KMG America Reports Fourth Quarter 2005 Net Income of $0.07 Per Share; KMA Will Host an Investor Web Cast Tomorrow, Thursday, March 9th at 9:00 A.M. EST.MINNEAPOLIS Minneapolis (mĭn'ēăp`əlĭs), city (1990 pop. 368,383), seat of Hennepin co., E Minn., at the head of navigation on the Mississippi River, at St. Anthony Falls; inc. 1856. -- KMG KMG Kerr-McGee KMG Koi Mil Gaya (Hindi movie) KMG Kunming, China - Kunming (Airport Code) KMG Kent Messenger Group (UK) America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. Corporation "the Company" (NYSE NYSE See: New York Stock Exchange :KMA KMA Kiss My Ass KMA Korea Meteorological Administration KMA Koninklijke Militaire Academie (Royal Military Academy; Netherlands) KMA Knoxville Museum of Art KMA Kentucky Medical Association KMA Korean Medical Association ) today reported net income for the fourth quarter ended December December: see month. 31, 2005 of $1.6 million, or $0.07 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to net income for the third quarter of 2005 of $1.3 million, or $0.06 per diluted share, and fourth quarter 2004 net income of $0.9 million for the predecessor predecessor - parent company Kanawha Kanawha (kənô`wə), principal river of W.Va., 97 mi (156 km) long, formed by the confluence of the New and Gauley rivers, S central W.Va., and flowing NW to the Ohio River at Point Pleasant; Charleston, W.Va. Insurance Company, acquired in late December 2004. Fourth quarter 2005 net income includes a $0.2 million favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. cumulative effect of an accounting change, net of tax, resulting from switching from the cost basis to the equity basis of accounting for an investment. Fourth quarter 2005 operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (see discussion of non-GAAP financial measures below) was $1.5 million, or $0.07 per diluted share, compared to operating income of $1.2 million, or $0.06 per diluted share, in the third quarter of 2005 and $1.7 million, or $0.08 per diluted share, in the fourth quarter of 2004 on a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma basis (pro forma operating income in the fourth quarter of 2004 is adjusted to reflect the application of purchase accounting consistent with that earnings measurement basis). For the full year 2005, KMA reported net income of $4.7 million, or $0.21 per diluted share, compared to net income for the full year 2004 of $6.2 million for the Kanawha operations. On an operating income basis, KMA reported $4.4 million, or $0.20 per diluted share, for the full year of 2005 compared to operating income of $10.7 million, or $0.49 per diluted share, for the full year of 2004 on a pro forma basis for the Kanawha operations. KMG America's Chief Executive Officer, Kenneth Kuk KUK Kurukshetra University (India) KUK Kultur- und Kongreßzentrum (German) KUK Krebs Und Kiefer (German consulting engineers) KUK Kaiserlich Und Königlich , commented, "Our fourth quarter and full year earnings results are in line with the consensus analyst estimate. The operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before related to the KMG America new activity for the fourth quarter were essentially flat with the third quarter as incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. premiums largely offset increases in expenses. Looking ahead, we would expect operating results to improve as incremental revenues outpace out·pace tr.v. out·paced, out·pac·ing, out·pac·es To surpass or outdo (another), as in speed, growth, or performance. outpace Verb [-pacing, expenses." Mr. Kuk added, "KMG America has made significant progress in our first year as a public company. We have established ourselves as a credible player in the benefits marketplace with a strong and growing national sales organization and a respected administrative platform. Our geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. reach and array of product offerings are far more robust than only a few months ago and our unique multiple product strategy is being embraced Embraced is a Swedish melodic black metal band, formed in Malmö, Sweden in 1993. The band split up in 2000, and reunited in 2004. Line-up
2006 OUTLOOK Though KMG America does not provide formal financial guidance to its investors, in assessing the Company's outlook for 2006 and beyond, management believes certain factors must be considered by investors as they will likely affect expected future financial performance, including net income and earnings per share. These factors include unanticipated delays in state approvals for new products and the resulting product mix and reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. levels on recent sales which will impact both revenue and earnings growth throughout 2006 and into 2007. As a result of these and other factors, the Company believes that its 2006 operating income per share will fall below the low end of the current range of analysts' estimates, with an expected range of $0.35 to $0.40 per share. Management will expand on this topic during its web cast tomorrow, March 9, at 9:00 a.m. EST EST electroshock therapy. EST abbr. electroshock therapy . The web cast and replay will be available via the following links: www.kmgamerica.com, analyst/investor tab - for all investors; www.streetevents.com - for institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. ; www.fulldisclosure.com - for retail investors Retail Investor Individual investors who buy and sell securities for their personal account, and not for another company or organization. Notes: Retail investors buy in much smaller quantities than larger institutional investors. . FOURTH QUARTER FINANCIAL RESULTS Fourth quarter 2005 operating income increased to $1.5 million compared to third quarter 2005 operating income of $1.2 million due primarily to improved claims experience in the legacy worksite and acquired segments, partially offset by increased expenses related to the KMG America new activity. Fourth quarter 2005 operating income declined compared to fourth quarter 2004 pro forma operating income of $1.7 million due primarily to increased expenses associated with the KMG America new activity and higher claims, which were largely offset by higher investment income and incremental margins related to sales from the new KMG America distribution channel. After-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. attributed to the new KMG America growth initiatives were $2.2 million in both the fourth and third quarters of 2005, respectively, while the fourth quarter of 2004 included a loss of $0.7 million. The operating losses are due primarily to the incremental expenses related to building the Company's new national sales and underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. organization, and the additional costs and infrastructure required to operate as a public company. These new expenses (before deferrals of acquisition costs related to voluntary product sales) totaled $4.4 million and $3.9 million in the fourth and third quarters of 2005, respectively, and $1.1 million in the fourth quarter of 2004. Largely offsetting these increased expenses is the emergence of incremental direct premiums related to the sales activity from the new KMG America distribution channel of $2.3 million and $1.4 million in the fourth and third quarters of 2005, respectively. Excluding the operating results attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to new KMG America growth initiatives, fourth quarter 2005 