UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 12b-25
NOTIFICATION OF LATE FILING | ||||
SEC FILE NUMBER 000-50795 | ||||
CUSIP NUMBER 008272 10 6 |
(Check one): | x Form 10-K ¨ Form 20-F ¨ Form 11-K ¨ Form 10-Q ¨ Form 10-D ¨ Form N-SAR ¨ Form N-CSR | |
| For Period Ended: December 31, 2008 | ||
| ¨ Transition Report on Form 10-K | ||
| ¨ Transition Report on Form 20-F | ||
| ¨ Transition Report on Form 11-K | ||
| ¨ Transition Report on Form 10-Q | ||
| ¨ Transition Report on Form N-SAR | ||
| For the Transition Period Ended: | ||
Nothing in this form shall be construed to imply that the Commission has verified any information contained herein. |
If the notification relates to a portion of the filing checked above, identify the Item(s) to which the notification relates: N/A
PART I — REGISTRANT INFORMATION
| AFFIRMATIVE INSURANCE HOLDINGS, INC. |
| Full Name of Registrant |
| Former Name if Applicable |
| 4450 Sojourn Drive, Suite 500 |
| Address of Principal Executive Office (Street and Number) |
| Addison, Texas 75001 |
| City, State and Zip Code |
PART II — RULES 12b-25(b) AND (c)
If the subject report could not be filed without unreasonable effort or expense and the registrant seeks relief pursuant to Rule 12b-25(b), the following should be completed. (Check box if appropriate)
x | (a) | The reason described in reasonable detail in Part III of this form could not be eliminated without unreasonable effort or expense; | ||
| (b) | The subject annual report, semi-annual report, transition report on Form 10-K, Form 20-F, Form 11-K, Form N-SAR or Form N-CSR, or portion thereof, will be filed on or before the fifteenth calendar day following the prescribed due date; or the subject quarterly report or transition report on Form 10-Q, or portion thereof, will be filed on or before the fifth calendar day following the prescribed due date; and | |||
| (c) | The accountant’s statement or other exhibit required by Rule 12b-25(c) has been attached if applicable. |
PART III — NARRATIVE
State below in reasonable detail why Forms 10-K, 20-F, 11-K, 10-Q, 10-D, N-SAR, N-CSR, or the transition report or portion thereof, could not be filed within the prescribed time period.
Affirmative Insurance Holdings, Inc. (the “Company”) will be unable to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Form 10-K”) by the March 16, 2009 due date since the Company is still evaluating its interim testing of goodwill impairment. The Company had completed its annual assessment of goodwill impairment as of September 30, 2008 and determined that no impairment existed at that point in time.
Due to the additional time required by the Company to complete this activity, the Company cannot file its 2008 Form 10-K within the prescribed period. The Company’s 2008 Form 10-K will be filed by the fifteenth calendar day (March 31, 2009) following the date on which the 2008 Form 10-K was due (March 16, 2009).
PART IV — OTHER INFORMATION
| (1) | Name and telephone number of person to contact in regard to this notification |
| Michael J. McClure | 630 | 560-7205 | ||
| (Name) | (Area Code) | (Telephone Number) |
| (2) | Have all other periodic reports required under Section 13 or 15(d) of the Securities Exchange Act of 1934 or Section 30 of the Investment Company Act of 1940 during the preceding 12 months or for such shorter period that the registrant was required to file such report(s) been filed ? If answer is no, identify report(s). Yes x No ¨ |
| (3) | Is it anticipated that any significant change in results of operations from the corresponding period for the last fiscal year will be reflected by the earnings statements to be included in the subject report or portion thereof? Yes x No ¨ |
If so, attach an explanation of the anticipated change, both narratively and quantitatively, and, if appropriate, state the reasons why a reasonable estimate of the results cannot be made.
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The preliminary financial results presented below reflect the Company’s preliminary results for the year ended December 31, 2008 and exclude any impact from the Company’s ongoing evaluation of any possible goodwill impairment.
