Kingsway Reports Fourth Quarter and Year-End Results
TORONTO, March 30, 2012 /PRNewswire/ - (TSX: KFS) (NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its financial results for the fourth quarter and year ended December 31, 2011, prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). All amounts are in U.S. dollars unless indicated otherwise.
The Company reported a net loss of $10.6 million, or a loss of $0.20 per diluted share, for the fourth quarter and a net loss of $27.4 million, or a loss of $0.52 per diluted share, for the year. The book value has decreased from $2.78 per share at December 31, 2010 to $2.22 per share at December 31, 2011. The Company also carries a valuation allowance, in the amount of $4.97 per share at December 31, 2011, against the deferred tax asset, primarily related to its loss carryforwards.
The following are the highlights of the fourth quarter of 2011:
Operational results
- Net operating loss of $8.9 million was recorded in the Insurance Underwriting segment for the fourth quarter (net operating loss of $37.1 million year to date).
- Net operating income of $0.2 million was recorded in the Insurance Services segment for the fourth quarter (net operating income of $1.7 million year to date).
- Net investment income and realized gains of $1.8 million were recorded for the fourth quarter ($5.2 million year to date).
- Net loss of $3.7 million was recorded in the fourth quarter (net income of $4.1 million year to date) that is not allocated to any segment. This includes gain from change in fair value of debt of $0.1 million for the fourth quarter (gain of $25.9 million year to date).
- The Company recorded no income or loss from discontinued operations for the fourth quarter (net loss of $1.3 million year to date).
Effective July 1, 2011, the Company ceased to be a "foreign private issuer" as defined in Rule 3b-4 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and became subject to the rules and regulations under the Exchange Act applicable to domestic issuers. As a result, the Company is required to prepare and file its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, whereas its Annual Reports were previously filed on Form 40-F. While we do not believe this change will impact the value of the Company, shareholders will now have to adapt to filings made pursuant to the Exchange Act.
Separately, as required by Ontario Securities Commission National Instrument 51-102 Continuous Disclosure Obligations, the Company has restated its interim financial reports, previously filed under International Financial Reporting Standards, in accordance with U.S. GAAP. The Company remains an Ontario, Canada corporation.
Dividend
The Board of Directors declared no dividend for the fourth quarter of 2011.
Subsequent Events
On January 27, 2012, the Company announced that it is implementing an action to effect a reverse stock split of the Company's common stock. The action is intended to ensure that Kingsway remains in compliance with the New York Stock Exchange ("NYSE") continued listing standards. The action has been approved in principal by the Company's Board of Directors and remains subject to final Board action and shareholder approval. The Company has notified the NYSE of its intention to address through a reverse stock split its non-compliance with the NYSE continued listing requirement that the average closing price of a security not be lower than $1.00 per share over a consecutive 30 trading-day period, which is the minimum share price requirement. The Company's common stock continues to be listed on the NYSE and trades as usual subject to the NYSE's continued listing standards and monitoring. The Company plans to submit the reverse stock split for shareholder approval at its Annual and Special Meeting of Shareholders to be held May 31, 2012.
On February 21, 2012, the Company and its subsidiary, 1347 Capital LLC, announced that the Company has signed a definitive agreement to acquire the tangible and intangible assets and liabilities of a specialty insurance business in a highly structured transaction for total consideration consisting of cash at closing, future contingent payments and common equity in the newly formed entity. The transaction, which is subject to customary closing conditions including regulatory approval, is expected to close during the second quarter of 2012. The Company intends to disclose more information about the specialty insurance business being acquired following the closing of the transaction.
