TORONTO, Nov. 7, 2013 /CNW/ - (TSX: KFS) (NYSE: KFS) Kingsway Financial Services Inc. ("Kingsway" or the "Company") today announced its financial results for the third quarter and nine months ended September 30, 2013. All amounts are in U.S. dollars unless indicated otherwise.
The Company reported third quarter net income of $1.6 million (loss of $25.4 million year to date), or earnings of $0.12 (loss of $1.91 year to date) per diluted share. The book value has decreased from $4.97 per share at December 31, 2012 to $2.99 per share at September 30, 2013. The Company also carries a valuation allowance, in the amount of $16.87 per share at September 30, 2013, against the deferred tax asset, primarily related to its loss carryforwards.
The following are the highlights of the third quarter of 2013:
Operational results
- Net operating loss of $4.9 million was recorded in the Insurance Underwriting segment for the third quarter ($14.6 million year to date).
- Net operating loss of $0.9 million was recorded in the Insurance Services segment for the third quarter (income of $0.4 million year to date).
- Net investment income of $0.5 million was recorded for the third quarter ($1.9 million year to date).
- Net realized gains of $0.3 million (net realized losses of $1.1 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 $0.6 million not allocated to any segment was recorded in the third quarter (loss of $19.2 million year to date). This includes gain on change in fair value of debt of $3.8 million (loss of $2.8 million year to date); interest expense of $1.1 million related to the Company's subordinated debt and currently being deferred ($3.4 million year to date); other-than-temporary impairment loss of zero ($1.8 million year to date); and impairment of asset held for sale of zero ($1.4 million year to date). None of these four items impacted the Company's cash flows during the third quarter and nine months ended September 30, 2013.
- Net gain of $7.2 million was recorded for the third quarter and year to date related to liquidations of subsidiaries, as further discussed below.
Subsequent Events
- Approval of Business Plan by NYSE
The Company received a notice on October 8, 2013 from the New York Stock Exchange ("NYSE") indicating that the Company's business plan was accepted. As the Company previously announced in a press release dated June 11, 2013, it had received notice that it was not in compliance with certain NYSE standards for continued listing of its common shares. Specifically, the Company is below the continued listing criteria relating to its average total market capitalization over a recent 30 consecutive trading day period as well as its reported shareholders' equity. Under the NYSE's continued listing criteria, a NYSE-listed company must maintain average market capitalization of not less than $50 million over a 30 consecutive trading day period or reported shareholders' equity of not less than $50 million.
To maintain its NYSE listing, the Company was afforded the opportunity to submit a business plan and did so on September 5, 2013. The Company will be subject to periodic review by the NYSE for compliance with goals and initiatives outlined in the plan.
The notice from the NYSE does not impact the Company's listing on the Toronto Stock Exchange ("TSX,") and its common shares will continue to be listed and traded on the TSX, subject to compliance with TSX continued listing standards.
- Partial Early Redemption of Notes
On October 15, 2013, the Company completed a partial, early redemption of its outstanding 7.5% senior unsecured debentures due February 1, 2014 (the "Notes"). The Company used the proceeds from its recent rights offering to partially redeem the Notes which are the obligations of the Company's subsidiary, Kingsway America Inc., and of which the Company is a guarantor. The partial early redemption was completed in the amount of $12.0 million at par plus accrued interest of $0.2 million, resulting in an aggregate principal amount of $14.4 million of Notes to remain outstanding.
