Try our mobile app
Exhibit 99.2
Kingsway Financial Services Inc.
Unaudited Pro Forma Consolidated Financial Statements
On July 29, 2022, Kingsway Financial Services Inc. (“Kingsway” or the “Company”) completed the sale of Professional Warranty Services Corporation (“PWSC”) to PCF Insurance Services of the West, LLC for cash and certain additional consideration. PWSC had been included in the Extended Warranty segment. The Company is evaluating whether PWSC will be accounted for as a discontinued operation.
The accompanying pro forma consolidated financial statements are presented to show the effects of the disposition of PWSC, 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, 2022 is presented as if the disposition, as described in the notes to these unaudited pro forma consolidated financial statements, had occurred at June 30, 2022. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2021 and for the six months ended June 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 six months ended June 30, 2022.
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, 2022, as presented in the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 4, 2022. |
|
b. |
Reflects the net cash proceeds of $36.5 million received by the Company from the sale of PWSC less cash on hand at PWSC of $1.4 million as of June 30, 2022. The base selling price of PWSC was $51.2 million. After the payment of expenses and the 20% paid to the noncontrolling interest holder, the Company received net cash proceeds of $36.5 million. The cash proceeds received reflects the Company’s 80% ownership of PWSC and does not reflect any potential contingent earnout payment to be received by the Company. To the extent the EBITDA of PWSC (as defined in the Equity Purchase Agreement) for the one-year period following the sale transaction exceeds 103% of the EBITDA at the closing of the sale transaction (the “Closing EBITDA”), the earn out payment would be an amount equal to five times the EBITDA in excess of 103% of Closing EBITDA, of which the Company would receive a portion. |
|
c. |
Reflects the Company's disposition of PWSC. Amounts represent the adjustments necessary to remove the assets, liabilities, additional paid-in capital and noncontrolling interest associated with PWSC. |
|
d. |
Reflects the adjustments related to the disposition of PWSC and the estimated gain on sale of approximately $33.3 million. |
|
e. |
Reflects the Company's disposition of PWSC. Amounts represent the adjustments necessary to remove the historical revenues, expenses and noncontrolling interest of PWSC. Such adjustments exclude the effect of the gain on sale, as this represents a non-recurring transaction. |
|
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. |
| Exhibit 99.2 |
|
Unaudited Pro Forma Consolidated Balance Sheet |
|
(in thousands, except share data) |
As of |
Pro Forma |
||||||||||||
June 30, 2022 (a) |
Adjustments |
Pro Forma |
|||||||||||
Assets |
|||||||||||||
Investments: |
|||||||||||||
Fixed maturities, at fair value |
$ | 37,013 | $ | — | $ | 37,013 | |||||||
Equity investments, at fair value |
131 | — | 131 | ||||||||||
Limited liability investments |
1,215 | — | 1,215 | ||||||||||
Limited liability investments, at fair value |
18,986 | — | 18,986 | ||||||||||
Investments in private companies, at adjusted cost |
790 | — | 790 | ||||||||||
Real estate investments, at fair value |
10,662 | — | 10,662 | ||||||||||
Other investments, at cost which approximates fair value |
222 | — | 222 | ||||||||||
Short-term investments, at cost which approximates fair value |
157 | — | 157 | ||||||||||
Total investments |
