First Acceptance Corporation Reports Fourth Quarter and Fiscal Year 2005 Financial Results
NASHVILLE, Tenn.--Sept. 12, 2005--First Acceptance Corporation today reported its financial results for the fourth quarter and fiscal year ended June 30, 2005.Actual Results
Net income for the three months ended June 30, 2005 was $13.2 million, or $0.27 per share on a fully-diluted basis, compared to a net loss of $6.1 million, or $0.16 per share on a fully-diluted basis, for the same period of fiscal 2004. The 2005 period includes an income tax benefit of $10.6 million from a decrease in the valuation allowance for the Company's deferred tax asset. Such decrease was a result of taxable income for the year ended June 30, 2005 exceeding the estimate used by management in establishing the valuation allowance at June 30, 2004 in addition to a revision in management's estimate of future taxable income based on the results for the most recent fiscal year. The 2004 period includes expenses of $3.3 million in severance costs and $7.6 million in stock-based compensation to terminated employees as a result of the April 30, 2004 acquisition of USAuto. Total weighted average diluted shares increased from 38.2 million to 49.4 million over the same period as a result of the effect of the additional shares issued in the April 2004 rights offering and the USAuto acquisition.
Net income for the year ended June 30, 2005 was $26.2 million, or $0.53 per share on a fully-diluted basis, compared to a net loss of $3.8 million, or $0.15 per share on a fully-diluted basis, for fiscal 2004. Total revenues grew to $166.8 million for the year ended June 30, 2005 from $23.2 million for fiscal 2004 as a result of the inclusion of USAuto's non-standard automobile insurance operations for the full year in fiscal 2005 as opposed to only two months in fiscal 2004. Total weighted average diluted shares increased from 25.0 million to 49.0 million over the same period as a result of the effect of the shares issued in the rights offering and the USAuto acquisition.
The $10.6 million tax benefit related to the decrease in the valuation allowance for the Company's deferred tax asset accounted for net income per share on a fully-diluted basis of $0.21 and $0.22, respectively, for the three months and year ended June 30, 2005. Income before income taxes for the year was $24.0 million versus a loss before income taxes of $6.0 million for fiscal 2004 and for the three months ended June 30, 2005, was $4.0 million versus a loss before income taxes of $8.3 million for the same period of fiscal 2004. Both 2004 periods included the $3.3 million in severance costs and the $7.6 million in stock-based compensation referred to above.
There were no gains on sales of foreclosed real estate in either the three months ended June 30, 2005 or 2004. Net income for the year ended June 30, 2005 included $0.5 million (net of tax), or $0.01 per share on a fully-diluted basis, from gains on sales of foreclosed real estate, while the year ended June 30, 2004 included $2.7 million (net of tax), or $0.11 per share on a fully-diluted basis, from gains on sales of foreclosed real estate.
Pro Forma Results - Prior Periods
On a pro forma basis, which assumes that the acquisition of USAuto took place on July 1, 2003, for the three months ended June 30, 2004, net income was $3.8 million and, on a fully-diluted basis, net income per share was $0.08. On a pro-forma basis, income before income taxes for the three months ended June 30, 2004 was $5.8 million.
On a pro forma basis for the year ended June 30, 2004, total revenues were $100.3 million, net income was $11.6 million and, on a fully-diluted basis, net income per share was $0.24. Pro forma net income for the year ended June 30, 2004 included gains on sales of foreclosed real estate of $2.7 million (net of tax), or $0.06 per share on a fully-diluted basis. On a pro-forma basis, income before income taxes for the year ended June 30, 2004 was $18.6 million.
Insurance Operations
-- Key ratios - The Company's loss ratios were 68.8% and 66.1%, respectively, for the three months and year ended June 30, 2005, as compared with 54.4% and 63.4%, respectively, for the same periods last year on a pro forma basis. Similarly, the Company's combined ratios were 90.8% and 83.8%, respectively, compared with 68.4% and 79.2% for the same periods. The loss ratio for the three months ended June 30, 2005 increased primarily as a result of loss reserve strengthening in the quarter due to higher bodily injury costs experienced over the past six months in Georgia. This compares to a favorable development in loss reserves for prior periods that was recognized in the pro forma results for the three months ended June 30, 2004. The expense ratio for the three months ended June 30, 2005 increased primarily as a result of costs incurred in adding additional retail locations.
-- Office Expansion - During the three months ended June 30, 2005, the Company added 84 additional offices, compared to 31 offices added during the three months ended March 31, 2005 and 13 offices added during the three months ended June 30, 2004 by USAuto. Of the stores added during the three months ended June 30, 2005, 56 stores were added in Texas where the Company commenced operations effective January 1, 2005 with the acquisition of 15 offices. As of September 1, 2005, the Company leased 334 retail offices in 11 states.