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 September 30, | Nine months ended September 30, | |||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||
| Revenue: | ||||||||||||||
| Net premiums earned | $ | 26,041 | $ | 26,501 | $ | 82,406 | $ | 86,753 | ||||||
| Service fee and commission income | 12,156 | 7,648 | 37,332 | 25,315 | ||||||||||
| Net investment income | 528 | 777 | 1,924 | 2,400 | ||||||||||
| Net realized gains (losses) | 321 | 1,109 | (1,056) | 1,359 | ||||||||||
| Other-than-temporary impairment loss | — | — | (1,800) | (488) | ||||||||||
| Gain (loss) on change in fair value of debt | 3,801 | (3,177) | (2,812) | (9,926) | ||||||||||
| Other income | 2,604 | 1,940 | 6,996 | 5,767 | ||||||||||
| Total revenues | 45,451 | 34,798 | 122,990 | 111,180 | ||||||||||
| Expenses: | ||||||||||||||
| Loss and loss adjustment expenses | 21,343 | 33,348 | 67,789 | 78,739 | ||||||||||
| Commissions and premium taxes | 6,683 | 2,458 | 18,566 | 11,624 | ||||||||||
| General and administrative expenses | 20,136 | 16,819 | 60,184 | 52,774 | ||||||||||
| Restructuring expense | 223 | 1,972 | 1,150 | 1,972 | ||||||||||
| Interest expense | 1,808 | 1,887 | 5,568 | 5,652 | ||||||||||
| Amortization of intangible assets | 508 | — | 1,574 | — | ||||||||||
| Impairment of asset held for sale | — | — | 1,446 | — | ||||||||||
| Total expenses | 50,701 | 56,484 | 156,277 | 150,761 | ||||||||||
| Loss from continuing operations before (loss) gain on buy-back of debt, equity in net income (loss) of investee and income tax expense (benefit) |
(5,250) | (21,686) | (33,287) | (39,581) | ||||||||||
| (Loss) gain on buy-back of debt | — | 500 | (24) | 500 | ||||||||||
| Equity in net income (loss) of investee | — | 98 | 255 | (2,071) | ||||||||||
| Loss from continuing operations before income tax expense (benefit) | (5,250) | (21,088) | (33,056) | (41,152) | ||||||||||
| Income tax expense (benefit) | 403 | (1,054) | (398) | (879) | ||||||||||
| Loss from continuing operations | (5,653) | (20,034) | (32,658) | (40,273) | ||||||||||
| Gain on liquidation of subsidiaries, net of taxes | 7,227 | — | 7,227 | — | ||||||||||
| Net income (loss) | 1,574 | (20,034) | (25,431) | (40,273) | ||||||||||
| Less: net (loss) income attributable to noncontrolling interests in consolidated subsidiaries |
(305) | (1,165) | 407 | (1,888) | ||||||||||
| Net income (loss) attributable to common shareholders | $ | 1,879 | $ | (18,869) | $ | (25,838) | $ | (38,385) | ||||||
| Loss per share - continuing operations: | ||||||||||||||
| Basic: | $ | (0.41) | $ | (1.52) | $ | (2.45) | $ | (3.07) | ||||||
| Diluted: | (0.41) | (1.52) | (2.45) | (3.07) | ||||||||||
| Earnings (loss) per share - net income (loss): | ||||||||||||||
| Basic: | $ | 0.12 | $ | (1.52) | $ | (1.91) | $ | (3.07) | ||||||
| Diluted: | 0.12 | (1.52) | (1.91) | (3.07) | ||||||||||
| Weighted average shares outstanding (in '000s): | ||||||||||||||
| Basic: | 13,684 | 13,149 | 13,329 | 13,133 | ||||||||||
| Diluted: | 13,684 | 13,149 | 13,329 | 13,133 | ||||||||||
Loss from Continuing Operations and Diluted Loss Per Share - Continuing Operations
In the third quarter of 2013, the Company reported a loss from continuing operations of $5.6 million ($32.6 million year to date) compared to $20.0 million ($40.3 million prior year to date) in the third quarter of 2012. Diluted loss from continuing operations per share was $0.41 ($2.45 year to date) compared to diluted loss from continuing operations per share of $1.52 ($3.07 prior year to date). The loss from continuing operations for the quarter ended September 30, 2013 is attributable to operating losses in Insurance Underwriting and Insurance Services, corporate general expenses, and interest expense, offset by a gain on the change in fair value of debt. The loss from continuing operations for the nine months ended September 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 loss from continuing operations for the quarter and the nine months ended September 30, 2012 is due to operating losses in Insurance Underwriting, corporate general expenses, interest expense and loss on change in fair value of debt.
Gain on Liquidation of Subsidiaries
In the third quarter of 2013, the Company reported a net gain of $7.2 million ($7.2 million year to date) from the liquidation of the Company's subsidiaries, Kingsway Reinsurance (Bermuda) Ltd. ("KRL") and Kingsway 2007 General Partnership ("2007 GP"). The net gain reported in the statement of operations is the result of the removal of the foreign exchange gain previously recorded in the accumulated other comprehensive income component of shareholders' equity. The liquidations had zero net impact on the Company's consolidated shareholders' equity at September 30, 2013.
