NI Holdings Inc.
07/05/2024 | Press release | Distributed by Public on 07/05/2024 14:06
NI Holdings, Inc. Unaudited Pro Forma Consolidated Financial Information Form 8 K
NI Holdings, Inc.
Unaudited Pro Forma Consolidated Financial Information
On June 30, 2024 (the "Closing Date"), NI Holdings, Inc. (the "Company") completed the previously announced transaction with Scott Insurance Holdings, LLC, ("Scott Insurance Holdings") to sell its subsidiary, Westminster American Insurance Company ("Westminster"), to Scott Insurance Holdings, for a cash purchase price of $10.5 million (collectively, the "Transaction") pursuant to the Stock Purchase Agreement (the "Purchase Agreement"), dated May 7, 2024, by and between the Company and Scott Insurance Holdings. The Transaction is subject to certain post-closing adjustments pursuant to the Purchase Agreement, including a post-closing payment to or from the Company based on the ending statutory surplus balance of Westminster.
The Transaction constituted a significant disposition for purposes of Item 2.01 of Form 8-K. Based upon the magnitude of the disposition and because the Company is exiting the majority of its commercial insurance operations, the disposition represents a significant strategic shift that will have a material effect on the Company's operations and financial results. Accordingly, the Transaction meets the definition of a discontinued operation, as defined by Accounting Standards Codification 205-20 - Presentation of Financial Statements - Discontinued Operations, and, after the date of the Transaction, the historical financial results of Westminster will be reflected in our consolidated financial statements as discontinued operations under accounting principles generally accepted in the United States of America ("GAAP") for all applicable periods presented.
The following unaudited pro forma consolidated financial statements are intended to show how the transaction might have affected the historical financial statements of the Company if the transaction had been completed at an earlier time as indicated therein. The unaudited pro forma consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X and were derived from the Company's historical consolidated financial statements and are being presented to give effect to the sale of Westminster. The unaudited pro forma consolidated financial statements are derived from and should be read in conjunction with:
| i. | The accompanying notes to the unaudited pro forma consolidated financial statements; |
| ii | The audited historical financial statements of the Company and its subsidiaries, the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 9, 2022; |
| iii | The audited historical financial statements of the Company and its subsidiaries, the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 8, 2023; |
| iv. | The audited historical financial statements of the Company and its subsidiaries, the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 15, 2024; and |
| v. | The unaudited interim historical consolidated financial statements of the Company and its subsidiaries, the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2024 filed with the SEC on May 9, 2024. |
The unaudited pro forma consolidated financial statements are based on available information and assumptions that the Company's management believes are reasonable as of the date of this filing. The Unaudited Pro Forma Consolidated Statements of Operations for the three months ended March 31, 2024 as well as the years ended December 31, 2023, 2022, and 2021 present the Company's results as if the transaction had occurred immediately prior to January 1, 2021. The Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2024 reflects the Company's assets, liabilities, and shareholders' equity as if the transaction had occurred on March 31, 2024.
Article 11 of Regulation S-X requires that pro forma financial information include the following pro forma adjustments to the historical financial statements of the registrant:
| · | Transaction Accounting Adjustments - Adjustments that reflect only the application of required accounting to the acquisition, disposition, or other transaction. |
| · | Autonomous Entity Adjustments - Adjustments that are necessary to reflect the operations and financial position of the registrant if the registrant was previously part of another entity. There are no autonomous entity adjustments included in the pro forma financial information since the Company currently operates, and after the completion of the transaction will continue to operate, as an independent, standalone entity. |
In addition, Regulation S-X permits registrants to reflect adjustments that depict synergies and dis-synergies of the acquisitions and dispositions for which pro forma effect is being given in our disclosures as management adjustments. The unaudited pro forma consolidated financial statements do not include management adjustments to reflect any potential synergies that may be achievable, or dis-synergy costs that may occur, in connection with the sale of Westminster. The Company has determined not to reflect such adjustments because it does not believe presenting such adjustments would enhance an understanding of the pro forma effects of the transaction.
The unaudited pro forma consolidated financial statements are presented for informational purposes only and are based upon estimates by the Company's management, which are based upon available information and certain assumptions that the Company's management believes are reasonable as of the date of this filing. The unaudited pro forma consolidated financial statements are not intended to be indicative of the actual financial position or results of operations that would have been achieved had the transaction been consummated as of the periods indicated above, nor does it purport to indicate results which may be attained in the future. Actual amounts could differ materially from these estimates.
NI Holdings, Inc.
