TORONTO, Aug. 8, 2013 /PRNewswire/ - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its financial results for the second quarter and six months ended June 30, 2013. All amounts are in U.S. dollars unless indicated otherwise.
The Company reported a second quarter net loss of $9.7 million ($27.0 million year to date), or a loss of $0.74 ($2.05 year to date) per diluted share. The book value has decreased from $4.97 per share at December 31, 2012 to $3.11 per share at June 30, 2013. The Company also carries a valuation allowance, in the amount of $21.00 per share at June 30, 2013, against the deferred tax asset, primarily related to its loss carryforwards.
The following are the highlights of the second quarter of 2013:
Operational results
- Net operating loss of $5.4 million was recorded in the Insurance
Underwriting segment for the second quarter ($9.7 million year to
date).
- Net operating loss of $0.1 million was recorded in the Insurance
Services segment for the second quarter (income of $1.3 million year to
date).
- Net investment income of $0.8 million was recorded for the second
quarter ($1.4 million year to date).
- Net realized gains of $0.0 million for the second quarter (net realized
losses of $1.4 million year to date, inclusive of the $1.7 million loss
recorded on the Company's sale of Atlas Financial Holdings Inc.
("Atlas") common stock recorded in the first quarter of 2013).
- Net loss of $5.0 million not allocated to any segment was recorded in the second quarter ($18.6 million year to date). This includes gain on change in fair value of debt of $2.3 million (loss of $6.6 million year to date); other-than-temporary impairment loss of $1.8 million ($1.8 million year to date); impairment of asset held for sale of $1.4 million ($1.4 million year to date); and interest expense of $1.2 million related to the Company's subordinated debt and currently being deferred ($2.3 million year to date). None of these four items impacted the Company's cash flows during the second quarter and six months ended June 30, 2013.
On July 8, 2013, the Company announced that it had entered into a non-binding letter of intent with Atlas to sell its holdings of Atlas preferred stock for 90% of liquidation value, or $16.2 million. On August 1, 2013, the Company announced that the transaction had closed. Under the terms of the transaction, Atlas paid the Company at closing $7.5 million in cash, plus approximately $0.8 million from cash raised by Atlas from the exercise of certain outstanding Atlas warrants. If any amount of the purchase price remains unpaid as of January 3, 2014, such unpaid amount will be repayable not later than April 30, 2014pursuant to one or more promissory notes entered into by Atlas.
About the Company
Kingsway is a holding company functioning as a merchant bank with a focus on long-term value-creation. The Company owns or controls stakes in several insurance industry assets and utilizes its subsidiaries, 1347 Advisors LLC and 1347 Capital LLC, to pursue opportunities acting as an advisor, an investor and a financier. The common shares of Kingsway are listed on the Toronto Stock Exchange and the New YorkStock Exchange under the trading symbol "KFS."
Consolidated Statements of Operations
(in thousands, except per share data)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||
| Revenue: | |||||||||||||||||
| Net premiums earned | $ | 28,297 | $ | 30,985 | $ | 56,365 | $ | 60,252 | |||||||||
| Service fee and commission income | 12,052 | 8,138 | 25,176 | 17,667 | |||||||||||||
| Net investment income | 816 | 797 | 1,396 | 1,623 | |||||||||||||
| Net realized gains (losses) | 32 | (23) | (1,377) | 250 | |||||||||||||
| Other-than-temporary impairment loss | (1,800) | (488) | (1,800) | (488) | |||||||||||||
| Gain (loss) on change in fair value of debt | 2,338 | (2,418) | (6,613) | (6,749) | |||||||||||||
| Other income | 2,174 | 2,744 | 4,392 | 3,827 | |||||||||||||
| Total revenues | 43,909 | 39,735 | 77,539 | 76,382 | |||||||||||||
| Expenses: | |||||||||||||||||
| Loss and loss adjustment expenses | 24,615 | 23,616 | 46,446 | 45,391 | |||||||||||||
| Commissions and premium taxes | 5,171 | 4,747 | 11,883 | 9,166 | |||||||||||||
| General and administrative expenses | 20,289 | 17,154 | 40,048 | 35,955 | |||||||||||||
| Restructuring expense | 147 | - | 927 | - | |||||||||||||
| Interest expense | 1,927 | 1,916 | 3,760 | 3,765 | |||||||||||||
| Amortization of intangible assets | 508 | - | 1,066 | - | |||||||||||||
| Impairment of asset held for sale | 1,446 | - | 1,446 | - | |||||||||||||
| Total expenses | 54,103 | 47,433 | 105,576 | 94,277 | |||||||||||||
| Loss before loss on buy-back of debt, equity in net income (loss) of investee and income tax (benefit) expense | (10,194) | (7,698) | (28,037) | (17,895) | |||||||||||||
| Loss on buy-back of debt | - | - | (24) | - | |||||||||||||
| Equity in net income (loss) of investee | - | 97 | 255 | (2,169) | |||||||||||||
| Loss before income tax (benefit) expense | (10,194) | (7,601) | (27,806) | (20,064) | |||||||||||||
| Income tax (benefit) expense | (525) | 116 | (801) | 175 | |||||||||||||
| Net loss | (9,669) | (7,717) | (27,005) | (20,239) | |||||||||||||
| Less: net income (loss) attributable to noncontrolling interests in consolidated subsidiaries | 617 | (1,700) | 712 | (3,214) | |||||||||||||
| Net loss attributable to common shareholders | $ | (10,286) | $ | (6,017) | $ | (27,717) | $ | (17,025) | |||||||||
| Loss per share - net loss: | |||||||||||||||||
| Basic: | $ | (0.74) | $ | (0.59) | $ | (2.05) | $ | (1.54) | |||||||||
| Diluted: | (0.74) | (0.59) | (2.05) | (1.54) | |||||||||||||
| Weighted average shares outstanding (in '000s): | |||||||||||||||||
| Basic: | 13,149 | 13,149 | 13,149 | 13,117 | |||||||||||||
| Diluted: | 13,149 | 13,149 | 13,149 | 13,117 | |||||||||||||
Net Loss and Diluted Loss Per Share
In the second quarter of 2013, we incurred a net loss of $9.7 million($0.74 per diluted share) compared to $7.7 million ($0.59 per diluted share) in the second quarter of 2012. For the six months ended June 30, 2013, we incurred a net loss of $27.0 million ($2.05 per diluted share) compared to $20.2 million ($1.54 per diluted share) for the six months ended June 30, 2012. The net loss for the three and six months ended June 30, 2013 is attributable to operating losses in Insurance Underwriting, corporate general expenses, interest expense, other-than-temporary impairment loss, impairment of asset held for sale and change in fair value of debt. The net loss for the three and six months ended June 30, 2012 is due to operating losses in Insurance Underwriting, corporate general expenses, interest expense, loss on the change in fair value of debt and equity in net loss of investee.
