Business Context and Reporting Period
This Form 8-K, dated May 29, 2018, discloses an amended and restated Merger Agreement between Assurant, Inc. and TWG Holdings Limited (TWG). The filing provides summary financial data for TWG to assist investors in evaluating the proposed acquisition, which was originally announced in October 2017 and amended on January 8, 2018.
Key Financial Metrics (TWG)
The following data represents TWG's financials adjusted to conform to Assurant's retail basis accounting policy. All figures are in millions of dollars.
| Metric | 3 Months Ended Mar 31, 2018 | 3 Months Ended Mar 31, 2017 | Year Ended Dec 31, 2017 |
|---|---|---|---|
| Premiums Earned & Contract Fees (Adjusted) | $596.9 | $481.8 | $2,062.3 |
| Total Revenue (Adjusted) | $618.7 | $508.2 | $2,170.2 |
| Income Before Income Tax | $21.1 | $25.5 | $92.7 |
| Net Income | $15.8 | $20.8 | $82.6 |
| Adjusted Net Income (Non-GAAP) | $24.7 | $22.8 | $92.5 |
Balance Sheet Data (Adjusted):
- Total Assets: $10,229.8 million (Mar 31, 2018) vs. $10,041.0 million (Dec 31, 2017).
- Total Reserves: $7,889.0 million (Mar 31, 2018) vs. $7,709.7 million (Dec 31, 2017).
- Debt: $589.5 million (Mar 31, 2018) vs. $590.2 million (Dec 31, 2017).
- Total Liabilities: $9,307.1 million (Mar 31, 2018) vs. $9,117.5 million (Dec 31, 2017).
- Stockholders' Equity: $922.7 million (Mar 31, 2018) vs. $923.5 million (Dec 31, 2017).
Material Changes and Accounting Adjustments
The filing highlights significant accounting adjustments required to align TWG's financials with Assurant's policies. TWG previously reported revenues on a "dealer basis" (net of amounts paid to selling dealers), whereas Assurant reports on a "retail basis" (gross amounts paid by consumers).
- Revenue Impact: For the three months ended March 31, 2018, unadjusted premiums earned were $303 million, which adjusted to $596.9 million. Unadjusted total revenue was $325 million, adjusting to $618.7 million.
- Balance Sheet Impact: Unadjusted total assets as of March 31, 2018, were $6.65 billion, adjusting to $10.23 billion. Unadjusted total reserves were $4.31 billion, adjusting to $7.89 billion.
- Adjusted Net Income: This non-GAAP measure excludes after-tax interest expense and net realized gains/losses on investments. For Q1 2018, this adjustment added $8.9 million to GAAP net income.
Outlook, Risks, and Contingencies
Transaction Status: The Merger is subject to the satisfaction or waiver of conditions outlined in the Merger Agreement. Upon closing, TWG will become a wholly owned subsidiary of Assurant, and financial presentation will fully conform to Assurant's accounting policies.
Forward-Looking Statements: The summary financial data does not purport to reflect what results would have been if the transaction had been completed earlier, nor does it indicate future results following the Merger.
Future Filings: Unaudited pro forma condensed combined financial statements for the three months ended March 31, 2018, are required to be filed within 71 calendar days of the Merger closing announcement.
Legal Disclaimer: Information furnished under Item 7.01 is not deemed "filed" under the Securities Exchange Act of 1934 and is not subject to the liabilities of Section 18.
Key Facts for Investor Verification
- Accounting Basis: Verify the magnitude of the "retail basis" adjustment, which more than doubled reported revenue and assets for TWG in the provided periods.
- Merger Conditions: Confirm the specific conditions precedent required for the closing of the Merger Agreement.
- Pro Forma Data: Await the filing of the unaudited pro forma combined financial statements (due within 71 days of closing) to understand the combined entity's financial position.
- Non-GAAP Measures: Review the reconciliation of Adjusted Net Income to GAAP Net Income, specifically regarding interest expense and investment gains/losses.
- Debt Levels: Note that TWG's debt remained relatively stable at approximately $590 million between year-end 2017 and Q1 2018.