Pro Forma Consolidated Balance Sheet
As of March 31, 2024
(Unaudited)
(dollar amounts in thousands, except par value)
|
As Reported (a) |
Transaction Accounting Adjustments (b) |
Pro Forma | ||||||||||
| Assets: | ||||||||||||
| Cash and cash equivalents | $ | 68,518 | $ | (13,387 | ) | $ | 55,131 | |||||
| Fixed income securities, at fair value (net of allowance for expected credit losses of $0 at March 31, 2024) | 349,772 | (57,070 | ) | 292,702 | ||||||||
| Equity securities, at fair value | 29,650 | (6,146 | ) | 23,504 | ||||||||
| Other investments | 2,006 | - | 2,006 | |||||||||
| Total cash and investments | 449,946 | (76,603 | ) | 373,343 | ||||||||
| Premiums and agents' balances receivable (net of allowance for expected credit losses of $224 at March 31, 2024) | 79,706 | (19,728 | ) | 59,978 | ||||||||
| Deferred policy acquisition costs | 36,565 | (7,617 | ) | 28,948 | ||||||||
| Reinsurance premiums receivable | 2,985 | (3,441 | ) | (456 | ) | |||||||
| Reinsurance recoverables on losses (net of allowance for expected credit losses of $0 at March 31, 2024) | 49,484 | (43,138 | ) | 6,346 | ||||||||
| Accrued investment income | 2,923 | (522 | ) | 2,401 | ||||||||
| Property and equipment, net | 9,708 | (2,356 | ) | 7,352 | ||||||||
| Deferred income taxes | 8,313 | 837 | 9,150 | |||||||||
| Receivable from Federal Crop Insurance Corporation | 13,913 | - | 13,913 | |||||||||
| Goodwill and other intangibles | 9,933 | (7,205 | ) | 2,728 | ||||||||
| Other assets | 11,049 | (50 | ) | 10,999 | ||||||||
| Total assets | $ | 674,525 | $ | (159,823 | ) | $ | 514,702 | |||||
| Liabilities: | ||||||||||||
| Unpaid losses and loss adjustment expenses | $ | 225,006 | $ | (104,475 | ) | $ | 120,531 | |||||
| Unearned premiums | 171,418 | (37,690 | ) | 133,728 | ||||||||
| Income tax payable | 2,454 | (228 | ) | 2,226 | ||||||||
| Accrued expenses and other liabilities | 19,801 | (2,989 | ) | 16,812 | ||||||||
| Total liabilities | 418,679 | (145,382 | ) | 273,297 | ||||||||
| Shareholders' equity: | ||||||||||||
| Common stock, $0.01 par value, authorized: 25,000,000 shares; issued: 23,000,000 shares; and outstanding: 2024 - 20,629,454 shares, 2023 - 20,599,908 shares | 230 | - | 230 | |||||||||
| Additional paid-in capital | 96,320 | - | 96,320 | |||||||||
| Unearned employee stock ownership plan shares | (698 | ) | - | (698 | ) | |||||||
| Retained earnings | 218,451 | (18,696 | ) | 199,755 | ||||||||
| Accumulated other comprehensive loss, net of income taxes | (23,858 | ) | 4,255 | (19,603 | ) | |||||||
| Treasury stock, at cost, 2024 - 2,300,751 shares, 2023 - 2,330,297 shares | (34,599 | ) | - | (34,599 | ) | |||||||
| Non-controlling interest | - | - | - | |||||||||
| Total shareholders' equity | 255,846 | (14,441 | ) | 241,405 | ||||||||
| Total liabilities and shareholders' equity | $ | 674,525 | $ | (159,823 | ) | $ | 514,702 |
NI Holdings, Inc.