operating income would have improved to $3.7 million, or $0.17 per diluted share, compared to $3.5 million, or $0.16 per diluted share, in the third quarter 2005, and fourth quarter 2004 pro forma operating income of $2.4 million, or $0.11 per diluted share. The Company believes that excluding the earnings results of the KMG America new activity provides a more meaningful comparison of the trends in earnings produced by Kanawha's legacy business, which serves to fund the initial expenses associated with building the new sales and underwriting organization and the infrastructure needed to operate as a public company. The more notable earnings drivers are discussed below where the fourth quarter of 2005 results are compared to the third quarter of 2005 results. Premium Revenue Premiums for the fourth quarter of 2005 increased to $27.5 million, compared to $26.4 million in the third quarter of 2005. The increase is primarily due to incremental premiums related to the new KMG America sales distribution channel that produced $2.3 million of new direct earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. ($1.8 million net of reinsurance) in the fourth quarter of 2005 compared to $1.4 million of new direct earned premiums ($1.0 million net of reinsurance) in the third quarter of 2005. Investment Income Investment income in the fourth quarter of 2005 increased modestly to $7.2 million, compared to $7.1 million in the third quarter of 2005. The investment portfolio yield in the fourth quarter of 2005 averaged 4.88%, based on average cash and invested assets, an improvement of 7 basis points from the 4.81% average yield reported in the third quarter of 2005. As a result of the capital raised in the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. in late December 2004 and other cash raised by Kanawha from targeted dispositions of certain securities in its investment portfolio late in the third quarter of 2004, the Company had total cash and cash equivalents of about $130 million at the end of 2004. Throughout 2005, the Company remained very liquid, with significant investments in short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. instruments as a result of our decision to selectively invest when rates have risen. Compared to year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. 2005, KMA is now nearly fully invested. Policyholder Policyholder An individual who owns an insurance policy. Benefits Policyholder benefits for the fourth quarter of 2005 decreased to $21.3 million compared to $21.9 million in the third quarter of 2005, due primarily to improved claims experience in the legacy worksite segment. The total Company benefit ratio improved to 77.7% in the fourth quarter of 2005 compared to 82.8% in the third quarter of 2005. The benefit ratio in the legacy worksite segment was 67.3% in the fourth quarter of 2005, an improvement from a benefit ratio of 77.2% in the third quarter of 2005, reflecting improved claims experience, particularly in the medicare supplement and cancer product lines. The benefit ratio in the senior segment increased to 88.7% in the fourth quarter of 2005, compared to 85.2% in the third quarter of 2005 reflecting higher claims and lower premiums. The acquired business segment experienced a fourth quarter 2005 benefit ratio of 115.8%, an improvement from 164.0% reported in the third quarter of 2005, and a return to a more normal level, consistent with the first and second quarters of 2005. The benefit ratio associated with the new KMG America worksite activity increased to 62.3% in the fourth quarter of 2005 compared to 61.7% in the third quarter of 2005 reflecting a higher proportion of stop loss insurance with higher reserve requirements Reserve Requirements Requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve Bank. than those in voluntary product sales. Expenses, taxes, licenses and fees General insurance expenses, taxes, licenses and fees (before deferrals of policy acquisition costs) for the fourth quarter of 2005 increased to $14.7 million compared to $14.4 million in the third quarter of 2005, due primarily to higher salary expenses related to new hires. Amortization of Deferred Acquisition Costs (DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter )/Value of Business Acquired (VOBA VOBA Value of Business Acquired VOBA Virtual Office Business Administration VOBA Votoms Online Battling Arena VOBA Virtual Office Business Assistant (NetOffice) ) Amortization of DAC/VOBA for the fourth quarter of 2005 increased to $0.7 million compared to the $0.5 million in the third quarter of 2005. Third quarter 2005 amortization reflected a $0.4 million benefit due to favorable persistency in the long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. block of business. Non-recurring Items When comparing fourth quarter 2005 to third quarter 2005, bear in mind that the third quarter 2005 financial results contain two non-recurring adjustments. First, there was a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge of $0.3 million in the senior segment for severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and other termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. costs relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the sale of the Fort Myers Fort Myers, city (1990 pop. 45,206), seat of Lee co., SW Fla., on the Caloosahatchee River, near the Gulf of Mexico; founded 1850, inc. 1905. It has a tourist trade and light industry and is a shipping point for citrus fruits, winter vegetables, flowers (especially agency office, which closed October October: see month. 5, 2005. Second, the corporate segment included an offsetting a $0.3 million benefit in other income reflecting a favorable legal settlement during the third quarter of 2005. The fourth quarter 2005 financial results contained no such non-recurring adjustments. NOTES ON FINANCIAL PRESENTATION KMG America was formed on January January: see month. 21, 2004 and commenced its insurance operations shortly before December 21, 2004, when it completed its initial public offering of common stock and used a portion of the proceeds to complete its acquisition of Kanawha Insurance Company. Results of operations, cash flows and changes in shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. for the quarter and twelve months ended December 31, 2004 (the predecessor periods indicated on the attached financial tables), reflect the historical operations of Kanawha only and do not include GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). purchase accounting ("PGAAP") adjustments reflecting the acquisition. Results of operations, cash flows and changes in shareholders' equity for the quarter ended December 31, 2005, and the quarter ended September September: see month. 