NOTE 3. ACQUISITION OF BUSINESS

Acquisition of Infinity Property and Casualty Corporation

On July 2, 2018, Kemper acquired 100% of the outstanding common stock of Infinity Property and Casualty Corporation (“Infinity”), pursuant to the terms of the merger agreement dated February 13, 2018, with total cash, stock and equity-based compensation consideration paid to Infinity shareholders of approximately $1.5 billion. In conjunction with closing the acquisition, Kemper issued 13,184,107 shares, with an aggregate fair value of $982.5 million based on Kemper’s July 2, 2018 stock price of $74.53 per share, and paid $564.6 million in cash consideration to Infinity’s shareholders. In addition, Kemper issued 44,010 restricted units under Kemper’s equity-based compensation plan to replace Infinity restricted shares that were outstanding immediately prior to the closing. The aggregate fair value of such Kemper restricted units granted was $3.3 million at July 2, 2018, of which $1.6 million is attributed to service provided prior to the closing and included in consideration paid. The remaining amount of $1.7 million is attributed to future service and will be recognized in compensation expense primarily over a period of two years. The cash consideration was funded by cash on hand as of July 2, 2018, inclusive of $250.0 million in borrowings under the Company’s delayed draw term loan facility and $110.0 million of Kemper subsidiary borrowings from the FHLB of Dallas and FHLB of Chicago. On July 13, 2018, Kemper subsidiaries repaid in full the $110.0 million of FHLB borrowings, plus accrued interest. On December 28, 2018, Kemper repaid $215.0 million of the delayed draw term loan facility. See Note 7, “Debt,” to the Consolidated Financial Statements for additional information. Infinity is a national provider of auto insurance focused on serving the specialty automobile market. With approximately 10,600 independent agents and $1.4 billion in 2017 direct written premiums, Infinity is one of the largest specialty auto insurers in the United States.

The Company has not yet completed the process of estimating the fair value of assets acquired and liabilities assumed, including, but not limited to, receivables, intangible assets, unearned premium reserves, certain tax-related balances and certain other asset and liabilities. Accordingly, the Company’s preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as the Company completes the process, which would also likely impact the Company’s allocation of the purchase price to Goodwill. In accordance with ASC 805, Business Combinations, changes, if any, to the preliminary estimates and allocation, as a result of events or conditions as of the acquisition date, will be reported in the Company’s financial statements as an adjustment to the assets acquired and liabilities assumed. During the fourth quarter, the Company further refined its estimate of certain legal accruals, other liabilities and tax-related balances, increasing liabilities assumed by $22.9 million, increasing assets acquired by $1.7 million and increasing goodwill by $21.2 million. The Company has allocated all of the goodwill associated with the Infinity acquisition to the Specialty Property & Casualty Insurance segment. The factors that contributed to the recognition of goodwill include synergies from economies of scale within the underwriting and claims operations, acquiring a talented workforce and cost savings opportunities.

NOTE 3. ACQUISITION OF BUSINESS (Continued)

Based on the Company’s preliminary allocation of the purchase price as of December 31, 2018, the fair values of the assets acquired and liabilities assumed were:



DOLLARS IN MILLIONS
Investments	$	1,569.3
Short Term Investments	98.8
Cash	4.0
Receivables from Policyholders	583.4
Other Receivables	31.7
Value of Intangible Assets Acquired (Reported in Other Assets)	262.7
Current Income Tax Assets	0.8
Goodwill¹	789.4
Other Assets	102.1
Property and Casualty Insurance Reserves	(713.6		)
Unearned Premiums	(715.6		)
Debt	(282.1		)
Deferred Income Tax Liabilities	(11.3		)
Accrued Expenses and Other Liabilities	(170.9		)
Total Purchase Price	$	1,548.7

¹ Non-deductible for tax-purposes.

NOTE 3. ACQUISITION OF BUSINESS (Continued)

Unaudited Pro Forma Results

The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of Infinity occurred on January 1, 2017. The adjustments to arrive at the pro forma information below included adjustments for the lost investment income on the cash used to fund the acquisition, amortization of the fair value adjustment on Infinity investments, amortization of the acquired intangible assets, interest expense on debt incurred to finance the acquisition and the exclusion of

certain acquisition related costs considered to be non-recurring in nature.



	For The Years Ended December 31,
DOLLARS IN MILLIONS	2018 (Unaudited)		2017 (Unaudited)
Total Revenues	$	4,452.9	$	4,239.0
Total Expenses	$	4,133.7	$	4,095.1
Income from Continuing Operations before Income Taxes	$	319.2	$	143.9
Net Income	$	285.6	$	89.0

The pro forma information is not necessarily indicative of the consolidated results of operations that might have been achieved had the transaction in fact occurred at the beginning of the periods presented, nor does the information project results for any future period. The pro forma information does not include the impact of any future cost savings or synergies that may be achieved as a result of the acquisition.