Attached files
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| 8-K - 8-K - KINGSWAY FINANCIAL SERVICES INC | a8k2-16x2016.htm |
| EX-99.1 - EXHIBIT 99.1 - KINGSWAY FINANCIAL SERVICES INC | exhibit9918k2-16x2016.htm |
| EX-99.2 - EXHIBIT 99.2 - KINGSWAY FINANCIAL SERVICES INC | exhibit9928k2-16x2016.htm |
KINGSWAY ANNOUNCES FOURTH QUARTER AND YEAR-END 2015 RESULTS Toronto, Ontario (February 4, 2016) - (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. (“Kingsway” or the “Company”) today announced its operating results for the fourth quarter and year ended December 31, 2015. All amounts are in U.S. dollars unless indicated otherwise.
Management Comments
Larry G. Swets, Jr., President and Chief Executive Officer, stated, “2015 was an excellent year for the Company, as we returned to profitability and improved the balance sheet considerably through the sale of ARS in April, the buy-out of the Management Services Agreement from 1347 Property Insurance Holdings, Inc. (while maintaining a position in the company), repaying our KLROC debt, and becoming current on the outstanding Trust Preferred indentures. This has Kingsway positioned to both pursue new growth opportunities while also allowing our Company to initiate a share buy-back plan. We reported considerably higher net investment income and have grown book value per share by 5%. We are now in the strongest financial position since our management team joined in 2010. Each of us has a meaningful stake in the Company and believes in Kingsway’s long-term potential.”
Mr. Swets continued, “In the fourth quarter, our concentration was on effectively managing our existing operations. We are focused on gradual gains while maintaining the float to provide Kingsway the ability to execute on its merchant banking strategy.
“Kingsway is actively pursuing expansion opportunities where we can leverage our expertise and track record to seek long-term value creation through investments, acquisitions and financings. We will leverage our unique position with the Company’s deferred tax asset to execute on these opportunities throughout the remainder of the year.”
Operating Results
The Company reported net loss attributable to common shareholders of $2.3 million, or $0.12 per diluted share, in the fourth quarter of 2015, compared to a net income attributable to common shareholders of $0.5 million, or $0.03 per diluted share, in the fourth quarter of 2014.
For the year ended December 31, 2015, Kingsway reported net income attributable to common shareholders of $0.8 million, or $0.04 per diluted share, compared to a net loss attributable to common shareholders of $13.1 million, or $0.75 per diluted share, in the prior year period.
Following are highlights of Kingsway’s fourth quarter 2015 results. Operating (loss) income reflects the Company’s core operating activities, including its reportable segments, passive investment portfolio, merchant banking activities and corporate operating expenses.
• | Operating loss was $0.9 million for the fourth quarter of 2015 compared to operating income of $3.6 million for the fourth quarter of 2014. |
◦ | Insurance Underwriting segment operating loss was $0.8 million for the fourth quarter of 2015 compared to operating income of $1.2 million for the fourth quarter of 2014. |
◦ | Insurance Services segment operating loss was $0.2 million for the fourth quarter of 2015 compared to income of $0.2 million for the fourth quarter of 2014. |
◦ | Net investment income of $0.3 million was reported in the fourth quarter of 2015 compared to $0.3 million in the fourth quarter of 2014. |
◦ | Net realized gains of $1.1 million were reported in the fourth quarter of 2015 compared to net realized losses of $0.4 million in the fourth quarter of 2014. |
◦ | Other operating income and expense was a net expense of $1.3 million in the fourth quarter of 2015 compared to a net income of $2.3 million in the fourth quarter of 2014. |
• | Adjusted operating loss was $0.2 million in the fourth quarter of 2015 compared to income of $1.2 million in the fourth quarter of 2014. |