30, 2005 and KMG America's financial position as of December 31, 2004, and December 31, 2005, have been adjusted for PGAAP adjustments reflecting the Kanawha acquisition. Non-GAAP Financial Measures --Operating Income - To supplement the financial statements presented on a GAAP basis, the Company reported operating income, which is a non-GAAP measure. Operating income is defined as net income excluding realized investment gains/losses (except for realized investment gains/losses that are directly offset by executive deferred compensation expense) and certain non-recurring items, net of income taxes. Management believes this non-GAAP measure provides investors, potential investors, securities analysts and others with useful additional information to evaluate the performance of the business, because it excludes items that management believes are not indicative indicative: see mood. of the operating results of the business. In addition, this non-GAAP measure is used by management to evaluate the operating performance of the Company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP. --Pro Forma forma, adj/n minor elements between the members of a botanical species. Financial Information - To supplement the financial statements presented on a GAAP basis, the Company reported "pro forma" financial information that adjusts the statements of income for the quarter and twelve months ended December 31, 2004 for the actual dollar value impact that the December 31, 2004 balance sheet PGAAP adjustments had on the quarter and twelve months ended December 31, 2005 statements of income, respectively. Such pro forma financial information is a non-GAAP measure. Management believes this pro forma non-GAAP measure provides investors, potential investors, securities analysts and others with useful additional information to evaluate the performance of the business, because these purchase accounting adjustments relating to the Kanawha acquisition have been incorporated in KMG America's financial statements for the quarter and twelve months ending December 31, 2005, and will be incorporated in later reporting periods. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the results of operations or financial position of the Company determined in accordance with GAAP. A reconciliation of the non-GAAP financial measures contained in this release to the most comparable GAAP measures appears in the attached tables. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. that are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause KMG America Corporation's actual results to differ materially from those expressed in the forward-looking statements including, but not limited to: implementation of its business strategy; hiring and retaining key employees; predicting and managing claims and other costs; fluctuations in its investment portfolio; financial strength ratings of its insurance subsidiary; government regulations, policies and investigations affecting the insurance industry; competitive insurance products and pricing; reinsurance costs; fluctuations in demand for insurance products; possible recessionary trends in the U.S. economy; and other risks that are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission. KMG America Corporation assumes no obligation to publicly update or revise any forward-looking statements. KMG America Corporation is a holding company that was formed to acquire the Southeastern south·east n. 1. Abbr. SE The direction or point on the mariner's compass halfway between due south and due east, or 135° east of due north. 2. An area or region lying in the southeast. 3. regional insurance company, Kanawha Insurance, and to operate and grow Kanawha's insurance and other related businesses nationwide. KMG offers a broad mix of individual and group insurance products and stop-loss stop-loss, n a general term referring to that category of coverage that provides insurance protection (reinsurance) to an employer for a self-funded plan. coverage along with third-party administration services to employers and to working Americans. For more information visit: www.kmgamerica.com.
KMG America Corporation and Predecessor
Consolidated Statements of Income (GAAP basis, unaudited)
(in thousands, except percentages)
KMG America Predecessor
---------------------- -----------
Quarter Ended
----------------------------------
12/31/2005 9/30/2005 12/31/2004
----------- ---------- -----------
Insurance premiums, net of
reinsurance $27,450 $26,423 $25,604
Net investment income 7,203 7,089 6,029
Commission and fee income 3,553 3,773 3,302
Realized investment gains 34 278 3,142
Other income 898 1,200 851
----------- ---------- -----------
Total revenues 39,138 38,763 38,928
Policyholder benefits 21,322 21,890 21,960
Insurance commissions, net of
deferrals 2,353 2,239 2,540
Expenses, taxes, fees and
depreciation 12,643 12,199 10,082
Amortization of DAC and VOBA (1) 706 463 2,640
----------- ---------- -----------
Total benefits and expenses 37,024 36,791 37,222
Income before income taxes 2,114 1,972 1,706
(Provision) for income taxes (702) (634) (819)
----------- ---------- -----------
Net income before accounting
changes 1,412 1,338 887
Cumulative accounting changes, net
of tax 176 - -
----------- ---------- -----------
Net income $1,588 $1,338 $887
==================================
Operating income (2) $1,463 $1,249 $(945)
Operating income excl. KMGA new
activity $3,685 $3,451 $(201)
(see table below)
Benefit ratio (3) 77.7% 82.8% 85.8%
Average portfolio yield (4) 4.88% 4.81% 4.54%
Average invested assets $495,358 $482,435 $457,460
Average cash/equivalents & short
terms (4) 95,232 107,271 73,316
----------- ---------- -----------
Total average cash and invested
assets $590,591 $589,707 $530,777
KMG America new activity:
Insurance premiums, net of
reinsurance $1,824 $1,009 $-
Net investment income - - -
----------- ---------- -----------
Total revenues 1,824 1,009 -
Policyholder benefits 1,137 623 -
Insurance commissions, net of
deferrals 182 103 -
Expenses, taxes, fees and
depreciation 3,858 3,549 1,144
Amortization of DAC and VOBA (1) 65 121 -
----------- ---------- -----------
Total benefits and expenses 5,242 4,396 1,144
Income before income taxes (3,418) (3,387) (1,144)
(Provision) for income taxes 1,196 1,185 400
----------- ---------- -----------
Net income $(2,222) $(2,202) $(744)
==================================
KMG America Predecessor
----------- -----------
Twelve Months Ended
-----------------------
12/31/2005 12/31/2004
----------- -----------
Insurance premiums, net of reinsurance $106,888 $102,836
Net investment income 27,745 25,202
Commission and fee income 14,565 13,475
Realized investment gains 358 9,433
Other income 3,868 3,108
----------- -----------
Total revenues 153,424 154,054
Policyholder benefits 84,288 90,175
Insurance commissions, net of deferrals 9,635 9,690
Expenses, taxes, fees and depreciation 49,421 34,965
Amortization of DAC and VOBA (1) 3,468 9,468
----------- -----------
Total benefits and expenses 146,812 144,298
Income before income taxes 6,612 9,756
(Provision) for income taxes (2,128) (3,566)
----------- -----------
Net income before accounting changes 4,484 6,190
Cumulative accounting changes, net of tax 176 -
----------- -----------
Net income $4,660 $6,190
=======================
Operating income (2) $4,416 $1,332
Operating income excl. KMGA new activity $13,039 $2,076
(see table below)
Benefit ratio (3) 78.9% 87.7%
Average portfolio yield (4) 4.77% 5.41%
Average invested assets $486,691 $460,333
Average cash/equivalents & short terms (4) 94,367 34,169
----------- -----------
Total average cash and invested assets $581,058 $494,502
KMG America new activity:
Insurance premiums, net of reinsurance $2,929 $-
Net investment income - -
----------- -----------
Total revenues 2,929 -
Policyholder benefits 1,830 -
Insurance commissions, net of deferrals 299 -
Expenses, taxes, fees and depreciation 13,880 1,144
Amortization of DAC and VOBA (1) 186 -
----------- -----------
Total benefits and expenses 16,195 1,144
Income before income taxes (13,266) (1,144)
(Provision) for income taxes 4,643 400
----------- -----------
Net income $(8,623) $(744)
=======================
(1) DAC: Deferred Acquisition Costs; VOBA: Value of Business Acquired.
