EX-99 2 g95270exv99.txt EX-99 PRESS RELEASE 05/12/05 EXHIBIT 99 PRESS RELEASE Source: First Acceptance Corporation Contact: Chuck Hamilton (615) 844-2811 FIRST ACCEPTANCE CORPORATION REPORTS THIRD QUARTER FINANCIAL RESULTS NASHVILLE, TN, May 12, 2005 /PRNewswire-FirstCall/ -- First Acceptance Corporation (NYSE: FAC) today reported its financial results for the third quarter ended March 31, 2005 of its fiscal year ending June 30, 2005. ACTUAL RESULTS Net income for the three months ended March 31, 2005 was $4.4 million, or $0.09 per share on a fully-diluted basis, compared to $2.2 million, or $0.10 per share on a fully-diluted basis, for the same period of fiscal 2004. Total revenues grew to $45.4 million for the quarter ended March 31, 2005 from $2.9 million for the quarter ended March 31, 2004 as a result of the inclusion of USAuto's non-standard automobile insurance operations, which were acquired effective April 30, 2004. Revenues and net income for the quarter ended March 31, 2004 reflect $2.7 million of gains on sales of foreclosed real estate. Total weighted average diluted shares increased from 21.2 million to 49.4 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 nine months ended March 31, 2005 was $13.0 million, or $0.27 per share on a fully-diluted basis, compared to $2.3 million, or $0.11 per share on a fully-diluted basis, for the same period of fiscal 2004. Total revenues grew to $117.0 million for the nine months ended March 31, 2005 from $4.8 million for the nine months ended March 31, 2004 as a result of the inclusion of USAuto's non-standard automobile insurance operations. Revenues and net income for the nine months ended March 31, 2004 include $4.1 million of gains on sales of foreclosed real estate. Total weighted average diluted shares increased from 21.2 million to 48.8 million over the same period as a result of the shares issued in the rights offering and the USAuto acquisition. There were no gains on sales of foreclosed real estate in the three months ended March 31, 2005, while the same period last year included $2.7 million (net of tax), or $0.13 per share on a fully-diluted basis. Net income for the nine months ended March 31, 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 nine months ended March 31, 2004 included $4.1 million (net of tax) or $0.20 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 March 31, 2004, total revenues were $27.1 million, net income was $4.2 million and, on a fully-diluted basis, net income per share was $0.09. On a pro forma basis for the nine months ended March 31, 2004, total revenues were $72.7 million, net income was $8.1 million and, on a fully-diluted basis, net income per share was $0.17. Net income for these pro forma periods included gains on sales of foreclosed real estate of $1.8 million (net of tax) or $0.04 per share on a fully-diluted basis for the three months ended March 31, 2004, and $2.7 million (net of tax) or $0.06 per share on a fully-diluted basis for the nine months ended March 31, 2004. INSURANCE OPERATIONS - KEY RATIOS - The Company's loss ratios were 66.2% and 64.9% for the three- and nine-month periods ended March 31, 2005, respectively, as compared with 62.7% and 66.8%, respectively, for the same periods last year on a pro forma basis. Similarly, the Company's combined ratios were 84.5% and 80.7%, respectively, compared with 80.3% and 81.9% for the same periods above. - OFFICE EXPANSION - Effective January 1, 2005, the Company acquired the assets of a non-standard automobile agency in Texas, adding 15 additional locations. In addition, during the three months ended March 31, 2005, the Company opened 32 new offices, compared to 24 offices opened during the three months ended December 31, 2004 and 4 new offices opened during the three months ended March 31, 2004 by US Auto. This office expansion reflects the Company's entrance into the Pennsylvania market, the continuation of its recent expansion into Illinois and Florida, and the opening of additional locations in Texas. As of April 30, 2005, the Company operated 239 retail offices in 11 states. - PREMIUM GROWTH - Comparing the actual results for the three- and nine-month periods ended March 31, 2005 to the pro forma results for the same periods last year, net premiums earned increased by 147% and 128%, 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 at March 31, 2005 increased 34% over the number of policies in force at March 31, 2004. - STATE LICENSING - The Company is now licensed as an insurer in Alabama and Virginia. Commencing in May, the Company will write all of its new business in Alabama on a direct basis. 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 March 31, 2005. There was no real estate sales activity during the most recent quarter. 2 CASH AND INVESTED ASSETS During the three months ended March 31, 2005, the Company contributed $2.5 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 March 31, 2005, the Company held unrestricted cash and investments of $15.6 million that is available for general corporate purposes and to provide support for increased premium writings of the insurance operations. Of this total, $3.3 million was used in April 2005 to repay the Company's remaining term debt. 