• | Book value increased to $2.22 per share at December 31, 2015 from $2.12 per share at December 31, 2014. The Company also carries a valuation allowance, in the amount of $14.39 per share at December 31, 2015, against the deferred tax asset, primarily related to its loss carryforwards. |
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 December 31, | Years ended December 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Revenues: | (unaudited) | (unaudited) | ||||||||||||||
Net premiums earned | $ | 29,006 | $ | 28,500 | $ | 117,433 | $ | 117,593 | ||||||||
Service fee and commission income | 5,536 | 5,619 | 22,966 | 24,659 | ||||||||||||
Net investment income | 286 | 320 | 2,918 | 1,616 | ||||||||||||
Net realized gains (losses) | 1,061 | (418 | ) | 1,197 | 5,041 | |||||||||||
Other-than-temporary impairment loss | — | — | (10 | ) | — | |||||||||||
Other income | 2,288 | 2,386 | 15,462 | 9,315 | ||||||||||||
Total revenues | 38,177 | 36,407 | 159,966 | 158,224 | ||||||||||||
Operating expenses: | ||||||||||||||||
Loss and loss adjustment expenses | 23,758 | 21,011 | 92,812 | 86,227 | ||||||||||||
Commissions and premium taxes | 5,574 | 5,415 | 22,773 | 23,238 | ||||||||||||
Cost of services sold | 915 | 543 | 4,044 | 3,880 | ||||||||||||
General and administrative expenses | 10,012 | 8,417 | 41,760 | 41,613 | ||||||||||||
Amortization of intangible assets | 307 | 400 | 1,244 | 1,620 | ||||||||||||
Contingent consideration benefit | (1,503 | ) | (3,024 | ) | (1,139 | ) | (2,223 | ) | ||||||||
Impairment of asset held for sale | — | — | — | 1,180 | ||||||||||||
Total operating expenses | 39,063 | 32,762 | 161,494 | 155,535 | ||||||||||||
Operating (loss) income | (886 | ) | 3,645 | (1,528 | ) | 2,689 | ||||||||||
Other (revenues) expenses, net: | ||||||||||||||||
Interest expense | 1,225 | 1,431 | 5,278 | 5,645 | ||||||||||||
Foreign exchange losses, net | 5 | 148 | 1,215 | 419 | ||||||||||||
(Gain) loss on change in fair value of debt | 33 | 754 | (1,458 | ) | 10,953 | |||||||||||
Loss on disposal of subsidiary | — | 2 | — | 1,244 | ||||||||||||
Loss on disposal of asset held for sale | — | 125 | — | 125 | ||||||||||||
Loss on deconsolidation of subsidiary | — | — | 4,420 | — | ||||||||||||
Equity in net (income) loss of investee | (60 | ) | 107 | 339 | 190 | |||||||||||
Total other expenses, net | 1,203 | 2,567 | 9,794 | 18,576 | ||||||||||||
Loss from continuing operations before income tax expense (benefit) | (2,089 | ) | 1,078 | (11,322 | ) | (15,887 | ) | |||||||||
Income tax expense (benefit) | 14 | (250 | ) | 93 | (1,221 | ) | ||||||||||
(Loss) income from continuing operations | (2,103 | ) | 1,328 | (11,415 | ) | (14,666 | ) | |||||||||
(Loss) income from discontinued operations, net of taxes | (9 | ) | 23 | 1,417 | 3,442 | |||||||||||
Gain on disposal of discontinued operations, net of taxes | 8 | — | 11,267 | — | ||||||||||||
Net (loss) income | (2,104 | ) | 1,351 | 1,269 | (11,224 | ) | ||||||||||
Less: net income attributable to noncontrolling interests in consolidated subsidiaries | 88 | 723 | 162 | 1,596 | ||||||||||||
Less: dividends on preferred stock | 83 | 82 | 329 | 300 | ||||||||||||
Net (loss) income attributable to common shareholders | $ | (2,275 | ) | $ | 546 | $ | 778 | $ | (13,120 | ) | ||||||
(Loss) earnings per share - continuing operations: | ||||||||||||||||
Basic: | $ | (0.12 | ) | $ | 0.03 | $ | (0.60 | ) | $ | (0.95 | ) | |||||
Diluted: | $ | (0.12 | ) | $ | 0.03 | $ | (0.60 | ) | $ | (0.95 | ) | |||||
Earnings per share - discontinued operations: | ||||||||||||||||
Basic: | $ | — | $ | — | $ | 0.64 | $ | 0.20 | ||||||||
Diluted: | $ | — | $ | — | $ | 0.64 | $ | 0.20 | ||||||||
(Loss) earnings per share – net (loss) income attributable to common shareholders: | ||||||||||||||||
Basic: | $ | (0.12 | ) | $ | 0.03 | $ | 0.04 | $ | (0.75 | ) | ||||||
Diluted: | $ | (0.12 | ) | $ | 0.03 | $ | 0.04 | $ | (0.75 | ) | ||||||