(2) Operating income is defined as net income excluding realized
investment gains/losses (except for realized investment
gains/losses that are directly offset by executive deferred
compensation expense), net of income taxes and certain
non-recurring items, net of income taxes. Operating income for the
twelve months ended December 31, 2004 included the one-time $1.0
million, net of tax, incentive payment identified in footnote (4)
below.
(3) Benefit ratio is defined as policyholder benefits (equal to
incurred claims plus increases in policyholder active life
reserves) divided by net premiums.
(4) Average portfolio yield is defined as net investment income
divided by average invested assets plus average cash and
equivalents. Average cash/equivalents and short term assets
include the portion of initial public offering proceeds that are
invested short (less than 2 year maturities). Note that the twelve
months ended December 31, 2004 average portfolio yield excludes
the impact of the one-time pretax $1.6 million incentive payment
to one of Kanawha's outside investment managers at the conclusion
of the contract period.
KMG America Corporation
Consolidated Statements of Income (GAAP basis, unaudited)
(in thousands, except percentages)
Period Covering January 21, 2004 through December 31, 2004
Quarter Ended Twelve Months Ended
------------------- -------------------
12/31/2004 12/31/2004
------------------- -------------------
Insurance premiums, net of
reinsurance $- $-
Net investment income 18 18
Commission and fee income - -
Realized investment gains - -
Other income - -
------------------- -------------------
Total revenues 18 18
Policyholder benefits - -
Insurance commissions, net of
deferrals - -
Expenses, taxes, fees and
depreciation 288 288
Amortization of DAC and VOBA
(1) - -
------------------- -------------------
Total benefits and expenses 288 288
Income before income taxes (270) (270)
(Provision) for income taxes 94 94
------------------- -------------------
Net income $(176) $(176)
=================== ===================
(1) DAC: Deferred Acquisition Costs; VOBA: Value of Business Acquired.
KMG America Corporation and Subsidiary
Consolidated Balance Sheets
(in thousands, except share data)
December 31, 2005 December 31, 2004(1)
----------------- -----------------
(Unaudited)
Assets:
Cash and cash equivalents $32,583 $117,400
Investments 543,307 461,141
----------------- -----------------
Total cash and investments 575,890 578,541
Accrued investment income 5,917 4,912
DAC 14,032 -
VOBA 72,639 74,481
Other assets (2) 128,887 112,117
----------------- -----------------
Total assets $797,365 $770,051
================= =================
Liabilities and shareholders'
equity:
Total policy and contract
liabilities $547,894 $530,915
Deferred income taxes 13,061 6,502
Other liabilities (3) 48,927 44,846
----------------- -----------------
Total liabilities 609,882 582,263
Total shareholders' equity 187,483 187,788
----------------- -----------------
Total liabilities and
shareholders' equity $797,365 $770,051
================= =================
Book value per share: (4)
Basic $8.47 $8.51
Diluted $8.47 $8.44
Book value per share: (excl FAS
115) (5)
Basic $8.70 $8.51
Diluted $8.70 $8.44
Ending shares outstanding:
Basic 22,126 22,072
Diluted (6) 22,131 22,242
(1) December 31, 2004 balance sheet is stated on PGAAP accounting
basis and reflects the balance sheets of both the Predecessor and
KMG America as of December 31, 2004. Please refer to the
supplemental schedule included here with the details of the PGAAP
and KMG America adjustments.
(2) Other assets include reinsurance balances recoverable, real estate
and equipment, federal income tax recoverable and other assets.
(3) Other liabilities include accounts payable and accrued expenses,
$15.6 million of outstanding principal and accrued interest on a
subordinated note as of December 31, 2005, and other miscellaneous
liabilities.
(4) Book values per share on December 31, 2004, are based on the
number of shares issued in the IPO plus restricted shares issued
subsequent to the IPO.
(5) The book values are recalculated excluding $5.0 million of
unrealized capital losses, net of taxes, on December 31, 2005.
Unrealized capital gains were $0 on December 31, 2004.
(6) Diluted shares were calculated using the treasury stock method.
KMG America Corporation and Predecessor
Consolidated Statements of Income - Unaudited, Predecessor 2004
Results Adjusted to PGAAP (Pro Forma)
(in thousands, except share data and percentages)
KMG America Predecessor
---------------------- -----------
Quarter Ended
----------------------------------
12/31/2005 9/30/2005 12/31/2004
----------- ---------- -----------
(Pro
Forma)
Insurance premiums, net of
reinsurance $27,450 $26,423 $25,604
Net investment income 7,203 7,089 5,573
Commissions and fee income 3,553 3,773 3,302
Realized investment gains 34 278 3,142
Other income 898 1,200 851
----------- ---------- -----------
Total revenues 39,138 38,763 38,472
Policyholder benefits 21,322 21,890 18,622
Insurance commissions, net of
deferrals 2,353 2,239 2,540
Expenses, taxes, fees and
depreciation 12,643 12,199 10,225
Amortization of DAC & VOBA 706 463 1,337
----------- ---------- -----------
Total benefits and expenses 37,024 36,791 32,724
Income before income taxes 2,114 1,972 5,748
(Provision) for income taxes (702) (634) (2,234)
----------- ---------- -----------
Net income before accounting
changes 1,412 1,338 3,514
Cumulative accounting changes,
net of tax 176 - -
----------- ---------- -----------
Net income $1,588 $1,338 $3,514
==================================
Net income per share:
Basic $0.07 $0.06 $0.16
Diluted $0.07 $0.06 $0.16
Operating income (loss) : (1)
Worksite insurance business $324 $(535) $801
Senior market insurance 670 948 1,652
Third party administration
business 172 367 67
Acquired business 789 500 (164)
Corporate and other (491) (31) (672)
----------- ---------- -----------
Total operating income $1,463 $1,249 $1,683
Total excluding KMGA new
activity $3,685 $3,451 $2,426
Operating income per share:
Basic $0.07 $0.06 $0.08
Diluted $0.07 $0.06 $0.08
Diluted - excl. KMGA new
activity $0.17 $0.16 $0.11
Weighted-average shares outstanding:
Basic 22,108 22,090 22,108 (2)