Consolidated Balance Sheets
(in thousands, except per share data)
| June 30, 2013 | December 31, 2012 | ||||||||
| (unaudited) | |||||||||
| ASSETS | |||||||||
| Investments: | |||||||||
| Fixed maturities, at fair value (amortized cost of $71,254 and $77,858, respectively) | $ | 72,256 | $ | 79,534 | |||||
| Equity investments, at fair value (cost of $27,775 and $2,305, respectively) | 31,110 | 3,548 | |||||||
| Limited liability investments | 2,268 | 2,333 | |||||||
| Other investments, at cost which approximates fair value | 3,031 | 2,000 | |||||||
| Short-term investments, at cost which approximates fair value | 586 | 585 | |||||||
| Total investments | 109,251 | 88,000 | |||||||
| Cash and cash equivalents | 71,351 | 80,813 | |||||||
| Investment in investee | - | 41,733 | |||||||
| Accrued investment income | 635 | 2,263 | |||||||
| Premiums receivable, net of allowance for doubtful accounts of $3,977 and $4,040, respectively | 34,864 | 35,598 | |||||||
| Service fee receivable | 19,313 | 15,173 | |||||||
| Other receivables, net of allowance for doubtful accounts of $1,002 and $1,002, respectively | 4,852 | 4,750 | |||||||
| Reinsurance recoverable | 15,133 | 8,557 | |||||||
| Prepaid reinsurance premiums | 11,835 | 7,316 | |||||||
| Deferred acquisition costs, net | 11,797 | 14,102 | |||||||
| Property and equipment, net of accumulated depreciation of $23,707 and $22,887, respectively | 2,159 | 2,709 | |||||||
| Goodwill | 9,484 | 8,421 | |||||||
| Intangible assets, net of amortization of $20,329 and $19,263, respectively | 50,569 | 50,583 | |||||||
| Other assets | 4,542 | 4,045 | |||||||
| Asset held for sale | 7,291 | 8,737 | |||||||
| TOTAL ASSETS | $ | 353,076 | $ | 372,800 | |||||
| LIABILITIES AND EQUITY | |||||||||
| LIABILITIES | |||||||||
| Unpaid loss and loss adjustment expenses: | |||||||||
| Property and casualty | $ | 96,703 | $ | 103,116 | |||||
| Vehicle service agreements | 3,140 | 3,448 | |||||||
| Total unpaid loss and loss adjustment expenses | 99,843 | 106,564 | |||||||
| Unearned premiums | 47,308 | 45,047 | |||||||
| Reinsurance payable | 7,620 | 4,956 | |||||||
| LROC preferred units | 14,204 | 13,655 | |||||||
| Senior unsecured debentures | 26,356 | 23,730 | |||||||
| Subordinated debt | 26,674 | 23,774 | |||||||
| Deferred income tax liability | 3,602 | 3,054 | |||||||
| Deferred service fees | 49,198 | 48,987 | |||||||
| Income taxes payable | 2,821 | 2,879 | |||||||
| Accrued expenses and other liabilities | 34,533 | 34,740 | |||||||
| TOTAL LIABILITIES | $ | 312,159 | $ | 307,386 | |||||
| EQUITY | |||||||||
| Common stock, no par value; unlimited number authorized; 13,148,971
issued and outstanding at June 30, 2013 and December 31, 2012 | $ | 296,621 | $ | 296,621 | |||||
| Additional paid-in capital | 15,824 | 15,757 | |||||||
| Accumulated deficit | (289,784) | (262,069) | |||||||
| Accumulated other comprehensive income | 16,862 | 14,762 | |||||||
| Shareholders' equity attributable to common shareholders | 39,523 | 65,071 | |||||||
| Noncontrolling interests in consolidated subsidiaries | 1,394 | 343 | |||||||
| TOTAL EQUITY | 40,917 | 65,414 | |||||||
| TOTAL LIABILITIES AND EQUITY | $ | 353,076 | $ | 372,800 | |||||
Forward Looking Statements
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Words such as "expects", "believes", "anticipates", "intends", "estimates", "seeks" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect Kingsway management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including, without limitation, our potential inability to complete the proposed rights offering. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, please refer to the section entitled "Risk Factors" in the Company's 2012 Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2013. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise.
Non-U.S. GAAP Financial Measures
This press release contains certain non-U.S. GAAP financial measures. Please refer to the section entitled "Non-U.S. GAAP Financial Measures" in the Management's Discussion and Analysis section of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
SOURCE Kingsway Financial Services Inc.