Weighted average shares outstanding (in ‘000s): | ||||||||||||||||
Basic: | 19,710 | 19,710 | 19,710 | 17,398 | ||||||||||||
Diluted: | 19,710 | 19,710 | 19,710 | 17,398 | ||||||||||||
Consolidated Balance Sheets
(in thousands, except per share data)
December 31, 2015 | December 31, 2014 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturities, at fair value (amortized cost of $55,606 and $56,000, respectively) | $ | 55,559 | $ | 56,195 | ||||
Equity investments, at fair value (cost of $26,428 and $16,579, respectively) | 27,559 | 19,618 | ||||||
Limited liability investments | 20,141 | 7,294 | ||||||
Other investments, at cost which approximates fair value | 4,077 | 3,576 | ||||||
Short-term investments, at cost which approximates fair value | 400 | 400 | ||||||
Total investments | 107,736 | 87,083 | ||||||
Cash and cash equivalents | 51,701 | 71,234 | ||||||
Investment in investee | 1,772 | 2,115 | ||||||
Accrued investment income | 594 | 141 | ||||||
Premiums receivable, net of allowance for doubtful accounts of $165 and $1,889, respectively | 27,090 | 28,885 | ||||||
Service fee receivable, net of allowance for doubtful accounts of $276 and $247, respectively | 911 | 964 | ||||||
Other receivables, net of allowance for doubtful accounts of $806 and $806, respectively | 3,789 | 5,145 | ||||||
Reinsurance recoverable | 1,422 | 3,652 | ||||||
Prepaid reinsurance premiums | 7 | 8 | ||||||
Deferred acquisition costs, net | 12,143 | 12,197 | ||||||
Income taxes recoverable | 61 | 74 | ||||||
Property and equipment, net of accumulated depreciation of $12,537 and $15,751, respectively | 5,577 | 5,975 | ||||||
Goodwill | 10,078 | 10,078 | ||||||
Intangible assets, net of accumulated amortization of $6,009 and $4,765, respectively | 14,736 | 15,980 | ||||||
Other assets | 3,405 | 3,638 | ||||||
Asset held for sale | — | 54,553 | ||||||
Total Assets | $ | 241,022 | $ | 301,722 | ||||
Liabilities and Shareholders' Equity | ||||||||
Liabilities: | ||||||||
Unpaid loss and loss adjustment expenses: | ||||||||
Property and casualty | $ | 55,471 | $ | 63,895 | ||||
Vehicle service agreements | 2,975 | 2,975 | ||||||
Total unpaid loss and loss adjustment expenses | 58,446 | 66,870 | ||||||
Unearned premiums | 35,234 | 36,432 | ||||||
Reinsurance payable | 145 | 525 | ||||||
LROC preferred units, at fair value | — | 13,618 | ||||||
Subordinated debt, at fair value | 39,898 | 40,659 | ||||||
Deferred income tax liability | 2,924 | 2,837 | ||||||
Deferred service fees | 34,319 | 35,096 | ||||||
Accrued expenses and other liabilities | 19,959 | 35,836 | ||||||
Liabilities held for sale | — | 21,653 | ||||||
Total Liabilities | 190,925 | 253,526 | ||||||
Class A preferred stock, no par value; unlimited number authorized; 262,876 and 262,876 issued and outstanding at December 31, 2015 and December 31, 2014, respectively | 6,394 | 6,330 | ||||||
Shareholders' Equity: | ||||||||
Common stock, no par value; unlimited number authorized; 19,709,706 and 19,709,706 issued and outstanding at December 31, 2015 and December 31, 2014, respectively | — | — | ||||||
Additional paid-in capital | 341,646 | 340,844 | ||||||
Accumulated deficit | (308,995 | ) | (312,050 | ) | ||||
Accumulated other comprehensive income | 9,300 | 8,670 | ||||||
Shareholders' equity attributable to common shareholders | 41,951 | 37,464 | ||||||
Noncontrolling interests in consolidated subsidiaries | 1,752 | 4,402 | ||||||
Total Shareholders' Equity | 43,703 | 41,866 | ||||||
Total Liabilities and Shareholders' Equity | $ | 241,022 | $ | 301,722 | ||||
Non-U.S. GAAP Financial Measures
Segment Operating (Loss) Income
Segment operating (loss) income represents one measure of the pretax profitability of Kingsway’s segments and is derived by subtracting direct segment expenses from direct segment revenues. Please refer to the section entitled “Non-U.S. GAAP Financial Measures” in the Management’s Discussion and Analysis section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for a detailed description of this non-U.S. GAAP measure.