Diluted 22,110 22,094 22,110 (2)
Benefit ratio 77.7% 82.8% 72.7%
Average portfolio yield (3) 4.88% 4.81% 4.20%
KMG America Predecessor
----------- -----------
Twelve Months Ended
-----------------------
12/31/2005 12/31/2004
----------- -----------
(Pro
Forma)
Insurance premiums, net of reinsurance $106,888 $102,836
Net investment income 27,745 23,318
Commissions and fee income 14,565 13,475
Realized investment gains 358 9,433
Other income 3,868 3,108
----------- -----------
Total revenues 153,424 152,170
Policyholder benefits 84,288 78,412
Insurance commissions, net of deferrals 9,635 9,690
Expenses, taxes, fees and depreciation 49,421 35,536
Amortization of DAC & VOBA 3,468 4,293
----------- -----------
Total benefits and expenses 146,812 127,931
Income before income taxes 6,612 24,239
(Provision) for income taxes (2,128) (8,635)
----------- -----------
Net income before accounting changes 4,484 15,604
Cumulative accounting changes, net of tax 176 -
----------- -----------
Net income $4,660 $15,604
=======================
Net income per share:
Basic $0.21 $0.71
Diluted $0.21 $0.71
Operating income (loss) : (1)
Worksite insurance business $(38) $2,906
Senior market insurance 2,871 5,307
Third party administration business 929 712
Acquired business 2,746 1,579
Corporate and other (2,091) 242
----------- -----------
Total operating income $4,416 $10,746
Total excluding KMGA new activity $13,039 $11,489
Operating income per share:
Basic $0.20 $0.49
Diluted $0.20 $0.49
Diluted - excl. KMGA new activity $0.59 $0.52
Weighted-average shares outstanding:
Basic 22,086 22,086 (2)
Diluted 22,091 22,091 (2)
Benefit ratio 78.9% 76.2%
Average portfolio yield (3) 4.77% 5.03%
(1) Operating income is defined as net income excluding realized
investment gains (losses), net of income taxes and certain
non-recurring items, net of income taxes. Operating income for the
twelve months ended December 31, 2004, included the one-time $1.0
million, net of tax, incentive payment to one of Kanawha's outside
investment managers in March, 2004.
(2) Shares outstanding for the three months and twelve months ended
December 31, 2004 assume the same number of shares outstanding as
the three months and twelve months ended December 31, 2005,
respectively.
(3) Average portfolio yield is defined as net investment income
divided by average invested assets plus average cash and
equivalents. Note that twelve months year-to-date 2004 average
portfolio yield excludes the impact of the one-time pretax $1.6
million incentive payment identified in note 1.
PRO FORMA SEGMENT RESULTS (Unaudited)
(in thousands)
To supplement the financial statements presented on a GAAP basis, the
Company reported "pro forma" financial information that adjusts the
income statements for the quarter and twelve months ended December 31,
2004 for the actual dollar impact that the December 31, 2004, balance
sheet PGAAP adjustments had on the income statements for the quarter
and twelve months ended December 31, 2005, respectively. Pretax
operating income excludes realized investment gains/losses (except for
realized gains/losses that are directly offset by executive deferred
compensation expenses) and other nonrecurring items.
KMG America Predecessor
---------------------- -----------
Quarter Ended
----------------------------------
12/31/2005 9/30/2005 12/31/2004
----------- ---------- -----------
Worksite insurance business - (Pro Forma)
Legacy:
Insurance premiums, net of
reinsurance $13,912 $14,097 $14,002
Net investment income 1,602 1,537 1,385
Commissions and fee income - - -
Realized investment gains - - -
Other income 42 40 45
----------- ---------- -----------
Total revenues 15,556 15,674 15,432
Policyholder benefits 9,367 10,878 9,250
Insurance commissions, net of
deferrals 833 745 1,061
Expenses, taxes, fees and
depreciation 2,539 2,414 2,688
Amortization of DAC and VOBA 766 992 1,201
----------- ---------- -----------
Total benefits and expenses 13,505 15,029 14,200
----------- ---------- -----------
Income before income taxes $2,051 $645 $1,232
==================================
Total assets $166,402 $167,107 $169,761
==================================
Worksite insurance business -
KMGA:
Insurance premiums, net of
reinsurance $1,824 $1,009 $-
Net investment income - - -
Commissions and fee income - - -
Realized investment gains - - -
Other income - - -
----------- ---------- -----------
Total revenues 1,824 1,009 -
Policyholder benefits 1,137 623 -
Insurance commissions, net of
deferrals 182 103 -
Expenses, taxes, fees and
depreciation 1,992 1,630 -
Amortization of DAC and VOBA 65 121 -
----------- ---------- -----------
Total benefits and expenses 3,376 2,477 -
----------- ---------- -----------
Income before income taxes $(1,552) $(1,468) $-
==================================
Total assets $- $- $-
==================================
Senior market insurance business:
Insurance premiums, net of
reinsurance $10,135 $10,376 $10,267
Net investment income 1,297 1,195 928
Commissions and fee income - - -
Realized investment gains - - -
Other income 747 732 677
----------- ---------- -----------
Total revenues 12,179 12,303 11,872
Policyholder benefits 8,989 8,845 6,558
Insurance commissions, net of
deferrals 1,240 1,294 1,373
Expenses, taxes, fees and
depreciation 770 1,098 1,020
Amortization of DAC and VOBA 150 (392) 380
----------- ---------- -----------
Total benefits and expenses 11,149 10,845 9,331
----------- ---------- -----------
Income before income taxes $1,030 $1,458 $2,541
==================================
Total assets $193,889 $185,675 $160,382
==================================
KMG America Predecessor
----------- -----------
Twelve Months Ended
-----------------------
12/31/2005 12/31/2004
----------- -----------
Worksite insurance business - Legacy: (Pro Forma)
Insurance premiums, net of reinsurance $57,599 $56,309
Net investment income 6,524 6,255
Commissions and fee income - -
Realized investment gains - -
Other income 172 264
----------- -----------
Total revenues 64,295 62,828
Policyholder benefits 41,726 40,337
Insurance commissions, net of deferrals 3,443 3,780
Expenses, taxes, fees and depreciation 10,151 9,966
Amortization of DAC and VOBA 3,472 4,274
----------- -----------