69,176 | — | 69,176 | ||||||||||
Cash and cash equivalents |
11,704 | 35,166 | (b) |
46,870 | |||||||||
Restricted cash |
14,492 | (39 | ) | (c) |
14,453 | ||||||||
Accrued investment income |
1,031 | — | 1,031 | ||||||||||
Service fee receivable, net of allowance for doubtful accounts |
8,484 | (1,427 | ) | (c) |
7,057 | ||||||||
Other receivables, net of allowance for doubtful accounts |
12,520 | (64 | ) | (c) |
12,456 | ||||||||
Deferred contract costs |
12,617 | — | 12,617 | ||||||||||
Income taxes recoverable |
35 | 227 | (c) |
262 | |||||||||
Property and equipment, net of accumulated depreciation |
107,079 | (418 | ) | (c) |
106,661 | ||||||||
Right-of-use asset |
1,801 | (942 | ) | (c) |
859 | ||||||||
Goodwill |
110,247 | (9,474 | ) | (c) |
100,773 | ||||||||
Intangible assets, net of accumulated amortization |
105,214 | (2,344 | ) | (c) |
102,870 | ||||||||
Other assets |
15,228 | (63 | ) | (c) |
15,165 | ||||||||
Total Assets |
$ | 469,628 | $ | 20,622 | $ | 490,250 | |||||||
Liabilities and Shareholders' Equity |
|||||||||||||
Liabilities: |
|||||||||||||
Accrued expenses and other liabilities |
$ | 51,977 | $ | (3,928 | ) | (c) |
$ | 48,049 | |||||
Deferred service fees |
91,321 | (7,547 | ) | (c) |
83,774 | ||||||||
Bank loans |
22,818 | — | 22,818 | ||||||||||
Notes payable |
201,413 | — | 201,413 | ||||||||||
Subordinated debt, at fair value |
57,282 | — | 57,282 | ||||||||||
Lease liability |
2,019 | (1,039 | ) | (c) |
980 | ||||||||
Net deferred income tax liabilities |
27,860 | 370 | (c) |
28,230 | |||||||||
Total Liabilities |
454,690 | (12,144 | ) | 442,546 | |||||||||
Redeemable Class A preferred stock, no par value; 1,000,000 authorized at June 30, 2022; 169,733 issued and outstanding at June 30, 2022; redemption amount of $6,655 at June 30, 2022 |
6,655 | — | 6,655 | ||||||||||
Shareholders' Equity: |
|||||||||||||
Common stock, no par value; 50,000,000 authorized; 23,130,064 issued and 22,882,614 outstanding at June 30, 2022 |
— | — | — | ||||||||||
Additional paid-in capital |
359,536 | (1,056 | ) | (c) |
358,480 | ||||||||
Treasury stock, at cost; 247,450 outstanding at June 30, 2022 |
(492 | ) | — | (492 | ) | ||||||||
Accumulated deficit |
(400,470 | ) | 33,257 | (d) |
(367,213 | ) | |||||||
Accumulated other comprehensive income |
36,017 | — | 36,017 | ||||||||||
Shareholders' equity attributable to common shareholders |
(5,409 | ) | 32,201 | 26,792 | |||||||||
Noncontrolling interests in consolidated subsidiaries |
13,692 | 565 | (c) |
14,257 | |||||||||
Total Shareholders' Equity |
8,283 | 32,766 | 41,049 | ||||||||||
Total Liabilities, Class A preferred stock and Shareholders' Equity |
$ | 469,628 | $ | 20,622 | $ | 490,250 | |||||||
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 amounts) |
Six Months Ended |
Pro Forma |
|||||||||||
June 30, 2022 (a) |
Adjustments (e) |
Pro Forma |
||||||||||
Revenues: |
||||||||||||
Service fee and commission revenue |
$ | 46,046 | $ | (4,175 | ) | $ | 41,871 | |||||
Rental revenue |
7,300 | — | 7,300 | |||||||||
Total revenues |
53,346 | (4,175 | ) | 49,171 | ||||||||
Operating expenses: |
||||||||||||
Claims authorized on vehicle service agreements |
10,528 | — | 10,528 | |||||||||
Commissions |
3,260 | (42 | ) | 3,218 | ||||||||
Cost of services sold |
8,818 | — | 8,818 | |||||||||
General and administrative expenses |
24,210 | (4,153 | ) | 20,057 | ||||||||
Leased real estate segment interest expense |
3,354 | — | 3,354 | |||||||||
Total operating expenses |
50,170 | (4,195 | ) | 45,975 | ||||||||
Operating income |
3,176 | 20 | 3,196 | |||||||||
Other revenues (expenses), net: |
||||||||||||
Net investment income |