Adjusted Operating (Loss) Income
Adjusted operating (loss) income represents another measure used by the Company to assess the profitability of the Company’s segments, its passive investment portfolio and its merchant banking activities. Adjusted operating (loss) income is comprised of segment operating (loss) income as well as net investment income, net realized gains, other-than-temporary impairment loss, equity in net income (loss) of investee and net revenues of 1347 Advisors. A reconciliation of segment operating (loss) income and adjusted operating (loss) income to net (loss) income for the quarters and years ended December 31, 2015 and 2014 is presented below:
(in thousands) | Three months ended December 31, | Years ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Segment operating (loss) income | $ | (928 | ) | $ | 1,385 | $ | (1,775 | ) | $ | 1,496 | ||||||
Net investment income | 286 | 320 | 2,918 | 1,616 | ||||||||||||
Net realized gains (losses) | 1,061 | (418 | ) | 1,197 | 5,041 | |||||||||||
Other-than-temporary impairment loss | — | — | (10 | ) | — | |||||||||||
Equity in net income (loss) from investee | 60 | (107 | ) | (339 | ) | (190 | ) | |||||||||
Revenues of 1347 Advisors, net of related outside professional and advisory expenses | (639 | ) | 54 | 5,167 | 78 | |||||||||||
Adjusted operating (loss) income | (160 | ) | 1,234 | 7,158 | 8,041 | |||||||||||
Corporate operating expenses and other (1) | (1,862 | ) | (320 | ) | (8,920 | ) | (7,302 | ) | ||||||||
Amortization of intangible assets | (307 | ) | (400 | ) | (1,244 | ) | (1,620 | ) | ||||||||
Contingent consideration benefit | 1,503 | 3,024 | 1,139 | 2,223 | ||||||||||||
Impairment of asset held for sale | — | — | — | (1,180 | ) | |||||||||||
Interest expense | (1,225 | ) | (1,431 | ) | (5,278 | ) | (5,645 | ) | ||||||||
Foreign exchange losses, net | (5 | ) | (148 | ) | (1,215 | ) | (419 | ) | ||||||||
(Loss) gain on change in fair value of debt | (33 | ) | (754 | ) | 1,458 | (10,953 | ) | |||||||||
Loss on disposal of subsidiary | — | (2 | ) | — | (1,244 | ) | ||||||||||
Loss on disposal of asset held for sale | — | (125 | ) | — | (125 | ) | ||||||||||
Loss on deconsolidation of subsidiary | — | — | (4,420 | ) | — | |||||||||||
Income from disposed subsidiary | — | — | — | 2,337 | ||||||||||||
(Loss) income from continuing operations before income tax (expense) benefit | (2,089 | ) | 1,078 | (11,322 | ) | (15,887 | ) | |||||||||
Income tax (expense) benefit | (14 | ) | 250 | (93 | ) | 1,221 | ||||||||||
(Loss) income from continuing operations | (2,103 | ) | 1,328 | (11,415 | ) | (14,666 | ) | |||||||||
(Loss) income from discontinued operations, net of taxes | (9 | ) | 23 | 1,417 | 3,442 | |||||||||||
Gain on disposal of discontinued operations, net of taxes | 8 | — | 11,267 | — | ||||||||||||
Net (loss) income | $ | (2,104 | ) | $ | 1,351 | $ | 1,269 | $ | (11,224 | ) | ||||||
(1) | Corporate operating expenses and other includes corporate operating expenses, stock-based compensation expense and non-cash expenses related to the consolidation of KLROC Trust. |
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 2014 Annual Report on Form 10-K. 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.
Additional Information
Additional information about Kingsway, including a copy of its 2014 Annual Report and filings on Forms 10-Q and 8-K, 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.
For a current review of the Company and a discussion of its plan to create and sustain long-term shareholder value, management invites you to review its Annual Letter to Shareholders, which may be accessed at the Company’s website or directly at http://bit.ly/kfs2014.