Total benefits and expenses 58,792 58,357
----------- -----------
Income before income taxes $5,503 $4,471
=======================
Total assets $166,402 $169,761
=======================
Worksite insurance business - KMGA:
Insurance premiums, net of reinsurance $2,929 $-
Net investment income - -
Commissions and fee income - -
Realized investment gains - -
Other income - -
----------- -----------
Total revenues 2,929 -
Policyholder benefits 1,830 -
Insurance commissions, net of deferrals 299 -
Expenses, taxes, fees and depreciation 6,176 -
Amortization of DAC and VOBA 186 -
----------- -----------
Total benefits and expenses 8,491 -
----------- -----------
Income before income taxes $(5,562) $-
=======================
Total assets $- $-
=======================
Senior market insurance business:
Insurance premiums, net of reinsurance $42,240 $42,060
Net investment income 4,641 3,669
Commissions and fee income - -
Realized investment gains - -
Other income 2,935 2,347
----------- -----------
Total revenues 49,816 48,076
Policyholder benefits 35,355 30,108
Insurance commissions, net of deferrals 5,495 5,482
Expenses, taxes, fees and depreciation 3,995 3,695
Amortization of DAC and VOBA 554 627
----------- -----------
Total benefits and expenses 45,399 39,912
----------- -----------
Income before income taxes $4,417 $8,164
=======================
Total assets $193,889 $160,382
=======================
PRO FORMA SEGMENT RESULTS (Unaudited) - Continued
(in thousands)
KMG America Predecessor
---------------------- -----------
Quarter Ended
----------------------------------
12/31/2005 9/30/2005 12/31/2004
----------- ---------- -----------
Third party administration (Pro Forma)
business:
Insurance premiums, net of
reinsurance $- $- $-
Net investment income - - -
Commissions and fee income 3,502 3,696 3,235
Realized investment gains - - -
Other income 2 - -
----------- ---------- -----------
Total revenues 3,504 3,696 3,235
Policyholder benefits - - -
Insurance commissions, net of
deferrals - - -
Expenses, taxes, fees and
depreciation 3,240 3,131 3,132
Amortization of DAC and VOBA - - -
----------- ---------- -----------
Total benefits and expenses 3,240 3,131 3,132
----------- ---------- -----------
Income before income taxes $264 $565 $103
==================================
Total assets $11,103 $10,327 $8,186
==================================
Acquired business:
Insurance premiums, net of
reinsurance $1,579 $941 $1,335
Net investment income 1,964 1,866 1,838
Commissions and fee income - - -
Realized investment gains - - -
Other income 18 20 35
----------- ---------- -----------
Total revenues 3,561 2,827 3,208
Policyholder benefits 1,829 1,543 2,815
Insurance commissions, net of
deferrals 99 98 106
Expenses, taxes, fees and
depreciation 695 675 784
Amortization of DAC and VOBA (276) (258) (244)
----------- ---------- -----------
Total benefits and expenses 2,347 2,058 3,461
----------- ---------- -----------
Income before income taxes $1,214 $769 $(253)
==================================
Total assets $204,288 $207,229 $215,851
==================================
Corporate & other:
Insurance premiums, net of
reinsurance $- $- $-
Net investment income 2,340 2,490 1,422
Commissions and fee income 50 78 67
Realized investment gains - - -
Other income 89 407 95
----------- ---------- -----------
Total revenues 2,479 2,975 1,584
Policyholder benefits - - -
Insurance commissions, net of
deferrals - - -
Expenses, taxes, fees and
depreciation
- Kanawha legacy 1,427 1,191 1,133
- KMG America (KMGA) new activity 1,866 1,919 1,144
Amortization of DAC and VOBA - - -
----------- ---------- -----------
Total benefits and expenses 3,293 3,110 2,277
----------- ---------- -----------
Income (loss) before income taxes $(814) $(135) $(693)
==================================
Income before income taxes
excluding KMGA new activity $1,052 $1,784 $451
Total assets $221,683 $231,785 $216,454
==================================
KMG America Predecessor
----------- -----------
Twelve Months Ended
-----------------------
12/31/2005 12/31/2004
----------- -----------
Third party administration business: (Pro Forma)
Insurance premiums, net of reinsurance $- $-
Net investment income - -
Commissions and fee income 14,264 13,295
Realized investment gains - -
Other income 3 1
----------- -----------
Total revenues 14,267 13,296
Policyholder benefits - -
Insurance commissions, net of deferrals - -
Expenses, taxes, fees and depreciation 12,838 12,200
Amortization of DAC and VOBA - -
----------- -----------
Total benefits and expenses 12,838 12,200
----------- -----------
Income before income taxes $1,429 $1,096
=======================
Total assets $11,103 $8,186
=======================
Acquired business:
Insurance premiums, net of reinsurance $4,119 $4,467
Net investment income 7,808 8,465
Commissions and fee income - -
Realized investment gains - -
Other income 69 115
----------- -----------
Total revenues 11,996 13,047
Policyholder benefits 5,376 7,967
Insurance commissions, net of deferrals 399 428
Expenses, taxes, fees and depreciation 2,741 2,831
Amortization of DAC and VOBA (744) (608)
----------- -----------
Total benefits and expenses 7,772 10,618
----------- -----------
Income before income taxes $4,224 $2,429
=======================
Total assets $204,288 $215,851
=======================
Corporate & other:
Insurance premiums, net of reinsurance $- $-
Net investment income 8,772 6,481
Commissions and fee income 301 180
Realized investment gains - -
Other income 688 381
----------- -----------
Total revenues 9,761 7,042
Policyholder benefits - -
Insurance commissions, net of deferrals - -
Expenses, taxes, fees and depreciation
- Kanawha legacy 5,561 5,293
- KMG America (KMGA) new activity 7,704 1,144
Amortization of DAC and VOBA - -
----------- -----------
Total benefits and expenses 13,265 6,437
----------- -----------
Income (loss) before income taxes $(3,504) $605
=======================
Income before income taxes excluding KMGA
new activity $4,200 $1,749
Total assets $221,683 $216,454
=======================
KMG America Corporation
Reconciliation of Operating Income and Pro Forma Consolidated
Statements of Income (Unaudited)
(in thousands)
KMG America Predecessor
---------------------- -----------