-- Premium growth - Comparing the actual results for the three months and year ended June 30, 2005 to the pro forma results for the same periods last year, net premiums earned increased by 137% and 129%, respectively. This increase is primarily the result of non-renewing our 50% quota share reinsurance on September 1, 2004. The increase was also driven by increasing the percentage of reinsurance assumed on business written in Alabama from 15% to 50% effective February 2004, and to 100% effective February 2005. In addition to these factors, the number of insured policies in force serviced by the Company at June 30, 2005 increased 31% over the number of policies in force at June 30, 2004. Total gross premiums earned (before the effects of reinsurance) for all business serviced by the Company increased 17% to $149.9 million for the year ended June 30, 2005 from $127.9 million on a pro-forma basis for the year ended June 30, 2004
-- Alabama - The Company is now licensed in Alabama and, starting in May 20, 200505, began writing all new business there on a direct basis. As a result, in Alabama, we no longer incur the contractual costs associated with writing business through another insurance company.
Real Estate Operations
The Company has six parcels of land remaining to be sold in the San Antonio area with a book value of $1.0 million at June 30, 2005. There was no real estate sales activity during the most recent quarter.
Cash and Invested Assets
During the three months ended June 30, 2005, the Company contributed $2.0 million to the statutory capital and surplus of its two insurance company subsidiaries, USAuto Insurance Company Inc. and Village Auto Insurance Company Inc., to support additional premium writings. At June 30, 2005, the Company held unrestricted cash and investments of $11.2 million that is available for general corporate purposes and to provide support for increased premium writings of the insurance operations.
About First Acceptance Corporation
First Acceptance Corporation began its operations as Liberte Investors, Inc. in 1986. Its insurance subsidiary, USAuto, which began operations in 1995, provides non-standard private passenger automobile insurance, primarily through employee-agents. As of September 1, 2005, the Company leased 334 retail offices in 11 states. The Company's insurance company subsidiaries are licensed to do business in 24 states.
This press release contains forward-looking statements. These statements, which have been included in reliance on the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, involve risks and uncertainties. Investors are hereby cautioned that these statements may be affected by important factors, including, among others, the factors set forth in the Company's Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission. Actual operations and results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
($000S EXCEPT PER SHARE DATA)
(Unaudited)
Actual
------------------------------------
Three Months
Ended Year Ended
June 30, June 30,
----------------- ------------------
2005 2004(1) 2005 2004(1)
-------- -------- --------- --------
Revenues:
Premiums earned $41,613 $11,728 $132,347 $11,728
Commissions and fees 7,868 4,401 27,151 4,401
Ceding commissions from
reinsurer(3) (628) 1,925 2,975 1,925
Gains on sales of foreclosed
real estate -- -- 755 4,147
Investment income 898 338 3,353 958
Other gains (losses) 22 (6) 214 (6)
-------- -------- --------- --------
Total revenues 49,773 18,386 166,795 23,153
-------- -------- --------- --------
Expenses:
Losses and loss adjustment
expenses 28,616 7,167 87,493 7,167
Insurance operating expenses 15,806 7,194 49,921 7,194
Other operating expenses 792 4,111 2,775 6,235
Stock-based compensation 95 7,560 332 7,850
Depreciation and amortization 322 615 1,920 648
Interest expense 144 44 351 44
-------- -------- --------- --------
Total expenses 45,775 26,691 142,792 29,138
-------- -------- --------- --------
Income (loss) before income taxes 3,998 (8,305) 24,003 (5,985)
Income tax (benefit) expense(4) (9,203) (2,189) (2,153) (2,189)
-------- -------- --------- --------
Net income (loss) $13,201 $(6,116) $26,156 $(3,796)
======== ======== ========= ========
Basic net income (loss) per share $0.28 $(0.16) $0.56 $(0.15)
Diluted net income (loss) per
share $0.27 $(0.16) $0.53 $(0.15)
Weighted average basic shares 47,444 38,190 47,055 24,965
Weighted average diluted shares 49,378 38,190 48,989 24,965
Pro forma(2)
-----------------------------
Three Months
Ended Year Ended
June 30, June 30,
--------------- ------------
2004 2004
--------------- ------------
Revenues:
Premiums earned $17,541 $57,716
Commissions and fees 6,639 26,275
Ceding commissions from
reinsurer(3) 2,872 10,674
Gains on sales of foreclosed
real estate -- 4,147
Investment income 341 1,431
Other gains (losses) 52 80
--------------- ------------
Total revenues 27,445 100,323
--------------- ------------
Expenses:
Losses and loss adjustment
expenses 9,535 36,616
Insurance operating expenses 10,935 41,142
Other operating expenses 711 2,278
Stock-based compensation -- --
Depreciation and amortization 377 1,366
Interest expense 69 318
--------------- ------------
Total expenses 21,627 81,720
--------------- ------------
Income (loss) before income taxes 5,818 18,603
Income tax (benefit) expense(4) 2,036 6,983
--------------- ------------
Net income (loss) $3,782 $11,620
=============== ============
Basic net income (loss) per share $0.08 $0.25
Diluted net income (loss) per
share $0.08 $0.24
Weighted average basic shares 46,423 46,405
Weighted average diluted shares 47,897 47,883
(1) Actual results reflect USAuto's insurance operations since the
date of acquisition (April 30, 2004).
