Kingsway Reports Second Quarter Results

Thu Aug 8, 2013 5:26pm EDT

* Reuters is not responsible for the content in this press release.

Kingsway Reports Second Quarter Results

PR Newswire

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, 2014 pursuant 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 York Stock 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.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.