Quarter Ended
----------------------------------
12/31/2005 9/30/2005 12/31/2004
----------- ---------- -----------
Net income as reported $1,588 $1,338 $887
Restatement to purchase accounting:
(1)
Adjustment to investment income
(2) - - (456)
Adjustment to change in benefit
reserves (3) - - 3,338
Amortization of other intangible
assets (4) - - (143)
Amortization of DAC and VOBA (5) - - 1,303
Taxes on the above - - (1,415)
----------- ---------- -----------
Net income - pro forma $1,588 $1,338 $3,514
==================================
Reconciliation to operating income:
Exclude realized investment
gains/losses, net of offset for
deferred compensation expense
(6) 79 (137) (2,818)
Exclude cumulative accounting
changes (271) - -
Exclude one-time investment
expense - - -
Taxes on the above 67 48 986
----------- ---------- -----------
Operating income - pro forma $1,463 $1,249 $1,683
==================================
KMG America Predecessor
----------- -----------
Twelve Months Ended
-----------------------
12/31/2005 12/31/2004
----------- -----------
Net income as reported $4,660 $6,190
Restatement to purchase accounting: (1)
Adjustment to investment income (2) - (1,884)
Adjustment to change in benefit reserves (3) - 11,763
Amortization of other intangible assets (4) - (571)
Amortization of DAC and VOBA (5) - 5,175
Taxes on the above - (5,069)
----------- -----------
Net income - pro forma $4,660 $15,604
=======================
Reconciliation to operating income:
Exclude realized investment gains/losses,
net of offset for deferred compensation
expense (6) (104) (9,026)
Exclude cumulative accounting changes (271) -
Exclude one-time investment expense - 1,552
Taxes on the above 131 2,616
----------- -----------
Operating income - pro forma $4,416 $10,746
=======================
(1) Adjustment of statements of income for the quarter and twelve
month periods ended December 31, 2004, for the actual dollar value
impact that the December 31, 2004, balance sheet PGAAP adjustments
had on the statements of income for the quarter and twelve month
periods ended December 31, 2005, respectively.
(2) Reflects the amortization of fair value adjustment to the cost
basis of Kanawha's fixed income and mortgage loan investments.
(3) To record the adjustment to historical benefit expense to reflect
the new benefit expense relating to the future policy and contract
reserves restated to fair value.
(4) To record amortization of the fair value of $7.7 million of
certain intangible assets including product approvals in 45 states
and future revenues associated with the customer relationships of
Kanawha HealthCare Solutions, a wholly-owned direct subsidiary of
Kanawha.
(5) Reflects the adjustment to remove historical amortization of DAC
and VOBA and to record amortization of the restated VOBA
established on the balance sheet as of December 31, 2004.
(6) Realized investment gains/losses include $254,000 and $113,000 of
gains for both the quarter and twelve months ended December 31,
2005, respectively, related to executive deferred compensation
trading activity that is fully offset in compensation expenses.
Corresponding amounts for the quarter and twelve months ended
December 31, 2004 are $323,000 and $407,000 of losses,
respectively.
Kanawha Predecessor
Reconciliation of Pro Forma Reporting Segment Results (Unaudited)
(in thousands)
Worksite Insurance Segment
Kanawha Legacy Senior Insurance Segment
--------------------------- ---------------------------
Quarter Ended Twelve Months Quarter Ended Twelve Months
Ended Ended
12/31/2004 12/31/2004 12/31/2004 12/31/2004
------------- ------------- ------------- -------------
Pretax income
as reported $(662) $(2,647) $971 $2,638
Restatement to
Purchase
Accounting:
(1)
Adjustment
to
investment
income (2) 307 1,227 (53) (209)
Adjustment
to change
in benefit
reserves
(3) 1,073 3,956 1,730 5,721
Amortization
of DAC and
VOBA (4) 514 1,935 (107) 14
------------- ------------- ------------- -------------
Pretax
operating
income - pro
forma $1,232 $4,471 $2,541 $8,164
=========================== ===========================
Acquired Insurance Segment Corporate and Other Segment
--------------------------- ---------------------------
Quarter Ended Twelve Months Quarter Ended Twelve Months
Ended Ended
12/31/2004 12/31/2004 12/31/2004 12/31/2004
------------- ------------- ------------- -------------
Pretax income
as reported $(1,674) $(2,841) $2,968 $11,510
Adjust for
realized
investment
gains $(3,141) $(9,433)
Adjust for
one-time
incentive
payment $- $1,552
Adjustment
to deferred
comp
expense (5) 323 407
Restatement to
Purchase
Accounting:
(1)
Adjustment
to
investment
income (2) (10) (42) (700) (2,860)
Adjustment
to change
in benefit
reserves
(3) 535 2,086 - -
Amortization
of other
intangible
assets (6) (143) (571)
Amortization
of DAC and
VOBA (4) 896 3,226 - -
------------- ------------- ------------- -------------
Pretax
operating
income - pro
forma $(253) $2,429 $(693) $605
=========================== ===========================
(1) Adjustment of statements of income for the quarter and twelve
month periods ended December 31, 2004, for the actual dollar value
impact that the December 31, 2004, balance sheet PGAAP adjustments
had on the statements of income for the quarter and twelve month
periods ended December 31, 2005, respectively.
(2) Reflects the amortization of fair value adjustment to the cost
basis of Kanawha's fixed income and mortgage loan investments.
(3) To record the adjustment to historical benefit expense to reflect
the new benefit expense relating to the future policy and contract
reserves restated to fair value.
(4) Reflects the adjustment to remove historical amortization of DAC
and VOBA and to record amortization of the restated VOBA
established on the balance sheet as of December 31, 2004.
(5) To offset the increase in executive deferred compensation expense
with the portion of realized capital gains that gave rise to the
deferred compensation expense increase.
(6) To record amortization of the fair value of $7.7 million of
certain intangible assets including product approvals in 45 states
and future revenues associated with the customer relationships of
Kanawha Healthcare Solutions, a wholly-owned direct subsidiary of
Kanawha.
