EX-99 2 g93216exv99.txt EX-99 PRESS RELEASE 02/14/05 EXHIBIT 99 PRESS RELEASE Source: First Acceptance Corporation Contact: Chuck Hamilton (615) 844-2811 FIRST ACCEPTANCE CORPORATION REPORTS SECOND QUARTER FINANCIAL RESULTS NASHVILLE, TN, February 14, 2005 /PRNewswire-FirstCall/ -- First Acceptance Corporation (NYSE: FAC) today reported its financial results for the second quarter ended December 31, 2004 of its fiscal year ending June 30, 2005. ACTUAL RESULTS Net income for the three months ended December 31, 2004 was $4.7 million, or $0.10 per share on a fully-diluted basis, compared to a loss of $0.8 million, or $0.04 per share on a fully-diluted basis, for the same period of fiscal 2004. Total revenues grew from $0.3 million for the quarter ended December 31, 2003 to $40.7 million for the same period in fiscal 2005 as a result of the inclusion of USAuto's non-standard automobile insurance operations, which were acquired effective April 30, 2004. Total weighted average diluted shares increased from 20.6 million to 48.5 million over the same period as a result of the additional shares issued in the April 2004 rights offering and the USAuto acquisition. Net income for the six months ended December 31, 2004 was $8.6 million, or $0.18 per share on a fully-diluted basis, compared to $0.1 million, or $0.01 per share on a fully-diluted basis, for the same period of fiscal 2004. Total revenues grew from $1.9 million in the first half of fiscal 2004 to $71.6 million in the first half of fiscal 2005 as a result of the inclusion of USAuto's non-standard automobile insurance operations. Total weighted average diluted shares increased from 21.2 million to 48.5 million over the same period as a result of the shares issued in the rights offering and the USAuto acquisition. Net income for the three and six months ended December 31, 2004 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. PRO FORMA RESULTS On a pro forma basis assuming that the acquisition of USAuto took place on July 1, 2003, for the three months ended December 31, 2003, total revenues were $21.1 million, net income was $0.8 million and, on a fully-diluted basis, net income per share was $0.02. On a pro forma basis for the six months ended December 31, 2003, total revenues were $45.6 million, net income was $3.9 million and, on a fully-diluted basis, net income per share was $0.08. INSURANCE OPERATIONS o KEY RATIOS - The Company's loss ratios were 65.4% and 64.0%, respectively, for the three and six month periods ended December 31, 2004, which improved from 70.5% and 69.3%, respectively, for the same periods last year on a pro forma basis. Similarly, the Company's combined ratios improved to 79.6% and 78.0%, respectively, from 87.3% and 82.8% for the same periods. o OFFICE EXPANSION - During the three months ended December 31, 2004, the Company opened 24 new offices, compared to 16 offices opened during the three months ended September 30, 2004 and nine new offices opened during the second quarter of fiscal 2004 by USAuto. This office expansion reflects the Company's entrance into the Illinois and Florida markets during the three months ended December 31, 2004. Effective January 1, 2005, the Company acquired the assets of a non-standard automobile agency in Texas, adding 15 additional locations. Therefore, as of January 31, 2005, the Company operated 197 retail offices in ten states. o PREMIUM GROWTH - Comparing the actual results for the three and six month periods ended December 31, 2004 to the pro forma results for the same periods last year, net premiums earned increased by 152% and 116%, respectively. This increase is primarily the result of electing to not renew our 50% quota share reinsurance on September 1, 2004. In addition, the increase was also driven by writing more of the Company's Georgia business through the Company's insurance company subsidiaries rather than through the Company's managing general agency operations and increasing the percentage of reinsurance assumed on business written in Alabama from 15% to 50% effective February 2004. In addition to these factors, the number of insured policies in force at December 31, 2004 increased 32% over December 31, 2003. o CEDING COMMISSION FROM REINSURER - During the three months ended December 31, 2004, the Company recognized additional ceding commission income of $1.7 million based upon the favorable loss experience during the last contract year of the quota share reinsurance program, which was non-renewed effective September 1, 2004. REAL ESTATE OPERATIONS The Company recognized a pre-tax gain of $0.8 million on the sale of foreclosed real estate held for sale during the three months ended December 31, 2004. 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 December 31, 2004. CASH AND INVESTED ASSETS During the three months ended December 31, 2004, the Company contributed $3.0 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 December 31, 2004, the Company held unrestricted cash and investments of $19.8 million that is available for general corporate purposes and to provide support for increased premium writings of the insurance operations. Of this total, $4 million was used in January 2005 to pay for the Texas acquisition. 