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Exhibit 99.2
Kingsway Financial Services Inc.
Unaudited Pro Forma Consolidated Financial Statements
On December 22, 2022, Kingsway Financial Services Inc. (“Kingsway” or the “Company”) entered into an agreement for the sale of certain assets and the assumption of certain liabilities of TRT LeaseCo, a subsidiary of CMC Industries, Inc. (“CMC”) to BNSF Dayton LLC for cash and certain additional consideration. CMC has been included in the Leased Real Estate segment and, after the sale, will no longer have revenues and essentially have no material assets or liabilities. The Company expects the sale to be accounted for as a discontinued operation. The sale closed on December 29, 2022.
The accompanying pro forma consolidated financial statements are presented to show the effects of the disposition of CMC, 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 September 30, 2022 is presented as if the disposition, as described in the notes to these unaudited pro forma consolidated financial statements, had occurred at September 30, 2022. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2021 and for the nine months ended September 30, 2022 are presented as if the disposition had occurred on January 1, 2021. 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, 2021; Management’s Discussion and Analysis included in Kingsway’s Annual Report on Form 10-K for the year ended December 31, 2021; and Kingsway’s Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2022.
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 nine months ended September 30, 2022, as presented in the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 10, 2022. |
|
b. |
Reflects the net cash proceeds of $21.4 million received by the Company from the sale of CMC less cash on hand at CMC of $2.2 million as of September 30, 2022. The base selling price of CMC was $215.2 million, consisting of $44.5 million of cash and $170.7 million of mortgage assumption. After the payment of taxes, expenses and the 19% paid to the noncontrolling interest holder, the Company received net cash proceeds of $21.4 million. The cash proceeds received reflects the Company’s 81% ownership of CMC. |
|
c. |
Reflects the Company's disposition of CMC. Amounts represent the adjustments necessary to remove the assets, liabilities and noncontrolling interest associated with CMC. |
|
d. |
Reflects the adjustments related to the disposition of CMC and the estimated loss on sale of approximately $12.8 million. |
|
e. |
Reflects the Company's disposition of CMC. Amounts represent the adjustments necessary to remove the historical revenues, expenses and noncontrolling interest of CMC. Such adjustments exclude the effect of the loss on sale, as this would be reported as a component of discontinued operations. |
|
f. |
Reflects the Company's historical consolidated statement of operations for the year ended December 31, 2021, as presented in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2022. |
Unaudited Pro Forma Consolidated Balance Sheet
(in thousands, except share data)
|
As of |
Pro Forma |
||||||||||||
|
September 30, 2022 (a) |
Adjustments |
Pro Forma |
|||||||||||
|
Assets |
|||||||||||||
|
Investments: |
|||||||||||||
|
Fixed maturities, at fair value |
$ | 36,728 | $ | — | $ | 36,728 | |||||||
|
Equity investments, at fair value |
126 | — | 126 | ||||||||||
|
Limited liability investments |
1,010 | — | 1,010 | ||||||||||
|
Limited liability investments, at fair value |
19,182 | — | 19,182 | ||||||||||
|
Investments in private companies, at adjusted cost |
790 | — | 790 | ||||||||||
|
Real estate investments, at fair value |
12,150 | — | 12,150 | ||||||||||
|
Other investments, at cost which approximates fair value |
204 | — | 204 | ||||||||||
|
Short-term investments, at cost which approximates fair value |
157 | — | 157 | ||||||||||
|
Total investments |
70,347 | — | 70,347 | ||||||||||
|
Cash and cash equivalents |
48,640 | 19,240 |
(b) |
67,880 | |||||||||
|
Restricted cash |
13,165 | — | 13,165 | ||||||||||
|
Accrued investment income |
1,135 | — | 1,135 | ||||||||||
|
Service fee receivable, net of allowance for doubtful accounts |
7,219 | — | 7,219 | ||||||||||
|
Other receivables, net of allowance for doubtful accounts |
12,828 | (10,477 | ) |
(c) |
2,351 | ||||||||
|
Deferred contract costs |
13,065 | — | 13,065 | ||||||||||
|
Property and equipment, net of accumulated depreciation |
106,025 | (88,973 | ) |
(c) |
17,052 | ||||||||
|
Right-of-use asset |
887 | — | 887 | ||||||||||
|
Goodwill |
100,773 | (60,983 | ) |
(c) |
39,790 | ||||||||
|
Intangible assets, net of accumulated amortization |
101,489 | (74,401 | ) |
(c) |
27,088 | ||||||||
|
Other assets |
30,482 | (10,418 | ) |
(c) |
20,064 | ||||||||
|
Total Assets |
$ | 506,055 | $ | (226,012 | ) | $ | 280,043 | ||||||
|
Liabilities and Shareholders' Equity |
|||||||||||||
