenses | 27,580 | — | 27,580 | ||||||||
Operating income | 90 | — | 90 | ||||||||
Other expenses, net: | |||||||||||
Interest expense not allocated to segments | 2,905 | — | 2,905 | ||||||||
Amortization of intangible assets | 543 | — | 543 | ||||||||
Loss on change in fair value of debt | 1,061 | — | 1,061 | ||||||||
Equity in net loss of investee | 284 | — | 284 | ||||||||
Total other expenses, net | 4,793 | — | 4,793 | ||||||||
Loss from continuing operations before income tax expense | (4,703 | ) | — | (4,703 | ) | ||||||
Income tax expense | 438 | — | 438 | ||||||||
Loss from continuing operations | (5,141 | ) | — | (5,141 | ) | ||||||
Loss per share - continuing operations: | |||||||||||
Basic: | $ | (0.26 | ) | $ | (0.26 | ) | |||||
Diluted: | $ | (0.26 | ) | $ | (0.26 | ) | |||||
Weighted-average shares outstanding (in ‘000s): | |||||||||||
Basic: | 21,708 | 21,708 | |||||||||
Diluted: | 21,708 | 21,708 | |||||||||
See accompanying notes to unaudited pro forma consolidated financial statements.
Exhibit 99.2
Unaudited Pro Forma Consolidated Statement of Operations
(in thousands, except per share data)
Year Ended December 31, 2017 (f) | Pro Forma Adjustments (g) | Pro Forma | ||||||||||
Revenues: | ||||||||||||
Net premiums earned | $ | 130,443 | $ | (130,443 | ) | $ | — | |||||
Service fee and commission income | 31,909 | — | 31,909 | |||||||||
Rental income | 13,384 | — | 13,384 | |||||||||
Net investment income | 2,669 | (1,701 | ) | 968 | ||||||||
Net realized gains | 3,771 | (3,465 | ) | 306 | ||||||||
Other-than-temporary impairment loss | (316 | ) | 316 | — | ||||||||
Other income | 11,334 | (9,938 | ) | 1,396 | ||||||||
Total revenues | 193,194 | (145,231 | ) | 47,963 | ||||||||
Operating expenses: | ||||||||||||
Loss and loss adjustment expenses | 125,982 | (120,387 | ) | 5,595 | ||||||||
Commissions and premium taxes | 25,006 | (20,682 | ) | 4,324 | ||||||||
Cost of services sold | 6,535 | — | 6,535 | |||||||||
General and administrative expenses | 46,269 | (19,231 | ) | 27,038 | ||||||||
Leased real estate segment interest expense | 6,264 | — | 6,264 | |||||||||
Amortization of intangible assets | 1,152 | — | 1,152 | |||||||||
Contingent consideration benefit | (212 | ) | — | (212 | ) | |||||||
Impairment of intangible assets | 250 | (250 | ) | — | ||||||||
Total operating expenses | 211,246 | (160,550 | ) | 50,696 | ||||||||
Operating loss | (18,052 | ) | 15,319 | (2,733 | ) | |||||||
Other expenses (revenues), net: | ||||||||||||
Interest expense not allocated to segments | 4,977 | — | 4,977 | |||||||||
Foreign exchange losses, net | 15 | — | 15 | |||||||||
Loss on change in fair value of debt | 8,487 | — | 8,487 | |||||||||
Equity in net income of investees | (2,115 | ) | — | (2,115 | ) | |||||||
Total other expenses, net | 11,364 | — | 11,364 | |||||||||
Loss from continuing operations before income tax benefit | (29,416 | ) | 15,319 | (14,097 | ) | |||||||
Income tax benefit | (17,761 | ) | 1,067 | (16,694 | ) | |||||||
(Loss) income from continuing operations | (11,655 | ) | 14,252 | 2,597 | ||||||||
Loss per share - continuing operations: | ||||||||||||
Basic: | $ | (0.76 | ) | $ | (0.10 | ) | ||||||
Diluted: | $ | (0.76 | ) | $ | (0.10 | ) | ||||||
Weighted average shares outstanding (in ‘000s): | ||||||||||||
Basic: | 21,547 | 21,547 | ||||||||||
Diluted: | 21,547 | 21,547 | ||||||||||
See accompanying notes to unaudited pro forma consolidated financial statements.
Exhibit 99.2
Kingsway Financial Services Inc.
Unaudited Notes to Pro Forma Consolidated Financial Statements
The following is a summary of the pro forma adjustments reflected in the unaudited pro forma consolidated financial statements based on preliminary estimates, which may change as additional information is obtained.
a. | Reflects the Company's historical consolidated balance sheet and statement of operations as of and for the six months ended June 30, 2018, as presented in the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 8, 2018. |
b. | Reflects the equity investments, limited liability investments, limited liability investment, at fair value and other investments acquired from Mendota at the time of the closing. |
c. | Reflects the estimated net pro forma effect on cash and cash equivalents of the disposition of Mendota. |
d. | Reflects the adjustments necessary to remove the assets, liabilities and accumulated other comprehensive loss associated with Mendota. |
e. | Reflects the estimated incremental loss on disposal based upon the actual closing date gross sales proceeds. |
f. | Reflects the Company's historical consolidated statement of operations for the year ended December 31, 2017, as presented in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 16, 2018. |
g. | Reflects the adjustments necessary to remove the historical revenues and expenses of Mendota. Such adjustments exclude the effect of the loss on sale, as this represents a non-recurring transaction. |