2 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 in 197 retail offices in ten states. The Company's insurance company subsidiaries are licensed to do business in 22 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 the important factors, among others, set forth in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004 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. 3 FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ($000S EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31, ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) -------------------- ------------ -------------------- ------------ 2004 2003 2003 2004 2003 2003 -------- -------- -------- -------- -------- -------- REVENUES: Premiums earned $ 31,071 $ -- $ 12,323 $ 52,756 $ -- $ 24,468 Commissions and fees 6,321 -- 5,984 12,993 -- 13,772 Ceding commissions from reinsurer 1,666 -- 2,356 3,603 -- 5,183 Gains on sales of foreclosed real estate 755 99 99 755 1,409 1,409 Investment income 741 202 352 1,350 441 736 Other 171 -- 21 171 -- 22 -------- -------- -------- -------- -------- -------- Total revenues 40,725 301 21,135 71,628 1,850 45,590 -------- -------- -------- -------- -------- -------- EXPENSES: Losses and loss adjustment expenses 20,317 -- 8,688 23,747 -- 16,964 Insurance operating expenses 11,533 -- 10,069 21,939 -- 19,932 Other operating expenses 899 949 719 1,267 1,509 1,087 Stock-based compensation 91 94 -- 152 196 -- Depreciation and amortization 488 13 600 1,157 20 1,395 Interest expense 69 -- 92 139 -- 162 -------- -------- -------- -------- -------- -------- Total expenses 33,397 1,056 20,168 58,401 1,725 39,540 -------- -------- -------- -------- -------- -------- Income (loss) before income taxes 7,328 (755) 967 13,227 125 6,050 Income tax expense 2,641 -- 167 4,676 -- 2,150 -------- -------- -------- -------- -------- -------- Net income (loss) $ 4,687 $ (755) $ 800 $ 8,551 $ 125 $ 3,900 ======== ======== ======== ======== ======== ======== Basic net income (loss) per share $ 0.10 $ (0.04) $ 0.02 $ 0.18 $ 0.01 $ 0.08 Diluted net income (loss) per share $ 0.10 $ (0.04) $ 0.02 $ 0.18 $ 0.01 $ 0.08 Weighted average basic shares 46,686 20,589 46,399 46,672 20,589 46,399 Weighted average diluted shares 48,519 20,589 47,965 48,514 21,211 47,965
(1) 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. 4 FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATION - BY BUSINESS SEGMENT ($000S) (UNAUDITED) INSURANCE OPERATIONS
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31, ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) ----------------------- ------------ ------------------------ ------------ 2004 2003 2003 2004 2003 2003 ------- ---------- ------- ------- ----------- ------- REVENUES: Premiums earned ........ $31,071 $ -- $12,323 $52,756 $ -- $24,468 Commissions and fees ... 6,321 -- 5,984 12,993 -- 13,772 Ceding commissions from reinsurer ........... 1,666 -- 2,356 3,603 -- 5,183 Investment income ...... 500 -- 239 855 -- 472 Other .................. 171 -- 21 171 -- 22 ------- ---------- ------- ------- ----------- ------- Total revenues ...... 39,729 -- 20,923 70,378 -- 43,917 ------- ---------- ------- ------- ----------- ------- EXPENSES: Losses and loss adjustment expenses . 20,317 -- 8,688 33,747 -- 16,964 Operating expenses ..... 11,533 -- 10,069 21,939 -- 19,932 Depreciation and amortization ........ 488 -- 600 1,157 -- 1,395 ------- ---------- ------- ------- ----------- ------- Total expenses ...... 32,338 -- 19,357 56,843 -- 38,291 ------- ---------- ------- ------- ----------- ------- Income before income taxes $ 7,391 $ -- $ 1,566 $13,535 $ -- $ 5,626 ======= ========== ======= ======= =========== =======
REAL ESTATE AND CORPORATE(2)
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31, ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) --------------------- ------------ --------------------- ------------ 2004 2003 2003 2004 2003 2003 ------- ------- ------- ------- ------- ------- REVENUES: Gains on sales of foreclosed real estate $ 755 $ 99 $ 99 $ 755 $ 1,409 $ 1,409 Investment income ....... 241 202 113 495 441 264 ------- ------- ------- ------- ------- ------- Total revenues ....... 996 301 212 1,250 1,850 1,673 ------- ------- ------- ------- ------- ------- EXPENSES: Operating expenses ...... 899 949 719 1,267 1,509 1,087 Stock-based compensation 91 94 -- 152 196 -- Depreciation ............ -- 13 -- -- 20 -- Interest expense ........ 69 -- 92 139 -- 162 ------- ------- ------- ------- ------- ------- Total expenses ....... 1,059 1,056 811 1,558 1,725 1,249 ------- ------- ------- ------- ------- ------- (Loss) income before income taxes ......... $ (63) $ (755) $ (599) $ (308) $ 125 $ 424 ======= ======= ======= ======= ======= =======
(1) 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. (2) 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. 5 FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($000S EXCEPT PER SHARE DATA) (UNAUDITED)