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 239 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 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 MARCH 31, NINE MONTHS ENDED MARCH 31, ------------------------------------ ---------------------------------- ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) --------------------- ------------ -------------------- ------------ 2005 2004 2004 2005 2004 2004 ---- ---- ---- ---- ---- ---- REVENUES: Premiums earned $ 37,979 $ -- $ 15,378 $ 90,735 $ -- $ 39,846 Commissions and fees 6,290 -- 6,011 19,283 -- 19,783 Ceding commissions from reinsurer -- -- 2,599 3,603 -- 7,782 Gains on sales of foreclosed real estate -- 2,737 2,737 755 4,146 4,146 Investment income 1,106 179 355 2,455 620 1,091 Other gains 20 -- 4 191 -- 26 -------- -------- -------- -------- -------- -------- Total revenues 45,395 2,916 27,084 117,022 4,766 72,674 -------- -------- -------- -------- -------- -------- EXPENSES: Losses and loss adjustment expenses 25,130 -- 9,644 58,877 -- 26,608 Insurance operating expenses 12,176 -- 9,789 34,115 -- 29,721 Other operating expenses 715 614 412 1,983 2,123 1,499 Stock-based compensation 84 94 -- 236 290 -- Depreciation and amortization 442 13 413 1,598 33 1,808 Interest expense 69 -- 86 208 -- 248 -------- -------- -------- -------- -------- -------- Total expenses 38,616 721 20,344 97,017 2,446 59,884 -------- -------- -------- -------- -------- -------- Income before income taxes 6,779 2,195 6,740 20,005 2,320 12,790 Income tax expense 2,374 -- 2,494 7,050 -- 4,644 -------- -------- -------- -------- -------- -------- Net income $ 4,405 $ 2,195 $ 4,246 $ 12,955 $ 2,320 $ 8,146 ======== ======== ======== ======== ======== ======== Basic net income per share $ 0.09 $ 0.11 $ 0.09 $ 0.28 $ 0.11 $ 0.18 Diluted net income per share $ 0.09 $ 0.10 $ 0.09 $ 0.27 $ 0.11 $ 0.17 Weighted average basic shares 47,444 20,589 46,399 46,926 20,589 46,399 Weighted average diluted shares 49,350 21,211 48,193 48,834 21,211 48,193
(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 OPERATIONS - BY BUSINESS SEGMENT ($000S) (UNAUDITED) INSURANCE OPERATIONS
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, ------------------------------------- -------------------------------- ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) ---------------------- ------------ ------------------ ------------ 2005 2004 2004 2005 2004 2004 ---- ---- ---- ---- ---- ---- REVENUES: Premiums earned ........... $ 37,979 $ -- $ 15,378 $ 90,735 $ -- $ 39,846 Commissions and fees ...... 6,290 -- 6,011 19,283 -- 19,783 Ceding commissions from reinsurer ............... -- -- 2,599 3,603 -- 7,782 Investment income ......... 676 -- 264 1,531 -- 736 Other ..................... 20 -- 4 191 -- 26 -------- ---------- -------- -------- ------ -------- Total revenues ......... 44,965 -- 24,256 115,343 -- 68,173 -------- ---------- -------- -------- ------ -------- EXPENSES: Losses and loss adjustments expenses ................ 25,130 -- 9,644 58,877 -- 26,608 Operating expenses ........ 12,176 -- 9,789 34,115 -- 29,721 Depreciation and amortization ............ 442 -- 413 1,598 -- 1,808 -------- ---------- -------- -------- ------ -------- Total expenses ......... 37,748 -- 19,846 94,590 -- 58,137 -------- ---------- -------- -------- ------ -------- Income before income taxes .. $ 7,217 $ -- $ 4,410 $ 20,753 $ -- $ 10,036 ======== ========== ======== ======== ====== ========
REAL ESTATE AND CORPORATE (2)
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, --------------------------------- -------------------------------- ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) ------------------- ------------ ----------------- ------------ 2005 2004 2004 2005 2004 2004 ---- ---- ---- ---- ---- ---- REVENUES: Gains on sales of foreclosed real estate $ -- $ 2,737 $ 2,737 $ 755 $ 4,146 $ 4,146 Investment income ...... 430 179 91 924 620 355 ------- ------- ------- ------- ------- ------- Total revenues ...... 430 2,916 2,828 1,679 4,766 4,501 ------- ------- ------- ------- ------- ------- EXPENSES: Operating expenses ..... 715 614 412 1,983 2,123 1,499 Stock-based compensation 84 94 -- 236 290 -- Depreciation ........... -- 13 -- -- 33 -- Interest expense ....... 69 -- 86 208 -- 248 ------- ------- ------- ------- ------- ------- Total expenses ...... 868 721 498 2,427 2,446 1,747 ------- ------- ------- ------- ------- ------- (Loss) income before income taxes ......... $ (438) $ 2,195 $ 2,330 $ (748) $ 2,320 $ 2,754 ======= ======= ======= ======= ======= =======
(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)