KMG America Corporation and Predecessor
Consolidated Balance Sheet (Unaudited) - December 31, 2004
(in thousands, except per share data)
Purchase
KMG GAAP KMG
Kanawha America Adjustments America
Historical Historical Incr (Decr) Consolidated
---------------------------------- ------------
Assets:
Cash and cash
equivalents $69,268 $48,132 $- $117,400
Investments 459,844 - 1,297 (1) 461,141
---------------------------------- ------------
Total cash and
investments 529,112 48,132 1,297 578,541
Accrued
investment
income 4,909 3 - 4,912
Deferred
acquisition
costs (DAC) 87,339 - (87,339)(2) -
Value of
business
acquired (VOBA) 26,579 - 47,902 (3) 74,481
Goodwill 1,258 - (1,258)(4) -
Other assets 90,971 117 21,029 (5) 112,117
---------- ---------- ------------ ------------
Total Assets $740,168 $48,252 $(18,369) $770,051
================================== ============
Liabilities and
shareholders'
equity:
Total policy and
contract
liabilities $486,654 $- $44,261 (6) $530,915
Deferred income
taxes 28,117 - (21,615)(7) 6,502
Other
liabilities 29,484 16,236 (874)(8) 44,846
---------- ---------- ------------ ------------
Total
Liabilities 544,255 16,236 21,772 582,263
Total
shareholders'
equity 195,913 32,016 (40,141) 187,788
---------- ---------- ------------ ------------
Total
liabilities and
shareholders'
equity $740,168 $48,252 $(18,369) $770,051
================================== ============
Book value per
share:
Basic $8.51
Diluted $8.44
Ending shares
outstanding:
Basic 22,072
Diluted 22,242
(1) To value Kanawha's investment portfolio at its estimated fair
value.
(2) To eliminate Kanawha's deferred acquisition cost balance.
(3) To eliminate Kanawha's value of business acquired and replace it
with the present value of future profits of the business acquired.
(4) To eliminate Kanawha's goodwill balance.
(5) To record the fair value of certain intangible assets including
trade names ($6.1 million); licenses to conduct insurance in 45
states ($3.7 million); product approvals in 45 states ($2.8
million); future revenues associated with the customer
relationships of Kanawha HealthCare Solutions ($4.9 million); and
change in fair value of reinsurance receivable asset ($3. 5
million) related to ceded portion of policy and contract reserves
referenced in footnote 6.
(6) To record the change in Kanawha's policy and contract reserves to
fair value (direct before reinsurance ceded).
(7) To adjust the deferred tax liability of Kanawha to account for the
difference between the estimated fair value of the net assets
acquired and the tax basis of the net assets acquired.
(8) To adjust miscellaneous other liabilities to estimated fair value.
KMG America Corporation and Predecessor
Statistical and Operating Data at or for the Periods Indicated
(in thousands, except percentages)
OTHER FINANCIAL DATA
Unaudited KMG America Predecessor
---------------------- -----------
Quarter Ended
----------------------------------
12/31/2005 9/30/2005 12/31/2004
----------- ---------- -----------
Sales - issued and paid for annualized
premiums:
Worksite insurance segment - Kanawha Legacy
Life $448 $709 $619
Cancer 504 542 654
Disability income 1,249 821 1,618
Other A&H 1,098 328 2,153
----------- ---------- -----------
Total worksite - Kanawha Legacy 3,299 2,400 5,044
Worksite insurance segment - KMG America (KMGA) New
Activity
Core Group Products:
Life $- $- $-
Stop loss 4,124 2,993 -
Disability income - - -
Other A&H - - -
Voluntary Benefit Products:
Life 167 219 -
Cancer 125 18 -
Disability income 1,331 836 -
Other A&H 244 299 -
----------- ---------- -----------
Total worksite - KMGA New
Activity 5,991 4,365 -
Senior market insurance segment
Long term care 260 360 513
----------- ---------- -----------
Total senior market insurance 260 360 513
Total sales $9,550 $7,125 $5,557
==================================
OTHER FINANCIAL DATA
Unaudited KMG America Predecessor
----------- -----------
Twelve Months Ended
-----------------------
12/31/2005 12/31/2004
----------- -----------
Sales - issued and paid for annualized premiums:
Worksite insurance segment - Kanawha Legacy
Life $2,453 $2,218
Cancer 1,984 2,381
Disability income 4,314 5,325
Other A&H 2,400 3,182
----------- -----------
Total worksite - Kanawha Legacy 11,151 13,106
Worksite insurance segment - KMG America (KMGA) New
Activity
Core Group Products:
Life $- $-
Stop loss 8,245 -
Disability income - -
Other A&H - -
Voluntary Benefit Products:
Life 395 -
Cancer 223 -
Disability income 2,758 -
Other A&H 544 -
----------- -----------
Total worksite - KMGA New Activity 12,165 -
Senior market insurance segment
Long term care 1,616 3,446
----------- -----------
Total senior market insurance 1,616 3,446
Total sales $24,932 $16,552
=======================
Quarter Ended
----------------------------------
12/31/2005 9/30/2005 12/31/2004
----------- ---------- -----------
Pro forma benefit ratios: (1) (Pro forma)
Worksite insurance - Kanawha
legacy 67.3% 77.2% 66.1%
Worksite insurance - KMGA new
activity 62.3% 61.7% -
Senior market insurance 88.7% 85.2% 63.9%
Acquired business 115.8% 164.0% 210.9%
Total company 77.7% 82.8% 72.7%
Twelve Months Ended
-----------------------
12/31/2005 12/31/2004
----------- -----------
Pro forma benefit ratios: (1) (Pro forma)
Worksite insurance - Kanawha legacy 72.4% 71.6%
Worksite insurance - KMGA new activity 62.5% -
Senior market insurance 83.7% 71.6%
Acquired business 130.5% 178.4%
Total company 78.9% 76.2%
(1) benefit ratio is defined as total policyholder benefits divided by
total net premiums. Benefit ratios for the quarter and twelve
months ended December 31, 2004 have been adjusted to reflect the
application of purchase accounting consistent with the earnings
measurement basis in 2005.
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