DECEMBER 31, JUNE 30, 2004 2004 ------------ -------- ASSETS Fixed maturities, available-for-sale, at market value $ 50,841 $ 33,243 Investment in mutual fund, at market value 10,393 -- Cash and cash equivalents 30,716 38,352 Premiums and fees receivable 30,834 32,076 Reinsurance receivables 10,848 24,681 Deferred tax asset 41,115 45,493 Other assets 9,413 7,800 Foreclosed real estate held for sale 961 1,108 Goodwill and identifiable intangible assets 109,064 102,914 -------- -------- TOTAL $294,185 $285,667 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Total policy liabilities 69,773 63,867 Amounts due to reinsurers and insurance companies 1,830 13,750 Note payable to financial institution 3,500 4,000 Other liabilities 9,027 9,824 Liability for contingent shares 6,720 -- -------- -------- Total liabilities 90,850 91,441 Total stockholders' equity 203,335 194,226 -------- -------- TOTAL $294,185 $285,667 ======== ======== Book value per share $ 4.35 $ 4.17
6 FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL DATA ($000S) (UNAUDITED) GROSS PREMIUMS EARNED BY STATE
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31, ACTUAL PRO FORMA ACTUAL PRO FORMA ----------------- --------- ----------------- --------- 2004 2003 2003 2004 2003 2003 ------- ----- ------- ------- ----- ------- State: Insurance company subsidiaries: Georgia ................ $16,651 $ -- $12,120 $32,637 $ -- $24,461 Tennessee .............. 6,406 -- 6,160 12,807 -- 12,331 Ohio ................... 2,417 -- 1,293 4,434 -- 2,353 Mississippi ............ 1,013 -- 857 1,974 -- 1,805 Missouri ............... 940 -- 702 1,830 -- 1,404 Indiana ................ 335 -- -- 468 -- -- Illinois ............... 10 -- -- 10 -- -- Florida ................ 1 -- -- 1 -- -- ------- ----- ------- ------- ----- ------- Total gross premiums earned $27,773 $ -- $21,132 $54,161 $ -- $42,354 ======= ===== ======= ======= ===== ======= MGA subsidiaries: Alabama ................ $ 6,278 $ -- $ 5,516 $12,587 $ -- $11,384 Georgia ................ 665 -- 3,395 1,584 -- 7,902 ------- ----- ------- ------- ----- ------- Total gross premiums earned $ 6,943 $ -- $ 8,911 $14,171 $ -- 19,286 ======= ===== ======= ======= ===== =======
NET PREMIUMS EARNED BY STATE
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31, ACTUAL PRO FORMA ACTUAL PRO FORMA --------------------- ---------- --------------------- --------- 2004 2003 2003 2004 2003 2003 ------- --------- ------- ------- --------- ------- State: Georgia ................ $16,651 $ -- $ 6,662 $27,883 $ -- $13,320 Tennessee .............. 6,406 -- 3,167 10,750 -- 6,295 Alabama ................ 3,298 -- 998 6,582 -- 1,969 Ohio ................... 2,417 -- 679 3,810 -- 1,220 Mississippi ............ 1,013 -- 458 1,696 -- 958 Missouri ............... 940 -- 359 1,556 -- 706 Indiana ................ 335 -- -- 468 -- -- Illinois ............... 10 -- -- 10 -- -- Florida ................ 1 -- -- 1 -- -- ------- --------- ------- ------- --------- ------- Total net premiums earned $31,071 $ -- $12,323 $52,756 $ -- $24,468 ======= ========= ======= ======= ========= =======
GAAP COMBINED RATIOS (INSURANCE COMPANIES)
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31, ACTUAL PRO FORMA ACTUAL PRO FORMA ------------------- --------- ---------------- --------- 2004 2003 2003 2004 2003 2003 ----- ---- ----- ----- ----- ----- Loss and loss adjustment expense ................. 65.4% -- 70.5% 64.0% -- 69.3% Expense.................... 14.2% -- 16.8% 14.0% -- 13.5% ----- ---- ----- ----- ----- ----- 79.6% -- 87.3% 78.0% -- 82.8% ===== ==== ===== ===== ===== =====
(1) 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. (2) Insurance operating expenses are reduced by fee income from insureds and ceding commissions received from reinsurer as compensation for the costs incurred in servicing the business on their behalf. 7 FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL DATA (CONTINUED) (UNAUDITED) POLICIES IN FORCE
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------- --------------------- 2004 2003 2004 2003 ------- ------- ------- ------- Insurance company subsidiaries: Policies in force - beginning of period 71,771 58,506 69,061 59,186 Increase (decrease) during period 2,439 (2,267) 5,149 (2,947) ------- ------- ------- ------- Policies in force - end of period 74,210 56,239 74,210 56,239 ======= ======= ======= ======= MGA subsidiaries: Policies in force - beginning of period 21,114 24,607 22,324 27,828 Decrease during period (1,051) (2,414) (2,261) (5,635) ------- ------- ------- ------- Policies in force - end of period 20,063 22,193 20,063 22,193 ======= ======= ======= =======
NUMBER OF RETAIL LOCATIONS
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------ --------------- 2004 2003 2004 2003 ---- ---- ---- ---- Retail locations - beginning of period 154 112 138 108 Locations opened 24 9 40 13 --- --- --- --- Retail locations - end of period 178 121 178 121 === === === ===
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