|
Liabilities: |
|||||||||||||
|
Accrued expenses and other liabilities |
$ | 53,981 | $ | (1,963 | ) |
(c) |
$ | 52,018 | |||||
|
Income taxes payable |
2,602 | — | 2,602 | ||||||||||
|
Deferred service fees |
84,428 | — | 84,428 | ||||||||||
|
Bank loans |
21,769 | — | 21,769 | ||||||||||
|
Notes payable |
199,554 | (177,160 | ) |
(c) |
22,394 | ||||||||
|
Subordinated debt, at fair value |
62,302 | — | 62,302 | ||||||||||
|
Lease liability |
1,189 | — | 1,189 | ||||||||||
|
Net deferred income tax liabilities |
31,250 | (27,949 | ) |
(c) |
3,301 | ||||||||
|
Total Liabilities |
457,075 | (207,071 | ) | 250,004 | |||||||||
|
Redeemable Class A preferred stock, no par value; 1,000,000 authorized at September 30, 2022; 149,733 issued and outstanding at September 30, 2022; redemption amount of $5,942 at September 30, 2022 |
5,942 | — | 5,942 | ||||||||||
|
Shareholders' Equity: |
|||||||||||||
|
Common stock, no par value; 50,000,000 authorized; 23,319,312 issued; 23,071,862 outstanding at September 30, 2022 |
— | — | — | ||||||||||
|
Additional paid-in capital |
359,203 | — | 359,203 | ||||||||||
|
Treasury stock, at cost; 247,450 outstanding at September 30, 2022 |
(492 | ) | — | (492 | ) | ||||||||
|
Accumulated deficit |
(362,130 | ) | (12,752 | ) |
(d) |
(374,882 | ) | ||||||
|
Accumulated other comprehensive income |
31,960 | — | 31,960 | ||||||||||
|
Shareholders' equity attributable to common shareholders |
28,541 | (12,752 | ) | 15,789 | |||||||||
|
Noncontrolling interests in consolidated subsidiaries |
14,497 | (6,189 | ) |
(c) |
8,308 | ||||||||
|
Total Shareholders' Equity |
43,038 | (18,941 | ) | 24,097 | |||||||||
|
Total Liabilities, Class A preferred stock and Shareholders' Equity |
$ | 506,055 | $ | (226,012 | ) | $ | 280,043 | ||||||
See accompanying notes to unaudited pro forma consolidated financial statements.
Unaudited Pro Forma Consolidated Statement of Operations
(in thousands, except per share amounts)
|
Nine Months Ended |
Pro Forma |
|||||||||||
|
September 30, 2022 (a) |
Adjustments (e) |
Pro Forma |
||||||||||
|
Revenues: |
||||||||||||
|
Service fee and commission revenue |
$ | 68,442 | $ | — | $ | 68,442 | ||||||
|
Rental revenue |
10,933 | (10,024 | ) | 909 | ||||||||
|
Total revenues |
79,375 | (10,024 | ) | 69,351 | ||||||||
|
Operating expenses: |
||||||||||||
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Claims authorized on vehicle service agreements |
15,771 | — | 15,771 | |||||||||
|
Commissions |
5,537 | — | 5,537 | |||||||||
|
Cost of services sold |
12,908 | — | 12,908 | |||||||||
|
General and administrative expenses |
34,974 | (2,115 | ) | 32,859 | ||||||||
|
Disposal of subsidiary transaction expenses |
5,408 | — | 5,408 | |||||||||
|
Leased real estate segment interest expense |
5,005 | (4,707 | ) | 298 | ||||||||
|
Total operating expenses |
79,603 | (6,822 | ) | 72,781 | ||||||||
|
Operating loss |
(228 | ) | (3,202 | ) | (3,430 | ) | ||||||
|
Other revenues (expenses), net: |
||||||||||||
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Net investment income |
1,547 | — | 1,547 | |||||||||
|
Net realized gains |
1,035 | — | 1,035 | |||||||||
|
Loss on change in fair value of equity investments |
(53 | ) | — | (53 | ) | |||||||
|
Gain on change in fair value of limited liability investments, at fair value |
368 | — | 368 | |||||||||
|
Gain on change in fair value of real estate investments |
1,488 | — | 1,488 | |||||||||
|
Gain on change in fair value of derivative asset option contracts |
13,498 | — | 13,498 | |||||||||
|
Non-operating other expenses |
(413 | ) | (6 | ) | (419 | ) | ||||||
|
Interest expense not allocated to segments |
(5,207 | ) | — | (5,207 | ) | |||||||
|
Amortization of intangible assets |
(4,397 | ) | 47 | (4,350 | ) | |||||||
|
Loss on change in fair value of debt |
(4,992 | ) | — | (4,992 | ) | |||||||
|
Gain on disposal of subsidiary |
37,917 | — | 37,917 | |||||||||
|
Total other revenue, net |
40,791 | 41 | 40,832 | |||||||||
|
Income from continuing operations before income tax expense |
40,563 | (3,161 | ) | 37,402 | ||||||||
|
Income tax expense |
5,659 | (38 | ) | 5,621 | ||||||||
|
Income from continuing operations |
34,904 | (3,123 | ) | 31,781 | ||||||||
|
Less: net loss attributable to noncontrolling interests in consolidated subsidiaries |
(615 | ) | (469 | ) | (1,084 | ) | ||||||
|
Less: dividends on preferred stock |
234 | — | 234 | |||||||||
|
Income from continuing operations attributable to common shareholders |
$ | 35,285 | $ | (2,654 | ) | $ | 32,631 | |||||
|
Earnings per share – continuing operations: |
||||||||||||
|
Basic: |
$ | 1.54 | $ | 1.42 | ||||||||
|
Diluted: |
$ | 1.42 | $ | 1.31 | ||||||||
|
Weighted-average shares outstanding (in ‘000s): |
||||||||||||
|
Basic: |
22,909 | 22,909 | ||||||||||
|
Diluted: |
25,055 | 25,055 | ||||||||||
See accompanying notes to unaudited pro forma consolidated financial statements.