The Company had preliminary net income for the year ended December 31, 2008 of $1.4 million, or $0.09 per share, compared with net income of $9.7 million, or $0.63 per share, in the prior year. Significant items impacting 2008 results included the following:
| • | Total gross written premium production declined $57.6 million, or 13.0%, to $385.1 million in 2008, compared with $442.7 million in 2007. This decline was due to the macroeconomic effects that impacted the industry during the year including higher fuel prices as well as the ongoing overall “soft” insurance market. The Company had smaller declines in production in the fourth quarter than those that existed in the third quarter. |
| • | The loss ratio for the year (losses and loss adjustment expenses divided by net premiums earned) increased to 76.8% in 2008, compared with 71.4% in 2007, primarily due to increased losses from Florida policies. The Florida losses were the result of our decision to push the full coverage product in Florida in 2007 in response to the Personal Injury Protection (PIP) sunset in that state on October 1, 2007. Inadequate pricing and product management of this product produced significantly higher losses than anticipated. We have drastically reduced the production of this product by restricting writings by agent, territory and coverage based on where significant loss ratio swings occurred. In addition, the Company had $2.5 million in losses in 2008 related to Hurricanes Gustav and Ike. |
| • | The Company had a net $1.5 million loss related to auction-rate securities in its investment portfolio. This is explained more fully below. |
| • | Selling, general and administrative expenses decreased $17.9 million, or 11.1%, to $144.3 million, compared with $162.2 million in 2007. The overall decrease was primarily due to a reduction in operating expenses primarily due to lower premium production and management’s efforts to reduce expenses in response to the decline in premium production volume. |
| • | In the third quarter of 2008, the Company recorded a $4.6 million impairment loss related to its identified intangible assets related to its Florida operations. |
The 2008 results included a net $1.5 million loss related to our auction-rate security holdings. In August 2008, our broker announced settlements in principle with each of the Division Enforcement of the U.S. Securities and Exchange Commission (SEC), the New York Attorney General and other state agencies to purchase all of its clients’ auction-rate securities at par and several other items including fines. In October 2008, our broker filed a prospectus with the SEC, which published a legally-binding offer to all authorized holders of auction-rate securities in our broker’s accounts (“the settlement”). The majority of our auction-rate securities qualify under the terms of our broker’s prospectus. The time frames that our broker has set for buybacks have different start dates based upon the individual client’s size, which is determined by each client’s balance of investments held at our broker. For the majority of our auction-rate holdings, the buybacks are expected to occur between July 2010 and two years thereafter. In November 2008, the Company elected to participate in our broker’s offer to purchase our auction-rate securities at par. In November 2008, we classified our portfolio of auction-rate securities as trading and recorded a realized loss of $11.1 million for the difference in fair value and carrying amount. The fair value of the settlement was $9.6 million which we elected to report in other assets with changes in fair value reported in other income. The $1.5 million loss is expected to reverse into income over the period until the settlement occurs.
We have begun discussions with the lending group with respect to a possible waiver or modification of certain covenants relating to our senior secured credit facility. A waiver or modification could result in the payment of substantial fees, higher interest rates or other costs. If we are unable to meet one or more covenants and cannot obtain a waiver or modification of them, we would be in default under the related credit agreement, which could allow the lenders to declare all amounts outstanding under the facility to be due and payable. This could have a material adverse effect on our financial position and results of operations. There can be no assurance that we will be successful in our efforts to modify or waive the financial covenants under our credit facility. In addition, our independent registered public accountants have indicated that absent a waiver or modification of the credit facility they will include in their report an explanatory paragraph that this uncertainty raises substantial doubt about the Company’s ability to continue as a going concern.