1,084 | — | 1,084 | |||||||||
Net realized gains |
238 | — | 238 | |||||||||
Loss on change in fair value of equity investments |
(48 | ) | — | (48 | ) | |||||||
Gain on change in fair value of limited liability investments, at fair value |
173 | — | 173 | |||||||||
Non-operating other expenses |
(653 | ) | — | (653 | ) | |||||||
Interest expense not allocated to segments |
(3,068 | ) | — | (3,068 | ) | |||||||
Amortization of intangible assets |
(2,988 | ) | 252 | (2,736 | ) | |||||||
Loss on change in fair value of debt |
(3,198 | ) | — | (3,198 | ) | |||||||
Total other expenses, net |
(8,460 | ) | 252 | (8,208 | ) | |||||||
Loss before income tax benefit |
(5,284 | ) | 272 | (5,012 | ) | |||||||
Income tax benefit |
(415 | ) | (27 | ) | (442 | ) | ||||||
Net loss |
(4,869 | ) | 299 | (4,570 | ) | |||||||
Less: net income attributable to noncontrolling interests in consolidated subsidiaries |
452 | 48 | 500 | |||||||||
Less: dividends on preferred stock |
157 | — | 157 | |||||||||
Net loss attributable to common shareholders |
$ | (5,478 | ) | $ | 251 | $ | (5,227 | ) | ||||
Loss per share – net loss attributable to common shareholders: |
||||||||||||
Basic: |
$ | (0.24 | ) | $ | (0.23 | ) | ||||||
Diluted: |
$ | (0.24 | ) | $ | (0.23 | ) | ||||||
Weighted-average shares outstanding (in ‘000s): |
||||||||||||
Basic: |
22,883 | 22,883 | ||||||||||
Diluted: |
22,883 | 22,883 | ||||||||||
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 amounts) |
Year Ended |
Pro Forma |
|||||||||||
December 31, 2021 (f) |
Adjustments (e) |
Pro Forma |
||||||||||
Revenues: |
||||||||||||
Service fee and commission revenue |
$ | 78,401 | $ | (7,975 | ) | $ | 70,426 | |||||
Rental revenue |
13,365 | - | 13,365 | |||||||||
Total revenues |
91,766 | (7,975 | ) | 83,791 | ||||||||
Operating expenses: |
||||||||||||
Claims authorized on vehicle service agreements |
19,536 | - | 19,536 | |||||||||
Commissions |
7,042 | (126 | ) | 6,916 | ||||||||
Cost of services sold |
7,052 | - | 7,052 | |||||||||
General and administrative expenses |
48,733 | (7,173 | ) | 41,560 | ||||||||
Leased real estate segment interest expense |
6,164 | - | 6,164 | |||||||||
Total operating expenses |
88,527 | (7,299 | ) | 81,228 | ||||||||
Operating income |
3,239 | (676 | ) | 2,563 | ||||||||
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 | ) | - | (2,788 | ) | |||||||
Interest expense not allocated to segments |
(6,161 | ) | - | (6,161 | ) | |||||||
Amortization of intangible assets |
(4,900 | ) | 629 | (4,271 | ) | |||||||
Loss on change in fair value of debt |
(3,201 | ) | - | (3,201 | ) | |||||||
Gain on extinguishment of debt |
2,494 | (598 | ) | 1,896 | ||||||||
Total other expenses, net |
(9,023 | ) | 31 | (8,992 | ) | |||||||
Loss before income tax benefit |
(5,784 | ) | (645 | ) | (6,429 | ) | ||||||
Income tax benefit |
(7,644 | ) | (87 | ) | (7,731 | ) | ||||||
Net income |
$ | 1,860 | $ | (558 | ) | $ | 1,302 | |||||
Less: Net income attributable to the noncontrolling interests in consolidated subsidiaries |
2,202 | (28 | ) | 2,174 | ||||||||
Less: Dividends on preferred stock |
494 | - | 494 | |||||||||
Net loss attributable to the common shareholders |
$ | (836 | ) | $ | (530 | ) | $ | (1,366 | ) | |||
Loss per share – net loss attributable to common shareholders: |
||||||||||||
Basic: |
$ | (0.04 | ) | $ | (0.06 | ) | ||||||
Diluted: |
$ | (0.04 | ) | $ | (0.06 | ) | ||||||
Weighted-average shares outstanding (in ‘000s): |
||||||||||||
Basic: |
22,537 | 22,537 | ||||||||||
Diluted: |
22,537 | 22,537 | ||||||||||
See accompanying notes to unaudited pro forma consolidated financial statements.