Pro Forma Consolidated Statement of Operations
For the three months ended March 31, 2024
(Unaudited)
(dollar amounts in thousands, except per share data)
|
As Reported (a) |
Transaction Accounting Adjustments (c) |
Pro Forma | ||||||||||
| Revenues: | ||||||||||||
| Net premiums earned | $ | 85,557 | $ | (15,673 | ) | $ | 69,884 | |||||
| Fee and other income | 412 | (8 | ) | 404 | ||||||||
| Net investment income | 3,553 | (798 | ) | 2,755 | ||||||||
| Net investment gains | 1,828 | (372 | ) | 1,456 | ||||||||
| Total revenues | 91,350 | (16,851 | ) | 74,499 | ||||||||
| Expenses: | ||||||||||||
| Losses and loss adjustment expenses | 52,209 | (12,065 | ) | 40,144 | ||||||||
| Amortization of deferred policy acquisition costs | 20,663 | (3,846 | ) | 16,817 | ||||||||
| Other underwriting and general expenses | 10,298 | (1,593 | ) | 8,705 | ||||||||
| Total expenses | 83,170 | (17,504 | ) | 65,666 | ||||||||
| Income before income taxes | 8,180 | 653 | 8,833 | |||||||||
| Income tax expense | 1,761 | 94 | 1,855 | |||||||||
| Net income | 6,419 | 559 | 6,978 | |||||||||
| Net income attributable to non-controlling interest | - | - | - | |||||||||
| Net income attributable to NI Holdings, Inc. | $ | 6,419 | $ | 559 | $ | 6,978 | ||||||
| Earnings per common share: | ||||||||||||
| Basic | $ | 0.31 | $ | 0.02 | $ | 0.33 | ||||||
| Diluted | $ | 0.30 | $ | 0.03 | $ | 0.33 | ||||||
| Share data: | ||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | 20,932,774 | - | 20,932,774 | |||||||||
| Dilutive securities | 113,305 | - | 113,305 | |||||||||
| Weighted average common shares used in diluted per common share calculations | 21,046,079 | - | 21,046,079 |
NI Holdings, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2023
(Unaudited)
(dollar amounts in thousands, except per share data)
|
As Reported (a) |
Transaction Accounting Adjustments (c) |
Pro Forma | ||||||||||
| Revenues: | ||||||||||||
| Net premiums earned | $ | 351,137 | $ | (59,020 | ) | $ | 292,117 | |||||
| Fee and other income | 1,978 | (38 | ) | 1,940 | ||||||||
| Net investment income | 10,456 | (2,422 | ) | 8,034 | ||||||||
| Net investment gains | 2,124 | (195 | ) | 1,929 | ||||||||
| Total revenues | 365,695 | (61,675 | ) | 304,020 | ||||||||
| Expenses: | ||||||||||||
| Losses and loss adjustment expenses | 244,412 | (57,896 | ) | 186,516 | ||||||||
| Amortization of deferred policy acquisition costs | 82,991 | (15,359 | ) | 67,632 | ||||||||
| Other underwriting and general expenses | 35,799 | (6,474 | ) | 29,325 | ||||||||
| Goodwill impairment charge | 6,756 | (6,756 | ) | - | ||||||||
| Total expenses | 369,958 | (86,485 | ) | 283,473 | ||||||||
| Income (loss) before income taxes | (4,263 | ) | 24,810 | 20,547 | ||||||||
| Income tax expense | 963 | 3,352 | 4,315 | |||||||||
| Net income (loss) | (5,226 | ) | 21,458 | 16,232 | ||||||||
| Net income attributable to non-controlling interest | 250 | - | 250 | |||||||||
| Net income (loss) attributable to NI Holdings, Inc. | $ | (5,476 | ) | $ | 21,458 | $ | 15,982 | |||||
| Earnings (loss) per common share: | ||||||||||||
| Basic | $ | (0.26 | ) | $ | 1.02 | $ | 0.76 | |||||
| Diluted | $ | (0.26 | ) | $ | 1.01 | $ | 0.75 | |||||
| Share data: | ||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | 21,159,073 | - | 21,159,073 | |||||||||
| Dilutive securities | - | - | 76,532 | |||||||||
| Weighted average common shares used in diluted per common share calculations | 21,159,073 | - | 21,235,605 |
NI Holdings, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2022
(Unaudited)
(dollar amounts in thousands, except per share data)
|
As Reported (a) |
Transaction Accounting Adjustments (c) |
Pro Forma | ||||||||||
| Revenues: | ||||||||||||
| Net premiums earned | $ | 328,290 | $ | (56,550 | ) | $ | 271,740 | |||||
| Fee and other income | 1,453 | (72 | ) | 1,381 | ||||||||
| Net investment income | 7,820 | (1,184 | ) | 6,636 | ||||||||
| Net investment gains | (13,126 | ) | 1,151 | (11,975 | ) | |||||||
| Total revenues | 324,437 | (56,655 | ) | 267,782 | ||||||||
| Expenses: | ||||||||||||
| Losses and loss adjustment expenses | 294,432 | (52,682 | ) | 241,750 | ||||||||
| Amortization of deferred policy acquisition costs | 66,803 | (13,199 | ) | 53,604 | ||||||||
| Other underwriting and general expenses | 32,231 | (6,927 | ) | 25,304 | ||||||||
| Total expenses | 393,466 | (72,808 | ) | 320,658 | ||||||||
| Loss before income taxes | (69,029 | ) | 16,153 | (52,876 | ) | |||||||
| Income tax benefit | (15,254 | ) | 4,150 | (11,104 | ) | |||||||
| Net loss | (53,775 | ) | 12,003 | (41,772 | ) | |||||||
| Net loss attributable to non-controlling interest | (679 | ) | - | (679 | ) | |||||||
| Net loss attributable to NI Holdings, Inc. | $ | (53,096 | ) | $ | 12,003 | $ | (41,093 | ) | ||||
| Loss per common share: | ||||||||||||
| Basic | $ | (2.49 | ) | $ | 0.56 | $ | (1.93 | ) | ||||
| Diluted | $ | (2.49 | ) | $ | 0.56 | $ | (1.93 | ) | ||||
| Share data: | ||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | 21,333,389 | - | 21,333,389 | |||||||||
| Dilutive securities | - | - | - | |||||||||
| Weighted average common shares used in diluted per common share calculations | 21,333,389 | - | 21,333,389 |
NI Holdings, Inc.