(2) Pro forma results give effect to the USAuto acquisition and
related transactions as if they had been consummated on July 1,
2003. The pro forma results also give effect to the elimination of
certain expenses that have been discontinued directly as a result
of the acquisition, such as the compensation expense of terminated
employees.
(3) The reduction in ceding commissions from reinsurer for the three
months ended June 30, 2005 was the result of a re-estimation based
upon loss experience.
(4) The three months and year ended June 30, 2005 include a $10,594
decrease in the valuation allowance for the deferred tax asset.
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations - By Business Segment
($000S EXCEPT PER SHARE DATA)
(Unaudited)
Actual
------------------------------------
Three Months
Ended Year Ended
INSURANCE OPERATIONS June 30, June 30,
----------------- ------------------
2005 2004(1) 2005 2004(1)
-------- -------- --------- --------
Revenues:
Premiums earned $41,613 $11,728 $132,347 $11,728
Commissions and fees 7,868 4,401 27,151 4,401
Ceding commissions from
reinsurer(4) (628) 1,925 2,975 1,925
Investment income 756 180 2,287 180
Other gains (losses) 22 (6) 214 (6)
-------- -------- --------- --------
Total revenues 49,631 18,228 164,974 18,228
-------- -------- --------- --------
Expenses:
Losses and loss adjustment
expenses 28,616 7,167 87,493 7,167
Operating expenses 15,806 7,194 49,921 7,194
Depreciation and amortization 322 608 1,920 608
-------- -------- --------- --------
Total expenses 44,744 14,969 139,334 14,969
-------- -------- --------- --------
Income before income taxes $4,887 $3,259 $25,640 $3,259
======== ======== ========= ========
Pro forma(2)
------------------------
Three Months
Ended Year Ended
INSURANCE OPERATIONS June 30, June 30,
------------------------
2004 2004
------------- ----------
Revenues:
Premiums earned $17,541 $57,716
Commissions and fees 6,639 26,275
Ceding commissions from
reinsurer(4) 2,872 10,674
Investment income 271 1,007
Other gains (losses) 52 80
------------- ----------
Total revenues 27,375 95,752
------------- ----------
Expenses:
Losses and loss adjustment
expenses 9,535 36,616
Operating expenses 10,935 41,142
Depreciation and amortization 377 1,366
------------- ----------
Total expenses 20,847 79,124
------------- ----------
Income before income taxes $6,528 $16,628
============= ==========
Actual
------------------------------------
Three Months Ended Year Ended
REAL ESTATE AND CORPORATE(3) June 30, June 30,
------------------ -----------------
2005 2004 2005 2004
-------- --------- -------- --------
Revenues:
Gains on sales of foreclosed
real estate $-- $-- $755 $4,147
Investment income 142 158 1,066 778
-------- --------- -------- --------
Total revenues 142 158 1,821 4,925
-------- --------- -------- --------
Expenses:
Operating expenses 792 4,111 2,775 6,235
Stock-based compensation 95 7,560 332 7,850
Depreciation -- 7 -- 40
Interest expense 144 44 351 44
-------- --------- -------- --------
Total expenses 1,031 11,722 3,458 14,169
-------- --------- -------- --------
(Loss) income before income taxes $(889) $(11,564) $(1,637) $(9,244)
======== ========= ======== ========
Pro forma (2)
------------------------
Three Months
Ended Year Ended
REAL ESTATE AND CORPORATE(3) June 30, June 30,
------------------------
2004 2004
------------- ----------
Revenues:
Gains on sales of foreclosed
real estate $-- $4,147
Investment income 70 424
------------- ----------
Total revenues 70 4,571
------------- ----------
Expenses:
Operating expenses 711 2,278
Stock-based compensation -- --
Depreciation -- --
Interest expense 69 318
------------- ----------
Total expenses 780 2,596
------------- ----------
(Loss) income before income taxes $(710) $1,975
============= ==========
(1) Actual results reflect USAuto's insurance operations since the
date of acquisition (April 30, 2004).
