Affirmative Insurance Holdings, Inc. Announces Quarterly Cash Dividend of Two Cents Per Share and Delayed Filing Fiscal Year 2005 10-K
ADDISON, Texas--March 16, 2006--Affirmative Insurance Holdings, Inc. , a producer and provider of personal non-standard automobile insurance, today announced its Board of Directors has declared a quarterly cash dividend on its common stock of two cents per share, payable on March 31, 2006 to shareholders of record at the close of business March 21, 2006.Affirmative also announced that it will be unable to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the "2005 Form 10-K") by March 16, 2006, because the Company's management is finalizing its review of certain accounting matters relating to financial statement presentation and its assessment related to the Company's internal control over financial reporting as of December 31, 2005, as required by Section 404 of the Sarbanes-Oxley Act of 2002, and requires additional time to complete such review and assessment. Management believes the preparation of its 2005 Form 10-K is substantially complete, subject to the resolution of certain accounting presentation matters and the completion of management's assessment of the Company's internal control over financial reporting, as discussed below.
The Company is required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 for the first time as of December 31, 2005. Management's testing of the internal control over financial reporting as of December 31, 2005, is substantially complete and the Company is in the process of evaluating identified deficiencies.
Due to the additional time required by the Company to complete these activities, the Company cannot file its 2005 Form 10-K within the prescribed period. The Company currently anticipates that the 2005 Form 10-K will be filed no later than the fifteenth calendar day (March 31, 2006) following the date on which the 2005 Form 10-K was due (March 16, 2006). Failing to file on or before March 31, 2006 could have negative consequences for the Company including, but not limited to, that the Company may not be in compliance with its debt agreement and the Company may not be in compliance with Nasdaq Stock Market listing qualifications. The Company currently has no outstanding balances under its debt agreement.
Restatements and Nonreliance on Previously Issued Financial Statements
Management, in consultation with the Audit Committee of the Board of Directors, has determined that certain of the consolidating elimination entries used to prepare previously filed financial reports were not made in conformity with generally accepted accounting principles. The erroneous elimination entries had no effect on reported net income, earnings per share or stockholders' equity, but did have the effect of materially understating gross revenues and expenses and misstating certain assets and liabilities. Accordingly, management has determined, and the Audit Committee concurs with management's determination, that previously issued audited consolidated financial statements as of December 31, 2004 and for the year then ended and the previously issued unaudited interim consolidated financial statements as of and for the quarters and year to date periods ended March 31, 2005, June 30, 2005, and September 30, 2005, should be restated and should no longer be relied upon. Management is currently assessing whether the audited financial statements for the years ended December 31, 2002 and December 31, 2003 might also be restated to reflect the correction of consolidating elimination entries. The Company has discussed this matter with its independent public accounting firm.
The Company intends to restate the previously issued financial statements to reflect a correction of an error with respect to consolidating elimination entries. The restatements have no impact on previously reported net income, earnings per share or stockholders' equity. The restated audited consolidated financial statements as of December 31, 2004 and for the year then ended and the unaudited interim consolidated financial statements as of and for the quarters and year to date periods ended March 31, 2005, June 30, 2005, and September 30, 2005 will be included in the 2005 Form 10-K, which the Company expects to file with the SEC on or before March 31, 2006. The anticipated effect of the restatements on the consolidated statements of operations for the affected periods is presented below.
EFFECT OF RESTATEMENTS ON PREVIOUSLY ISSUED
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Unaudited
For the Year ended
December 31, 2004
-----------------------
As Restated As filed Difference
------------- --------- ----------
Net premiums earned $194,341 $194,341 $-
Commissions and fees 126,679 92,014 34,665
Net investment income 2,327 2,327 -
Realized gains (losses) (8) (8) -
------------- --------- ----------
Total Revenues 323,339 288,674 34,665
------------- --------- ----------
Losses and loss adjustment expenses 128,969 128,969 -
Policy acquisition and operating
expense 152,313 117,648 34,665
Interest expense 588 588 -
------------- --------- ----------
Total expenses 281,870 247,205 34,665
------------- --------- ----------
Income tax expense 15,319 15,319 -
Minority interest, net of income
taxes 804 804 -
Equity in unconsolidated
subsidiaries, net of income taxes 913 913 -
------------- --------- ----------
Net income $24,433 $24,433 $-
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For the Quarter ended
March 31, 2005
-----------------------
As Restated As filed Difference
------------- --------- ----------
Net premiums earned $47,210 $47,210 $-
Commissions and fees 38,346 24,761 13,585
Net investment income 227 227 -
Realized gains (losses) (17) (17) -
------------- --------- ----------
Total Revenues 85,766 72,181 13,585
------------- --------- ----------
Losses and loss adjustment expenses 31,708 31,708 -
Policy acquisition and operating
expense 42,084 28,499 13,585
Interest expense 217 217 -
------------- --------- ----------
Total expenses 74,009 60,424 13,585
------------- --------- ----------
Income tax expense 4,207 4,207 -
Minority interest, net of income
taxes 95 95 -
Equity in unconsolidated
subsidiaries, net of income taxes 173 173 -
------------- --------- ----------
Net income $7,282 $7,282 $-
============= ========= ==========
For the Quarter ended
June 30, 2005
----------------------
As Restated As filed Difference
------------- -------- ----------
Net premiums earned $43,738 $43,738 $-
Commissions and fees 30,766 23,111 7,655
Net investment income 363 363 -
Realized gains (losses) (3) (3) -
------------- -------- ----------
Total Revenues 74,864 67,209 7,655
------------- -------- ----------
Losses and loss adjustment expenses 28,149 28,149 -