MARCH 31, JUNE 30, 2005 2004 ---------- -------- ASSETS Fixed maturities, available-for-sale, at market value $ 62,767 $ 33,243 Investment in mutual fund, at market value 10,785 -- Cash and cash equivalents 29,666 38,352 Premiums and fees receivable 48,092 32,076 Reinsurance receivables 7,406 24,681 Deferred tax asset 39,044 45,493 Other assets 11,173 7,800 Foreclosed real estate held for sale 961 1,108 Goodwill and identifiable intangible assets 112,865 102,914 -------- -------- TOTAL $322,759 $285,667 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Total policy liabilities 89,800 63,867 Amounts due to reinsurers and insurance companies 1,978 13,750 Note payable to financial institution 3,250 4,000 Payable for securities 4,514 -- Other liabilities 9,243 9,824 -------- -------- Total liabilities 108,785 91,441 Total stockholders' equity 213,974 194,226 -------- -------- TOTAL $322,759 $285,667 ======== ======== Book value per share $ 4.51 $ 4.17
6 FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL DATA ($000S) (UNAUDITED) GROSS PREMIUMS EARNED BY STATE
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, ---------------------------------- -------------------------------- ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) ------------------- ------------ ----------------- ------------ 2005 2004 2004 2005 2004 2004 ---- ---- ---- ---- ---- ---- Insurance company subsidiaries: Georgia .................... $17,283 $ -- $13,847 $49,920 $ -- $38,308 Tennessee .................. 6,688 -- 6,491 19,495 -- 18,822 Ohio ....................... 2,930 -- 1,599 7,364 -- 3,952 Mississippi ................ 1,210 -- 1,007 3,184 -- 2,812 Missouri ................... 1,124 -- 844 2,954 -- 2,248 Indiana .................... 623 -- -- 1,091 -- -- Florida .................... 187 -- -- 187 -- -- Illinois ................... 36 -- -- 47 -- -- ------- ----- ------- ------- ----- ------- Total gross premiums earned ... $30,081 $ -- $23,788 $84,242 $ -- $66,142 ======= ===== ======= ======= ===== ======= MGA subsidiaries: Alabama .................... $ 6,897 $ -- $ 6,604 $19,484 $ -- $17,988 Texas ...................... 2,161 -- -- 2,161 -- -- Georgia .................... 473 -- 2,405 2,057 -- 10,307 ------- ----- ------- ------- ----- ------- Total gross premiums earned ... $ 9,531 $ -- $ 9,009 $23,702 $ -- $28,295 ======= ===== ======= ======= ===== =======
NET PREMIUMS EARNED BY STATE
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, ---------------------------------- -------------------------------- ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) ------------------- ------------ ----------------- ------------ 2005 2004 2004 2005 2004 2004 ---- ---- ---- ---- ---- ---- Georgia ................ $17,573 $ -- $ 7,632 $45,456 $ -- $20,951 Tennessee .............. 6,682 -- 3,310 17,432 -- 4,610 Alabama ................ 5,459 -- 2,641 12,041 -- 9,606 Ohio ................... 2,927 -- 811 6,737 -- 2,031 Texas .................. 2,161 -- -- 2,161 -- -- Mississippi ............ 1,209 -- 548 2,905 -- 1,142 Missouri ............... 1,123 -- 436 2,679 -- 1,506 Indiana ................ 622 -- -- 1,091 -- -- Florida ................ 187 -- -- 187 -- -- Illinois ............... 36 -- -- 46 -- -- ------- ----- ------- ------- ----- ------- Total net premiums earned $37,979 $ -- $15,378 $90,735 $ -- $39,846 ======= ===== ======= ======= ===== =======
GAAP COMBINED RATIOS (INSURANCE COMPANIES)
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31, -------------------------------- -------------------------------- ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1) ------------------ ------------ ----------------- ------------ 2005 2004 2004 2005 2004 2004 ---- ---- ---- ---- ---- ---- Loss and loss adjustment expense 66.2% -- 62.7% 64.9% -- 66.8% Expense(2) ..................... 18.3% -- 17.6% 15.8% -- 15.1% ------ ----- ------- ------- ----- ------- 84.5% -- 80.3% 80.7% -- 81.9% ====== ===== ======= ======= ===== =======
(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 NINE MONTHS ENDED MARCH 31, MARCH 31, --------------------- --------------------- ACTUAL PRO FORMA ACTUAL PRO FORMA 2005 2004 2005 2004 ---- ---- ---- ---- Insurance company subsidiaries: Policies in force - beginning of period 74,210 56,239 69,061 59,186 Increase during period 17,380 12,055 22,529 9,108 ------- ------- ------- ------- Policies in force - end of period 91,590 68,294 91,590 68,294 ======= ======= ======= ======= MGA subsidiaries: Policies in force - beginning of period 20,063 22,193 22,324 27,828 Acquired 6,473 -- 6,473 -- Increase (decrease) during period 4,237 2,582 1,976 (3,053) ------- ------- ------- ------- Policies in force - end of period 30,773 24,775 30,773 24,775 ======= ======= ======= =======
NUMBER OF RETAIL LOCATIONS
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, --------------------- --------------------- ACTUAL PRO FORMA ACTUAL PRO FORMA 2005 2004 2005 2004 ---- ---- ---- ---- Retail locations - beginning of period 178 121 138 108 Opened 32 4 72 17 Acquired 15 -- 15 -- ------- ------- ------- ------- Retail locations - end of period 225 125 225 125 ======= ======= ======= =======
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