(2) Pro forma results give effect to the USAuto acquisition and
related transactions as if they had been consummated on July 1,
2003. The pro forma results also give effect to the elimination of
certain expenses that have been discontinued directly as a result
of the acquisition, such as the compensation expense of terminated
employees.
(3) Includes activities related to acquiring an operating company and
disposing of foreclosed real estate held for sale in addition to
interest expense associated with all debt and the costs associated
with being a public company.
(4) The reduction in ceding commissions from reinsurer for the three
months ended June 30, 2005 was the result of a re-estimation based
upon loss experience.
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($000S EXCEPT PER SHARE DATA)
(Unaudited)
June 30,
--------------------
2005 2004
--------- ---------
ASSETS
Fixed maturities, available-for-sale, at market
value $74,840 $33,243
Investment in mutual fund, at market value 10,920 --
Cash and cash equivalents 24,762 38,352
Premiums and fees receivable 42,908 32,076
Reinsurance receivables 4,490 24,681
Deferred tax asset 48,106 45,493
Other assets 11,031 7,800
Foreclosed real estate held for sale 961 1,108
Goodwill and identifiable intangible assets 112,704 102,914
--------- ---------
TOTAL $330,722 $285,667
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total policy liabilities 90,649 63,867
Amounts due to reinsurers and insurance companies 935 13,750
Note payable to financial institution -- 4,000
Other liabilities 10,809 9,824
--------- ---------
Total liabilities 102,393 91,441
Total stockholders' equity 228,329 194,226
--------- ---------
TOTAL $330,722 $285,667
========= =========
Book value per share $4.81 $4.17
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
($000S EXCEPT PER SHARE DATA)
(Unaudited)
GROSS PREMIUMS EARNED BY STATE
Actual
------------------------------------
Three Months
Ended Year Ended
June 30, June 30,
----------------- ------------------
2005 2004(1) 2005 2004(1)
-------- -------- --------- --------
Insurance company subsidiaries:
Georgia $17,522 $10,582 $67,442 $10,582
Tennessee 6,710 4,460 26,205 4,460
Ohio 3,339 1,250 10,703 1,250
Alabama 1,383 -- 1,383 --
Mississippi 1,247 680 4,431 680
Missouri 1,239 587 4,193 587
Florida 994 -- 1,181 --
Indiana 941 23 2,032 23
Illinois 65 -- 112 --
Pennsylvania 24 -- 24 --
-------- -------- --------- --------
33,464 17,582 117,706 17,582
-------- -------- --------- --------
MGA subsidiaries:
Alabama 5,743 4,331 25,227 4,331
Texas 2,408 -- 4,569 --
Georgia 307 837 2,364 837
-------- -------- --------- --------
8,458 5,168 32,160 5,168
-------- -------- --------- --------
Total gross premiums earned $41,922 $22,750 $149,866 $22,750
======== ======== ========= ========
GROSS PREMIUMS EARNED BY STATE
Pro forma(2)
------------------------
Three Months
Ended Year Ended
June 30, June 30,
------------- ----------
2004 2004
------------- ----------
Insurance company subsidiaries:
Georgia $15,682 $53,878
Tennessee 6,710 25,387
Ohio 1,854 5,789
Alabama -- --
Mississippi 1,034 3,822
Missouri 892 3,125
Florida -- --
Indiana 25 25
Illinois -- --
Pennsylvania -- --
------------- ----------
26,197 92,026
------------- ----------
MGA subsidiaries:
Alabama 6,496 24,219
Texas -- --
Georgia 1,374 11,618
------------- ----------
7,870 35,837
------------- ----------
Total gross premiums earned $34,067 $127,863
============= ==========
NET PREMIUMS EARNED BY STATE
Actual
------------------------------------
Three Months
Ended Year Ended
June 30, June 30,
----------------- ------------------
2005 2004(1) 2005 2004(1)
-------- -------- --------- --------
Georgia $17,826 $5,828 $63,281 $5,828
Alabama 6,821 2,247 18,862 2,247
Tennessee 6,713 2,300 24,145 2,300
Ohio 3,339 650 10,076 650
Texas 2,405 -- 4,566 --
Mississippi 1,246 371 4,151 371
Missouri 1,239 309 3,918 309
Florida 998 -- 1,185 --
Indiana 939 23 2,030 23
Illinois 66 -- 112 --
Pennsylvania 21 -- 21 --
-------- -------- --------- --------
Total net premiums earned $41,613 $11,728 $132,347 $11,728
======== ======== ========= ========
NET PREMIUMS EARNED BY STATE
Pro forma(2)
------------------------
Three Months
Ended Year Ended
June 30, June 30,
------------- ----------
2004 2004
------------- ----------
Georgia $8,683 $29,802
Alabama 3,391 8,057
Tennessee 3,443 13,115
Ohio 963 3,013
Texas -- --
Mississippi 567 2,083
Missouri 469 1,620
Florida -- --
Indiana 25 26
Illinois -- --
Pennsylvania -- --
------------- ----------
Total net premiums earned $17,541 $57,716
============= ==========
(1) Actual results reflect USAuto's insurance operations since the
date of acquisition (April 30, 2004).