Net Income (Loss) and Diluted Income (Loss) Per Share - Net Income (Loss)
In the third quarter of 2013, the Company reported net income of $1.6 million ($25.4 million year to date) compared to net loss of $20.0 million ($40.3 million prior year to date) in the third quarter of 2012. Diluted earnings per share were $0.12 (loss of $1.91 year to date) compared to diluted loss per share of $1.52 ($3.07 prior year to date).
| Consolidated Balance Sheets |
||||||||
| September 30, 2013 | December 31, 2012 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments: | ||||||||
| Fixed maturities, at fair value (amortized cost of $64,362 and $77,858, respectively) | $ | 65,275 | $ | 79,534 | ||||
| Equity investments, at fair value (cost of $11,520 and $2,305, respectively) | 16,523 | 3,548 | ||||||
| Limited liability investments | 2,579 | 2,333 | ||||||
| Other investments, at cost which approximates fair value | 3,107 | 2,000 | ||||||
| Short-term investments, at cost which approximates fair value | 586 | 585 | ||||||
| Total investments | 88,070 | 88,000 | ||||||
| Cash and cash equivalents | 86,037 | 80,813 | ||||||
| Investment in investee | — | 41,733 | ||||||
| Accrued investment income | 708 | 2,263 | ||||||
| Premiums receivable, net of allowance for doubtful accounts of $4,054 and $4,040, respectively | 33,536 | 35,598 | ||||||
| Service fee receivable | 17,227 | 15,173 | ||||||
| Other receivables, net of allowance for doubtful accounts of $1,002 and $1,002, respectively | 12,668 | 4,750 | ||||||
| Reinsurance recoverable | 15,308 | 8,557 | ||||||
| Prepaid reinsurance premiums | 8,260 | 7,316 | ||||||
| Deferred acquisition costs, net | 10,691 | 14,102 | ||||||
| Property and equipment, net of accumulated depreciation of $24,100 and $22,887, respectively | 1,952 | 2,709 | ||||||
| Goodwill | 9,484 | 8,421 | ||||||
| Intangible assets, net of amortization of $20,837 and $19,263, respectively | 50,061 | 50,583 | ||||||
| Other assets | 4,073 | 4,045 | ||||||
| Asset held for sale | 7,291 | 8,737 | ||||||
| TOTAL ASSETS | $ | 345,366 | $ | 372,800 | ||||
| LIABILITIES AND EQUITY | ||||||||
| LIABILITIES | ||||||||
| Unpaid loss and loss adjustment expenses: | ||||||||
| Property and casualty | $ | 89,986 | $ | 103,116 | ||||
| Vehicle service agreements | 2,882 | 3,448 | ||||||
| Total unpaid loss and loss adjustment expenses | 92,868 | 106,564 | ||||||
| Unearned premiums | 47,846 | 45,047 | ||||||
| Reinsurance payable | 4,235 | 4,956 | ||||||
| LROC preferred units | 14,286 | 13,655 | ||||||
| Senior unsecured debentures | 26,356 | 23,730 | ||||||
| Subordinated debt | 22,790 | 23,774 | ||||||
| Deferred income tax liability | 3,882 | 3,054 | ||||||
| Deferred service fees | 49,242 | 48,987 | ||||||
| Income taxes payable | 2,944 | 2,879 | ||||||
| Accrued expenses and other liabilities | 31,829 | 34,740 | ||||||
| TOTAL LIABILITIES | $ | 296,278 | $ | 307,386 | ||||
| EQUITY | ||||||||
| Common stock, no par value; unlimited number authorized; 16,429,761 and 13,148,971 issued and outstanding at September 30, 2013 and December 31, 2012, respectively |
$ | 308,734 | $ | 296,621 | ||||
| Additional paid-in capital | 15,955 | 15,757 | ||||||
| Accumulated deficit | (287,906) | (262,069) | ||||||
| Accumulated other comprehensive income | 11,222 | 14,762 | ||||||
| Shareholders' equity attributable to common shareholders | 48,005 | 65,071 | ||||||
| Noncontrolling interests in consolidated subsidiaries | 1,083 | 343 | ||||||
| TOTAL EQUITY | 49,088 | 65,414 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 345,366 | $ | 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. 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 September 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 September 30, 2013.
SOURCE: Kingsway Financial Services Inc.
Additional information
Additional information about Kingsway, including a copy of its 2012 Annual Report and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, 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.
Share this article