Press release from CNW Group
Kingsway Reports Second Quarter Results
Monday, August 13, 2012
Kingsway Reports Second Quarter Results16:16 EDT Monday, August 13, 2012TORONTO, Aug. 13, 2012 /CNW/ - (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, 2012. All amounts are in U.S. dollars unless indicated otherwise.The Company reported a second quarter net loss of $7.7 million ($20.2 million year to date), or a loss of $0.59 ($1.54 year to date) per diluted share. The book value has decreased from $8.90 per share at December 31, 2011 to $7.35 per share at June 30, 2012. The Company also carries a valuation allowance, in the amount of $20.43 per share at June 30, 2012, against the deferred tax asset, primarily related to its loss carryforwards. All per share amounts have been adjusted for all periods to reflect the share consolidation implemented as of July 3, 2012.The following are the highlights of the second quarter of 2012:Operational resultsNet operating loss of $3.9 million was recorded in the Insurance Underwriting segment for the second quarter ($7.1 million year to date).Net operating income of $0.9 million was recorded in the Insurance Services segment for the second quarter ($2.6 million year to date).Net investment income and realized gains of $0.8 million were recorded for the second quarter ($1.9 million year to date).Other-than-temporary impairment loss of $0.5 million was recorded for the second quarter ($0.5 million year to date).Net loss of $5.0 million not allocated to any segment was recorded in the second quarter ($17.1 million year to date). This includes loss on change in fair value of debt of $2.4 million ($6.7 million year to date); equity in net income of investees of $0.1 million (loss of $2.2 million year to date); and interest expense of $1.1 million ($2.2 million year to date) related to the Company's subordinated debt and currently being deferred. None of these three items impacted the Company's cash flows during the second quarter and six months ended June 30, 2012.On July 3, 2012, the Company announced that the board of directors of the Company authorized the implementation of a share consolidation at a ratio of one post-consolidation share for every four pre-consolidation shares. The share consolidation, which was approved by the stockholders at the Company's Annual and Special Meeting held on May 31, 2012, was effective as of July 3, 2012. The consolidation had the effect of reducing the number of common shares of the Company issued and outstanding from 52,595,828 shares pre-consolidation to 13,148,971 shares post-consolidation. The issued and outstanding shares reported in the consolidated balance sheets and the loss per share computations reported in the consolidated statements of operations have been restated for all periods presented to reflect the impact of the share consolidation.DividendThe Board of Directors declared no dividend for the second quarter of 2012.About the CompanyKingsway 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)(unaudited) Three months ended June 30, Six months ended June 30, 2012 2011 2012 2011Revenue: Net premiums earned$30,985$42,575 $60,252$88,211 Service fee and commission income 8,138 7,806 17,667 16,778 Net investment income 802 1,152 1,632 2,229 Net realized (losses) gains (23) (3) 250 (2) Other-than-temporary impairment loss (488) — (488) — (Loss) gain on change in fair value of debt (2,418) 11,237 (6,749) 8,632 Other income 2,744 1,311 3,827 3,222 Total revenues 39,740 64,078 76,391 119,070 Expenses: Loss and loss adjustment expenses 23,616 37,014 $45,391$78,591 Commissions and premiums taxes 4,747 6,908 9,166 14,286 General and administrative expenses 17,154 22,810 35,955 44,381 Interest expense 1,916 1,833 3,765 3,736 Amortization of other intangible assets — 18 — 36 Total expenses 47,433 68,583 94,277 141,030 Loss before gain on buy-back of debt, equity in netincome (loss) of investees and income tax expense(benefit) (7,693) (4,505) (17,886) (21,960) Gain on buy-back of debt — 553 — 553 Equity in net income (loss) of investees 92 (529) (2,178) (529) Loss from continuing operations before income tax expense (benefit) (7,601) (4,481) (20,064) (21,936) Income tax expense (benefit) 116 267 175 (141) Loss from continuing operations (7,717) (4,748)$(20,239)$(21,795) Loss on disposal of discontinued operations, net oftaxes — — — (1,293) Net loss (7,717) (4,748) $(20,239)$(23,088) Less: net loss attributable to noncontrollinginterests in consolidated subsidiaries (1,700) (2,190) (3,214) (2,724) Net loss attributable to common shareholders$(6,017)$(2,558) $(17,025)$(20,364) Loss per share - continuing operations: Basic:$(0.59)$(0.36) $(1.54)$(1.67) Diluted: (0.59) (0.36) (1.54) (1.67) Loss per share - net loss: Basic:$(0.59)$(0.36) $(1.54)$(1.77) Diluted: (0.59) (0.36) (1.54) (1.77) Weighted average shares outstanding (in '000s): Basic: 13,149 13,086 13,117 13,055 Diluted: 13,149 13,086 13,117 13,055 Loss from Continuing Operations and Loss Per Share - Continuing OperationsIn the second quarter of 2012, the Company reported a loss from continuing operations of $7.7 million ($20.2 million year to date) compared to a loss from continuing operations of $4.7 million in the second quarter of last year ($21.8 million prior year to date). Diluted loss per share was $0.59 for the quarter ($1.54 year to date) compared to diluted loss per share of $0.36 for the second quarter of 2011 ($1.67 prior year to date). The current quarter and year to date loss is primarily due to operating losses generated in our Insurance Underwriting segment, corporate general expenses, interest expense, loss on change in fair value of debt, and equity in net income (loss) of investees.Loss on Disposal of Discontinued Operations For the second quarter and six months ended June 30, 2012, the Company reported no loss on disposal of discontinued operations, compared to a loss of zero and $1.3 million for the three and six months ended June 30, 2011, respectively.Net Loss and Loss Per Share - Net LossIn the second quarter of 2012, the Company reported net loss of $7.7 million ($20.2 million year to date) compared to net loss of $4.7 million in the second quarter of 2011 ($23.1 million prior year to date). Diluted loss per share was $0.59 for the quarter ($1.54 year to date) compared to diluted loss per share of $0.36 for the second quarter of 2011 ($1.77 prior year to date).Consolidated Balance Sheets(in thousands, except per share data) June 30, 2012 December 31, 2011 (unaudited) ASSETS Investments: Fixed maturities, at fair value (amortized cost of $101,091 and $91,344, respectively)$102,963$93,651 Equity investments, at fair value (cost of $2,689 and $2,689, respectively) 3,225 2,960 Other investments, at cost which approximates fair value — 488 Short-term investments, at cost which approximates fair value 335 20,334 Total investments 106,523 117,433 Investment in investees 47,904 48,689 Cash and cash equivalents 63,101 85,486 Accrued investment income 2,652 1,999 Premiums receivable, net of allowance for doubtful accounts of $3,779 and $3,653, respectively 27,608 28,732 Service fee receivable 18,752 12,947 Other receivables, net of allowance for doubtful accounts of $806 and $806, respectively 5,789 6,322 Reinsurance recoverable 5,685 697 Prepaid reinsurance premiums 3,188 2,024 Deferred policy acquisition costs, net 7,634 8,116 Income taxes recoverable 7,132 8,134 Property and equipment, net of accumulated depreciation of $28,799 and $27,736 12,479 13,040 Goodwill 510 510 Intangible assets 39,121 39,121 Other assets 1,831 831 TOTAL ASSETS$349,909$374,081 LIABILITIES AND EQUITY LIABILITIES Unpaid loss and loss adjustment expenses$99,650$120,258 Unearned premiums 41,906 39,423 Reinsurance payable 4,376 1,913 LROC preferred units 11,778 8,845 Senior unsecured debentures 27,947 28,337 Subordinated debt 20,603 16,432 Deferred income tax liability 2,653 2,653 Notes payable 2,418 2,418 Deferred revenue 13,545 11,128 Accrued expenses and other liabilities 28,437 26,269 TOTAL LIABILITIES 253,313 257,676 EQUITY Common stock, no par value; unlimited number authorized; 13,148,971 and 13,086,471 issuedand outstanding at June 30, 2012 and December 31, 2011, respectively$296,621$296,489 Additional paid-in capital 15,504 15,403 Accumulated deficit (218,230 ) (201,208 )Accumulated other comprehensive income 13,047 12,749 Shareholders' equity attributable to common shareholders 106,942 123,433 Noncontrolling interests in consolidated subsidiaries (10,346 ) (7,028 )TOTAL EQUITY 96,596 116,405 TOTAL LIABILITIES AND EQUITY$349,909$374,081 Forward Looking StatementsThis 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. 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. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward looking statements, see Kingsway's securities filings, including its Annual Report on Form 10-K for the year ended December 31, 2011 ("2011 Annual Report") and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2012. The Company's securities filings can be accessed on the Canadian Securities Administrators' website at www.sedar.com, and on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov or through the Company's website at www.kingsway-financial.com. 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, 2012. SOURCE: Kingsway Financial Services Inc.For further information: Additional information about Kingsway, including a copy of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, can be accessed on the Canadian Securities Administrators' website at www.sedar.com, on the EDGAR section of the U.S. Securities and Exchange Commission's website at www.sec.gov or through the Company's website at www.kingsway-financial.com.