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AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
PRELIMINARY CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except share data)
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Assets | ||||||||
Investment securities, at fair value | ||||||||
Trading securities | $ | 40,155 | $ | — | ||||
Available-for-sale securities | 218,988 | 390,109 | ||||||
Cash and cash equivalents | 66,513 | 44,048 | ||||||
Fiduciary and restricted cash | 20,109 | 13,591 | ||||||
Accrued investment income | 3,106 | 3,736 | ||||||
Premiums and fees receivable | 57,805 | 69,154 | ||||||
Premium finance receivable, net | 40,987 | 34,208 | ||||||
Commissions receivable | 1,840 | 2,156 | ||||||
Receivable from reinsurers, net | 63,331 | 66,839 | ||||||
Deferred acquisition costs | 21,993 | 24,536 | ||||||
Deferred tax assets | 16,459 | 10,973 | ||||||
Federal income taxes receivable | 1,316 | 5,562 | ||||||
Investment in real property, net | 5,848 | 5,964 | ||||||
Property and equipment, net | 42,143 | 29,444 | ||||||
Goodwill | 163,650 | 163,462 | ||||||
Other intangible assets, net | 17,255 | 23,623 | ||||||
Prepaid expenses | 8,967 | 11,011 | ||||||
Other assets, net of allowance for doubtful accounts of $7,213 for 2008 and 2007 (includes Other receivables of $9,647) | 11,586 | 2,221 | ||||||
Total assets | $ | 802,051 | $ | 900,637 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Liabilities | ||||||||
Reserves for losses, loss adjustment expenses and deposits | $ | 204,637 | $ | 227,947 | ||||
Unearned premium | 109,097 | 126,289 | ||||||
Amounts due reinsurers | 5,146 | 3,606 | ||||||
Deferred revenue | 5,943 | 6,922 | ||||||
Senior secured credit facility | 136,677 | 196,966 | ||||||
Notes payable | 76,909 | 76,930 | ||||||
Other liabilities | 47,159 | 44,932 | ||||||
Total liabilities | 585,568 | 683,592 | ||||||
Stockholders’ Equity | ||||||||
Common stock, $0.01 par value; 75,000,000 shares authorized, 17,768,721 shares issued and 15,415,358 shares outstanding at December 31, 2008; 17,768,721 shares issued and 15,415,358 shares outstanding at December 31, 2007 | 178 | 178 | ||||||
Additional paid-in capital | 163,707 | 162,603 | ||||||
Treasury stock, at cost (2,353,363 shares at December 31, 2008 and 2007) | (32,880 | ) | (32,880 | ) | ||||
Accumulated other comprehensive income (loss) | (1,849 | ) | 22 | |||||
Retained earnings | 87,327 | 87,122 | ||||||
Total stockholders’ equity | 216,483 | 217,045 | ||||||
Total liabilities and stockholders’ equity | $ | 802,051 | $ | 900,637 | ||||
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AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
PRELIMINARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
| Year Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Net premiums earned | $ | 357,301 | $ | 396,043 | $ | 288,110 | ||||||
Commission income and fees | 78,926 | 88,146 | 60,995 | |||||||||
Net investment income | 13,749 | 16,444 | 8,829 | |||||||||
Net realized losses | (10,700 | ) | (599 | ) | (822 | ) | ||||||
Other income | 9,647 | — | — | |||||||||
Total revenues | 448,923 | 500,034 | 357,112 | |||||||||
Expenses | ||||||||||||
Losses and loss adjustment expenses | 274,391 | 289,724 | 185,346 | |||||||||
Selling, general and administrative expenses | 144,269 | 162,216 | 150,540 | |||||||||
Depreciation and amortization | 9,187 | 11,260 | 4,398 | |||||||||
Impairment of intangible assets | 4,609 | — | — | |||||||||
Interest expense | 18,404 | 25,060 | 4,342 | |||||||||
Total expenses | 450,860 | 488,260 | 344,626 | |||||||||
Income (loss) before income tax expense (benefit) and minority interest | (1,937 | ) | 11,774 | 12,486 | ||||||||
Income tax expense (benefit) | (3,375 | ) | 2,105 | 2,661 | ||||||||
Minority interest, net of income taxes | — | — | 81 | |||||||||
Net income | $ | 1,438 | $ | 9,669 | $ | 9,744 | ||||||
Net income per common share: | ||||||||||||
Basic | $ | 0.09 | $ | 0.63 | $ | 0.64 | ||||||
Diluted | $ | 0.09 | $ | 0.63 | $ | 0.63 | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 15,415 | 15,371 | 15,295 | |||||||||
Diluted | 15,415 | 15,382 | 15,345 | |||||||||
Dividends declared per common share | $ | 0.08 | $ | 0.08 | $ | 0.08 | ||||||
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| AFFIRMATIVE INSURANCE HOLDINGS, INC. |
| (Name of Registrant as Specified in Charter) |
has caused this notification to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: March 16, 2009 | By: | /s/ Michael J. McClure | ||
| Michael J. McClure | ||||
| Executive Vice President and Chief Financial Officer |
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