Exhibit 99.3
PRO FORMA FINANCIAL INFORMATION
On December 8, 2006, UTG, Inc. (the Company) completed an agreement to purchase a majority of the issued and outstanding common stock of Acap Corporation (“Acap”). Acap is a Delaware corporation which owns 100% of the issued and outstanding stock of American Capitol Insurance Company, a Texas life insurance company, which in turn owns 100% of the issued and outstanding stock of Texas Imperial Life Insurance Company and Imperial Plan, Inc. The transaction completed a definitive Stock Purchase Agreement (the “Agreement”) with William F. Guest and John D. Cornett.
The following pro forma condensed consolidated financial statements are presented to illustrate the impact of the acquisition on the Company’s historical financial statements and reflect the effect of the various transactions necessary to consummate the agreements as if the transaction had occurred on January 1, 2006 and January 1, 2005.
The Company has not completed a fair value appraisal of tangible or intangible assets as of this date. At the time those processes are completed, the allocation of the purchase price could change and may include certain identifiable intangible assets, such as cost of insurance acquired.
The accompanying pro forma information is not necessarily indicative of the actual results of operation that would have been achieved had the acquisition been consummated at January 1, 2005, nor is it necessarily indicative of future results of operations of the combined business. Furthermore, the accompanying pro forma financial information does not reflect any costs which may be incurred in integrating the operations of Acap with the Company.
The following summarizes selected pro forma financial information of the Registrant assuming the transaction acquiring Acap had been completed as of September 30, 2006 and the income statement reflects operations as if the transaction had been completed on January 1, 2006.
| | Pro Forma |
| Assets | | |
Total investments | $ | 346,720,148 |
Cash and cash equivalents | | 7,324,332 |
Reinsurance receivables | | 78,589,963 |
Cost of insurance acquired | | 26,946,496 |
Other assets | | 13,432,508 |
| Total assets | $ | 473,013,447 |
| | |
| Liabilities and shareholders’ equity | | |
Future policy benefits | $ | 364,374,469 |
Deferred income taxes | | 18,214,553 |
Notes payable | | 15,700,278 |
Other liabilities | | 10,211,484 |
| Total liabilities | | 408,500,784 |
Minority interest | | 19,314,040 |
| | |
Common stock | | 3,855 |
Additional paid in capital | | 41,915,596 |
Accumulated deficit | | (281,375) |
Accumulated other comprehensive income | | 3,560,547 |
| Total shareholders’ equity | | 45,198,623 |
| Total liabilities and shareholders’ equity | $ | 473,013,447 |
| | Pro Forma |
Revenues | | |
Premiums and policy fees | $ | 20,462,955 |
Net investment income | | 11,128,489 |
Realized investment gains | | 10,749,645 |
Other income | | 1,774,381 |
| Total revenues | | 44,115,470 |
| | |
Benefits and other expenses | | |
Benefits, claims and settlement expenses | | 22,172,709 |
| Commissions and amortization deferred acquisition costs | | 1,848,321 |
Amortization of cost of insurance acquired | | 2,858,416 |
Operating expenses | | 6,457,009 |
Interest expense | | 844,000 |
| Total expenses | | 34,180,455 |
| | |
| Income before income tax and minority interest | | 9,935,015 |
Income tax expense | | (2,495,617) |
Minority interest in income | | (2,832,545) |
Net income | $ | 4,606,853 |
The following summarizes selected pro forma financial information of the Registrant assuming the transaction acquiring Acap had been completed as of January 1, 2005.
| | Pro Forma |
Revenues | | |
Premiums and policy fees | $ | 24,844,031 |
Net investment income | | 14,837,145 |
Realized investment gains | | 1,010,515 |
Other income | | 2,563,558 |
| Total revenues | | 43,255,249 |
| | |
Benefits and other expenses | | |
Benefits, claims and settlement expenses | | 26,149,193 |
| Commissions and amortization deferred acquisition costs | | 2,708,497 |
Amortization of cost of insurance acquired | | 3,263,085 |
Operating expenses | | 5,680,722 |
Interest expense | | 1,125,000 |
| Total expenses | | 38,926,497 |
| | |
| Income before income tax and minority interest | | 4,328,752 |
Income tax expense | | (381,664) |
Minority interest in income | | (1,049,982) |
Net income | $ | 2,897,106 |
UTG, Inc.
Notes to Pro Forma Condensed Consolidated Financial Statements
The purchase price of Acap Corporation was allocated as follows:
Investments $ 92,239,371
Cash 2,779,038
Accrued investment income 1,019,714
Reinsurance receivables 42,740,677
Property and equipment 2,109,449
Other assets 19,250,465
Cost of insurance acquired 160,138,714
Total assets
Future policy benefits (113,274,221)
Other liabilities (3,495,737)
Notes payable (3,357,000)
Deferred gain on reinsurance (2,734,531)
Deferred taxes (9,612,917)
Total liabilities (132,474,406)
Minority interest liability (10,071,030)
Net value purchased $ 17,593,278
The Company utilized approximately $ 12,343,000 in notes payable and $ 5,250,000 in cash for the acquisition.
The income statements reflect the following purchase accounting adjustments:
Acap investments acquired were adjusted to current market value as of the date of purchase. The purchase adjustment is amortized over the life of the investments. The adjustments to income were $ 214,000 and $ 285,000 as of September 30, 2006 and December 31, 2005, respectively.
The cost of insurance acquired through the acquisition and policy reserves are amortized based on the future projected profits of the business acquired. The adjustments to income were $ 1,220,000 and $ 1,626,000 as of September 30, 2006 and December 31, 2005, respectively.
At the time of acquisition, the Company advanced Acap funds to retire certain indebtedness and to redeem all of Acap’s outstanding preferred stock. The pro forma adjustments reflect the elimination of the existing debt and related expenses.
In addition, the Company incurred total debt of approximately $ 15,700,000 in the acquisition of Acap. Interest expense associated with this debt is reflected as an additional expense of the Company. The adjustments to income were $ 844,000 and $ 1,125,000 as of September 30, 2006 and December 31, 2005, respectively.
The combined companies will realize expense savings from operating efficiencies over the historical operations of the two separate entities. General operating expenses are reduced to reflect this anticipated savings.