Unaudited Pro Forma Consolidated Statement of Operations
(in thousands, except per share amounts)
|
Year Ended |
Pro Forma |
|||||||||||
|
December 31, 2021 (f) |
Adjustments (e) |
Pro Forma |
||||||||||
|
Revenues: |
||||||||||||
|
Service fee and commission revenue |
$ | 78,401 | $ | - | $ | 78,401 | ||||||
|
Rental revenue |
13,365 | (13,365 | ) | 0 | ||||||||
|
Total revenues |
91,766 | (13,365 | ) | 78,401 | ||||||||
|
Operating expenses: |
||||||||||||
|
Claims authorized on vehicle service agreements |
19,536 | - | 19,536 | |||||||||
|
Commissions |
7,042 | - | 7,042 | |||||||||
|
Cost of services sold |
7,052 | - | 7,052 | |||||||||
|
General and administrative expenses |
48,733 | (3,488 | ) | 45,245 | ||||||||
|
Leased real estate segment interest expense |
6,164 | (6,164 | ) | (0 | ) | |||||||
|
Total operating expenses |
88,527 | (9,652 | ) | 78,875 | ||||||||
|
Operating income |
3,239 | (3,712 | ) | (473 | ) | |||||||
|
Other revenues (expenses), net: |
||||||||||||
|
Net investment income |
1,575 | - | 1,575 | |||||||||
|
Net realized gains |
1,809 | - | 1,809 | |||||||||
|
Loss on change in fair value of equity investments |
(242 | ) | - | (242 | ) | |||||||
|
Gain on change in fair value of limited liability investments, at fair value |
2,391 | - | 2,391 | |||||||||
|
Non-operating other expense |
(2,788 | ) | 2,805 | 17 | ||||||||
|
Interest expense not allocated to segments |
(6,161 | ) | - | (6,161 | ) | |||||||
|
Amortization of intangible assets |
(4,900 | ) | 63 | (4,837 | ) | |||||||
|
Loss on change in fair value of debt |
(3,201 | ) | - | (3,201 | ) | |||||||
|
Gain on extinguishment of debt |
2,494 | - | 2,494 | |||||||||
|
Total other expenses, net |
(9,023 | ) | 2,868 | (6,155 | ) | |||||||
|
Loss before income tax benefit |
(5,784 | ) | (844 | ) | (6,628 | ) | ||||||
|
Income tax benefit |
(7,644 | ) | 2,266 | (5,378 | ) | |||||||
|
Net income |
$ | 1,860 | $ | (3,110 | ) | $ | (1,250 | ) | ||||
|
Less: Net income attributable to the noncontrolling interests in consolidated subsidiaries |
2,202 | (542 | ) | 1,660 | ||||||||
|
Less: Dividends on preferred stock |
494 | - | 494 | |||||||||
|
Net loss attributable to the common shareholders |
$ | (836 | ) | $ | (2,568 | ) | $ | (3,404 | ) | |||
|
Loss per share – net loss attributable to common shareholders: |
||||||||||||
|
Basic: |
$ | (0.04 | ) | $ | (0.15 | ) | ||||||
|
Diluted: |
$ | (0.04 | ) | $ | (0.15 | ) | ||||||
|
Weighted-average shares outstanding (in ‘000s): |
||||||||||||
|
Basic: |
22,537 | 22,537 | ||||||||||
|
Diluted: |
22,537 | 22,537 | ||||||||||
See accompanying notes to the unaudited pro forma consolidated financial statements.