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) |
||||||||
| Years ended December 31, | ||||||||
| 2011 | 2010 | |||||||
| Revenue: | ||||||||
| Net premiums earned | $ | 156,382 | $ | 220,011 | ||||
| Service fee and commission income | 31,607 | 13,008 | ||||||
| Net investment income | 4,086 | 12,819 | ||||||
| Net realized gains | 1,095 | 9,257 | ||||||
| Gain (loss) on change in fair value of debt | 25,876 | (107,269 | ) | |||||
| Other income | 9,501 | 17,055 | ||||||
| Total revenues: | 228,547 | 164,881 | ||||||
| Expenses: | ||||||||
| Loss and loss adjustment expenses | $ | 143,145 | $ | 214,045 | ||||
| Commissions and premiums taxes | 24,305 | 36,688 | ||||||
| General and administrative expenses | 77,936 | 101,644 | ||||||
| Restructuring costs | — | 4,803 | ||||||
| Interest expense | 7,478 | 14,825 | ||||||
| Amortization of other intangible assets | 73 | 4,369 | ||||||
| Goodwill impairment | 2,830 | — | ||||||
| Total expenses | 255,767 | 376,374 | ||||||
| Loss before gains on debt, equity in net income of investees and income tax benefit | (27,220 | ) | (211,493 | ) | ||||
| Gain on buy-back of debt | 556 | 3,110 | ||||||
| Gain on consolidation of debt | — | 17,821 | ||||||
| Equity in net income of investees | 417 | — | ||||||
| Loss from continuing operations before income tax benefit | (26,247 | ) | (190,562 | ) | ||||
| Income tax benefit | (169 | ) | (6,118 | ) | ||||
| Loss from continuing operations | $ | (26,078 | ) | $ | (184,444 | ) | ||
| Loss from discontinued operations, net of taxes | — | (7,508 | ) | |||||
| (Loss) gain on disposal of discontinued operations, net of taxes | (1,293 | ) | 30,390 | |||||
| Net loss | $ | (27,371 | ) | $ | (161,562 | ) | ||
| Attributable to: | ||||||||
| Common shareholders | (20,138 | ) | (165,276 | ) | ||||
| Noncontrolling interests in consolidated subsidiaries | (7,233 | ) | 3,714 | |||||
| Total | $ | (27,371 | ) | $ | (161,562 | ) | ||
| Loss per share - continuing operations: | ||||||||
| Basic and diluted: | $ | (0.50 | ) | $ | (3.54 | ) | ||
| (Loss) earnings per share - discontinued operations: | ||||||||
| Basic and diluted: | $ | (0.02 | ) | $ | 0.44 | |||
| Loss per share - net loss: | ||||||||
| Basic and diluted: | $ | (0.52 | ) | $ | (3.10 | ) | ||
| Weighted average shares outstanding (in '000s): | ||||||||
| Basic and diluted: | 52,346 | 52,094 | ||||||
Income (Loss) from Continuing Operations and Earnings (Loss) Per Share - Continuing Operations
In the fourth quarter of 2011, the Company reported a loss from continuing operations of $10.6 million (loss of $26.1 million year to date), compared to a loss from continuing operations of $47.3 million in the fourth quarter of last year (loss of $184.4 million prior year to date). Diluted loss per share was $0.20 for the quarter (diluted loss per share of $0.50 year to date), compared to diluted loss per share of $0.91 for the fourth quarter of 2010 (diluted loss per share of $3.54 prior year to date). As noted above, the current quarter's loss is primarily due to operating losses generated in our Insurance Underwriting segment.
Income (Loss) from Discontinued Operations
For the fourth quarter and year to date ended December 31, 2011, the Company reported no loss from discontinued operations, compared to a loss of $3.6 million in the fourth quarter of 2010 (loss of $7.5 million prior year to date). For the fourth quarter of 2011, the Company realized no gain or loss related to the disposals of discontinued operations (loss of $1.3 million year to date), compared to no gain or loss in the fourth quarter of 2010 (gain of $30.4 million prior year to date).