Policy acquisition and operating
expense 37,287 29,632 7,655
Interest expense 174 174 -
------------- -------- ----------
Total expenses 65,610 57,955 7,655
------------- -------- ----------
Income tax expense 3,311 3,311 -
Minority interest, net of income
taxes 212 212 -
Equity in unconsolidated
subsidiaries, net of income taxes 250 250 -
------------- -------- ----------
Net income $5,481 $5,481 $-
============= ======== ==========
For the Quarter ended
September 30, 2005
----------------------
As Restated As filed Difference
------------- -------- ----------
Net premiums earned $50,328 $50,328 $-
Commissions and fees 27,901 21,436 6,465
Net investment income 799 799 -
Realized gains (losses) 11 11 -
------------- -------- ----------
Total Revenues 79,039 72,574 6,465
------------- -------- ----------
Losses and loss adjustment expenses 35,468 35,468 -
Policy acquisition and operating
expense 32,862 26,397 6,465
Interest expense 135 135 -
------------- -------- ----------
Total expenses 68,465 62,000 6,465
------------- -------- ----------
Income tax expense 4,150 4,150 -
Minority interest, net of income
taxes 274 274 -
Equity in unconsolidated
subsidiaries, net of income taxes 173 173 -
------------- -------- ----------
Net income $5,977 $5,977 $-
============= ======== ==========
For the Six Months ended
June 30, 2005
-------------------------
As Restated As filed Difference
-------------- ---------- ----------
Net premiums earned $90,948 $90,948 $-
Commissions and fees 69,112 47,872 21,240
Net investment income 590 590 -
Realized gains (losses) (20) (20) -
-------------- ---------- ----------
Total Revenues 160,630 139,390 21,240
-------------- ---------- ----------
Losses and loss adjustment
expenses 59,857 59,857 -
Policy acquisition and operating
expense 79,371 58,131 21,240
Interest expense 391 391 -
-------------- ---------- ----------
Total expenses 139,619 118,379 21,240
-------------- ---------- ----------
Income tax expense 7,518 7,518 -
Minority interest, net of income
taxes 307 307 -
Equity in unconsolidated
subsidiaries, net of income
taxes 423 423 -
-------------- ---------- ----------
Net income $12,763 $12,763 $-
============== ========== ==========
For the Nine Months ended
September 30, 2005
-------------------------
As Restated As filed Difference
-------------- ---------- ----------
Net premiums earned $141,276 $141,276 $-
Commissions and fees 97,013 69,308 27,705
Net investment income 1,389 1,389 -
Realized gains (losses) (9) (9) -
-------------- ---------- ----------
Total Revenues 239,669 211,964 27,705
-------------- ---------- ----------
Losses and loss adjustment
expenses 95,325 95,325 -
Policy acquisition and operating
expense 112,233 84,528 27,705
Interest expense 526 526 -
-------------- ---------- ----------
Total expenses 208,084 180,379 27,705
-------------- ---------- ----------
Income tax expense 11,668 11,668 -
Minority interest, net of income
taxes 581 581 -
Equity in unconsolidated
subsidiaries, net of income
taxes 596 596 -
-------------- ---------- ----------
Net income $18,740 $18,740 $-
============== ========== ==========
Unresolved Reconciliations
In the course of management's assessment of the Company's internal control over the reconciliations of certain balance sheet accounts, it has been determined by management that some reconciling items were not adequately resolved, including approximately $10 million in premiums and fees receivable. While management continues to analyze the effect of the unresolved reconciling items, at the present time management believes that the resolution of such matters will not result in any material adjustments to previously released financial statements or the 2005 financial statements.
Internal Control Assessment
The Company is required by the Sarbanes-Oxley Act of 2002 to provide, for the first time, management's assessment of the Company's internal control over financial reporting as of December 31, 2005, in the 2005 Form 10-K. The Company's evaluation of internal control over financial reporting is still underway. Management has concluded that the control deficiency that resulted in the restatement of the 2004 annual and 2005 first, second and third quarter financial statements is a material weakness. Specifically, the Company did not maintain effective controls over the review and approval of consolidating elimination entries. Moreover, management has concluded that the control deficiency that resulted in the unresolved reconciling items noted above is a material weakness as effective controls were not maintained over the timely resolution of the reconciling items.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Other control deficiencies that have been identified to date, may, individually or in the aggregate, constitute one or more additional material weaknesses. As management continues its evaluation of internal control over financial reporting, and its assessment of the effect of the restatements on its previously issued financial statements, additional control deficiencies may be identified and those control deficiencies may also represent one or more material weaknesses. The existence of one or more material weaknesses as of December 31, 2005 precludes a conclusion by management that the Company's internal control over financial reporting was effective as of that date. Accordingly, management anticipates that its report will conclude that as of December 31, 2005, the Company's internal control over financial reporting was not effective due to one or more material weaknesses.
Cautionary Statements
Management's estimate of the timing of the completion of the 2005 Form 10-K, which includes the completion of management's assessment of internal control over financial reporting, allowing the Company to file within the extension period and the potential consequences of failing to meet that deadline are forward-looking statements that are subject to significant uncertainties. Important factors that could cause actual results and timing to differ materially from the estimates indicated herein include whether the Company uncovers unanticipated issues during the completion of management's assessment of internal control and the preparation of the 2005 Form 10-K, as well as the timing and results of the related audit procedures by the Company's independent public accounting firm.
About Affirmative Insurance Holdings, Inc.
Headquartered in Addison, Texas, Affirmative Insurance Holdings, Inc., is a producer and provider of personal non-standard automobile insurance policies to individual consumers in highly targeted geographic markets. Affirmative currently offers products and services in 13 states, including Texas, Illinois, California and Florida.