(2) Pro forma results give effect to the USAuto acquisition as if it
had been consummated on July 1, 2003.
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)
GAAP COMBINED RATIOS (INSURANCE COMPANIES)
Actual
--------------------------------
Three Months Ended Year Ended
June 30, June 30,
------------------ -------------
2005 2004(1) 2005 2004(1)
---------- ------- ----- -------
Loss and loss adjustment expense 68.8% 61.1% 66.1% 61.1%
Expense(3) 22.0% 13.7% 17.7% 13.7%
---------- ------- ----- -------
90.8% 74.8% 83.8% 74.8%
========== ======= ===== =======
GAAP COMBINED RATIOS (INSURANCE COMPANIES)
Pro forma(2)
-------------------------------
Three Months Ended Year Ended
June 30, June 30,
------------------- -----------
2004 2004
------------------- -----------
Loss and loss adjustment expense 54.4% 63.4%
Expense(3) 14.0% 15.8%
------------------- -----------
68.4% 79.2%
=================== ===========
Three Months
Ended Year Ended
POLICIES IN FORCE June 30, June 30,
---------------- ----------------
Pro Pro
Actual forma Actual forma
2005 2004 2005 2004
-------- ------- -------- -------
Insurance company subsidiaries:
Policies in force - beginning of
period 91,590 68,294 69,061 59,186
Net increase during period 8,552 767 31,081 9,875
-------- ------- -------- -------
Policies in force - end of period 100,142 69,061 100,142 69,061
-------- ------- -------- -------
MGA subsidiaries:
Policies in force - beginning of
period 30,773 24,775 22,324 27,828
Acquired 6,473 -- 6,473 --
Net decrease during period (17,966) (2,451) (9,517) (5,504)
-------- ------- -------- -------
Policies in force - end of period 19,280 22,324 19,280 22,324
-------- ------- -------- -------
Total policies in force - end of
period 119,422 91,385 119,422 91,385
======== ======= ======== =======
(1) Actual results reflect USAuto's insurance operations since the
date of acquisition (April 30, 2004).
(2) Pro forma results give effect to the USAuto acquisition as if it
had been consummated on July 1, 2003.
(3) Insurance operating expenses are reduced by fee income from
insureds and ceding commissions received from reinsurer as
compensation for the costs incurred on servicing the business on
their behalf.
FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)
NUMBER OF RETAIL LOCATIONS
Three Months
Ended Year Ended
June 30, June 30,
---------------- ----------------
Pro Pro
Actual forma(1) Actual forma(1)
2005 2004 2005 2004
------ --------- ------ ---------
Retail locations - beginning of
period 225 125 138 108
Opened 85 13 157 30
Acquired -- -- 15 --
Closed (1) -- (1) --
------ --------- ------ ---------
Retail locations - end of period 309 138 309 138
====== ========= ====== =========
RETAIL LOCATIONS BY STATE Increase in
Locations
As of June 30, Year Ended June 30,
----------------------- --------------------
Pro Pro
Actual Actual forma(1) Actual forma(1)
2005 2004 2003 2005 2004
------ ------ --------- ---------- ---------
Alabama 25 21 19 4 2
Florida 24 -- -- 24 --
Georgia 63 55 52 8 3
Illinois 12 -- -- 12 --
Indiana 22 4 -- 18 4
Ohio 30 25 12 5 13
Mississippi 9 6 6 3 --
Missouri 18 11 5 7 6
Pennsylvania 14 -- -- 14 --
Tennessee 20 16 14 4 2
Texas 72 -- -- 72 --
------ ------ --------- ---------- ---------
Total 309 138 108 171 30
====== ====== ========= ========== =========
(1) Pro forma results give effect to the USAuto acquisition as if it
had been consummated on July 1, 2003.