Net Income (Loss) and Earnings (Loss) Per Share - Net Income (Loss)
In the fourth quarter of 2011, the Company reported net loss of $10.6 million (loss of $27.4 million year to date), compared to net loss of $50.8 million in the fourth quarter of last year (loss of $161.6 million prior year to date). Diluted loss per share was $0.20 for the quarter (diluted loss per share of $0.52 year to date) compared to diluted loss per share of $0.97 for the fourth quarter of 2010 (diluted loss per share of $3.10 prior year to date).
| Consolidated Balance Sheets (in thousands, except per share data) |
|||||||
| December 31, 2011 | December 31, 2010 | ||||||
| ASSETS | |||||||
| Investments: | |||||||
| Fixed maturities, at fair value (amortized cost of $91,344 and $126,210, respectively) | $ | 93,651 | $ | 127,863 | |||
| Equity investments, at fair value (cost of $2,689 and $92, respectively) | 2,960 | 82 | |||||
| Other investments, at cost which approximates fair value | 488 | 490 | |||||
| Short-term investments, at cost which approximates fair value | 20,334 | 18,249 | |||||
| Total investments | 117,433 | 146,684 | |||||
| Investment in investees | 48,689 | 49,079 | |||||
| Cash and cash equivalents | 85,486 | 140,567 | |||||
| Accrued investment income | 1,999 | 1,957 | |||||
| Premiums receivable, net of allowance for doubtful accounts of $3,653 and $4,789, respectively | 28,732 | 48,890 | |||||
| Service fee receivable | 12,947 | 6,493 | |||||
| Other receivables | 6,322 | 4,583 | |||||
| Reinsurance recoverable | 697 | 8,652 | |||||
| Prepaid reinsurance premiums | 2,024 | — | |||||
| Deferred policy acquisition costs, net | 8,116 | 13,952 | |||||
| Income taxes recoverable | 8,134 | 17,991 | |||||
| Deferred income taxes | — | 503 | |||||
| Property and equipment, net of accumulated depreciation of $27,736 and $28,743 | 13,040 | 13,961 | |||||
| Goodwill and intangible assets | 39,631 | 42,467 | |||||
| Funds held in escrow | — | 22,259 | |||||
| Other assets | 831 | 2,541 | |||||
| TOTAL ASSETS | $ | 374,081 | $ | 520,579 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| LIABILITIES | |||||||
| Unpaid loss and loss adjustment expenses | $ | 120,258 | $ | 174,708 | |||
| Unearned premiums | 39,423 | 66,879 | |||||
| Reinsurance payable | 1,913 | 1,001 | |||||
| LROC preferred units | 8,845 | 13,076 | |||||
| Senior unsecured debentures | 28,337 | 37,177 | |||||
| Subordinated debt | 16,432 | 40,480 | |||||
| Deferred income tax liability | 2,653 | — | |||||
| Notes payable | 2,418 | — | |||||
| Deferred revenue | 11,128 | 11,200 | |||||
| Accrued expenses and other liabilities | 26,269 | 31,185 | |||||
| TOTAL LIABILITIES | $ | 257,676 | $ | 375,706 | |||
| SHAREHOLDERS' EQUITY | |||||||
| Common stock, no par value; unlimited number authorized; 52,345,828 and 52,095,828 issued and outstanding at December 31, 2011 and December 31, 2010, respectively | $ | 296,489 | $ | 296,139 | |||
| Additional paid-in capital | 15,403 | 15,440 | |||||
| Accumulated deficit | (201,208 | ) | (181,070 | ) | |||
| Accumulated other comprehensive income | 12,749 | 14,407 | |||||
| Shareholders' equity attributable to common shareholders | 123,433 | 144,916 | |||||
| Noncontrolling interests in consolidated subsidiaries | (7,028 | ) | (43 | ) | |||
| TOTAL SHAREHOLDERS' EQUITY | 116,405 | 144,873 | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 374,081 | $ | 520,579 | |||
Forward Looking Statements
This press release includes "forward looking statements" which are subject to risks and uncertainties. Such forward looking statements relate to future events or 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: our high level of indebtedness; our ability to service our debt and comply with debt covenants; our ability to improve our operating performance; our ability to implement our long-term growth strategies and to identify and execute on strategic initiatives; our ability to maintain share price and trading activities at acceptable levels; and our ability to comply with regulatory requirements and the requirements of stock exchanges.
For information identifying additional 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 2011 Annual Report. 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 news 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 of the Company's 2011 Annual Report.
SOURCE Kingsway Financial Services Inc.
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