Pro Forma Consolidated Statement of Operations
For the year ended December 31, 2021
(Unaudited)
(dollar amounts in thousands, except per share data)
|
As Reported (a) |
Transaction Accounting Adjustments (c) |
Pro Forma | ||||||||||
| Revenues: | ||||||||||||
| Net premiums earned | $ | 299,589 | $ | (52,875 | ) | $ | 246,714 | |||||
| Fee and other income | 1,775 | (80 | ) | 1,695 | ||||||||
| Net investment income | 7,131 | (767 | ) | 6,364 | ||||||||
| Net investment gains | 15,479 | (1,289 | ) | 14,190 | ||||||||
| Total revenues | 323,974 | (55,011 | ) | 268,963 | ||||||||
| Expenses: | ||||||||||||
| Losses and loss adjustment expenses | 216,379 | (32,787 | ) | 183,592 | ||||||||
| Amortization of deferred policy acquisition costs | 64,574 | (11,386 | ) | 53,188 | ||||||||
| Other underwriting and general expenses | 31,715 | (6,209 | ) | 25,506 | ||||||||
| Total expenses | 312,668 | (50,382 | ) | 262,286 | ||||||||
| Income before income taxes | 11,306 | (4,629 | ) | 6,677 | ||||||||
| Income tax expense | 2,974 | (1,572 | ) | 1,402 | ||||||||
| Net income | 8,332 | (3,057 | ) | 5,275 | ||||||||
| Net loss attributable to non-controlling interest | (84 | ) | - | (84 | ) | |||||||
| Net income attributable to NI Holdings, Inc. | $ | 8,416 | $ | (3,057 | ) | $ | 5,359 | |||||
| Earnings per common share: | ||||||||||||
| Basic | $ | 0.39 | $ | (0.14 | ) | $ | 0.25 | |||||
| Diluted | $ | 0.39 | $ | (0.14 | ) | $ | 0.25 | |||||
| Share data: | ||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | 21,424,060 | - | 21,424,060 | |||||||||
| Dilutive securities | 232,366 | - | 232,366 | |||||||||
| Weighted average common shares used in diluted per common share calculations | 21,656,426 | - | 21,656,426 |
Notes to the Unaudited Pro Forma Consolidated Financial Statements
(dollar amounts in thousands)
The following is a description of the Transaction Accounting Adjustments reflected in the unaudited pro forma consolidated financial statements based on preliminary estimates, which may change as additional information is obtained.
| (a) | Represents the Company's Consolidated Balance Sheet as of March 31, 2024 and Consolidated Statements of Operations for the three months ended March 31, 2024 as well as the years ended December 31, 2023, 2022, and 2021. |
| (b) |
Represents adjustments to record the cash proceeds from the Transaction of $10,500 received on the Closing Date and the deconsolidation adjustments for Westminster pursuant to the Purchase Agreement. The estimated net loss on the sale of $14,441 is reflected as a reduction of Total Shareholders' Equity. In addition, within twenty-five (25) days following the Closing Date, the Company and Buyer agree to review the financial statements of Westminster as of the Closing Date. To the extent the actual statutory surplus at the Closing Date exceeds $20,000, Buyer will promptly pay to the Company the amount that the actual statutory surplus at the Closing Date exceeds $20,000. To the extent the statutory surplus at the Closing Date is less than $20,000, the Company will promptly pay to Buyer the difference between $20,000 and the actual statutory surplus at the Closing Date. Given the uncertainty of the actual statutory surplus for Westminster at the Closing Date, this amount was not reasonably estimable and, therefore, was not included as an adjustment to the consideration received. The Company expects to recognize a capital loss for tax purposes, which may be used to offset capital gains. The tax treatment and related adjustments are still being evaluated, and, therefore, no adjustments have been recognized in the pro forma financial statements related to potential tax implications. The estimates, including income tax effects, are subject to change and actual amounts may differ from the results reflected herein. |
| (c) | Represents adjustments for the deconsolidation of Westminster's revenues and expenses on a pre-pooling basis to reflect the sale. The income tax effect of the pro forma adjustments was calculated using the enacted statutory rates. |