DALLAS, March 29 /PRNewswire-FirstCall/ — GAINSCO, INC. today reported net income for the fourth quarter 2005 of $5.5 million. Net income available to common shareholders for the same period, after the accretion of the discount and the dividend on redeemable preferred stock, was $4.9 million, or $0.24 per common share, basic and diluted.
For the twelve months ended December 31, 2005, net income was $8.9 million. After including the effect of the accretion of the discount and the dividends on redeemable preferred stock, net income available to common shareholders for the same period was $6.0 million, or $0.33 per common share, basic and diluted.
During the fourth quarter of 2005, the Company recorded a deferred tax benefit of $3.6 million as a result of a reduction in the valuation allowance for its deferred Federal income tax assets. The Company had previously recorded a 100% valuation allowance against its deferred tax assets (net operating loss carryforwards and other temporary differences) due to uncertainty, at the time, of future taxable income that could utilize those assets. Because of continued increasing levels of taxable operating income and continued positive expectations for the future, the Company considered it proper to reduce the valuation allowance. As of December 31, 2005, the deferred tax asset was $27.2 million and the remaining valuation allowance was $23.5 million. In addition, net income for the quarter included a $1.5 million non-cash expense associated with the grant of restricted shares and units under the Company’s 2005 Long-Term Incentive Compensation Plan approved by shareholders at the Company’s annual meeting in November 2005.
“Operationally, the Company continued to invest in building a long-term franchise in the nonstandard personal automobile insurance industry,” said Glenn W. Anderson, President and Chief Executive Officer. “Significant expenditures continue to be made in expanding the long-term processing and servicing capacity of our new operating center in Dallas and in marketing initiatives to accelerate the growth of our agency distribution network and customer base. While these expenditures are substantial and are, along with the generally higher loss ratios on new business, minimizing current returns, we continue to focus on the longer-term potential of our developing Company.
“In the first quarter of 2006, the Company addressed one component of its capital structure with the issuance, through a wholly-owned subsidiary, of 30- year capital securities, the net proceeds of which were used primarily to redeem our preferred stock obligation due in five years. Our growth, however, continues to place demands on the overall capital adequacy of the Company. We continue to caution that the financial and operational risks and uncertainties associated with our capital plan and the execution of our business plan are significant and could potentially alter our business plan in the future,” added Anderson.
Gross premiums written by geographic region for the quarters and twelve months ended December 31, 2005 and December 31, 2004, are as follows:
Quarter ended Twelve months ended (dollars in millions) December 31 December 31 2005 2004 2005 2004 Regions: Southeast $ 21.0 9.9 73.1 39.4 South Central $ 9.2 0.9 16.9 2.5 Southwest $ 4.1 1.4 12.6 1.9 West $ 2.2 0.0 10.0 0.0 Total $ 36.5 12.2 112.6 43.8
Beginning in the fourth quarter 2005, policy fees were reclassified from Other income to Gross premiums written. Additionally, the Company began recognizing policy fees revenue in Net premiums earned over the period of the underlying policy.
GAAP ratios for the quarters and twelve months ended December 31, 2005 and December 31, 2004, are as follows:
Quarter ended Twelve months ended December 31 December 31 2005 2004 2005 2004 Claims and Claims Adjustment Expense Ratio 61.0 % 72.2 % 67.3 % 69.1 % Expense Ratio 31.8 % 26.7 % 27.9 % 27.5 % Combined Ratio 92.8 % 98.9 % 95.2 % 96.6 %
The combined ratios and expense ratios presented above do not include expenses of the holding company.
During the fourth quarter 2005, the Company continued to adjust and settle claims associated with its discontinued commercial lines business, which continues in runoff, reducing the outstanding inventory of claims from 181 to 149. As a result of the beneficial outcome of claims settled in the fourth quarter 2005, and after updating the assessment of remaining claims and claims expected to be received in the future, the Company’s estimate of ultimate liabilities for discontinued lines was reduced by $2.5 million. This reduction in estimated ultimate liabilities is comprised of a $2.0 million reduction in commercial automobile, a $0.7 million reduction in general liability and a $0.2 million increase in other miscellaneous lines.
For the full year 2005, the inventory of outstanding claims associated with discontinued commercial lines decreased from 264 to 149. The Company’s estimated ultimate liabilities for discontinued lines were reduced by $4.6 million during 2005 as a result of the beneficial outcome of claims settled throughout the year and the Company’s update each quarter of its assessment of remaining claims and claims expected to be received in the future. The $4.6 million reduction in estimated ultimate liabilities for 2005 is comprised of a $5.3 million reduction in commercial automobile, a $0.8 million reduction in general liability and a $1.5 million increase in other miscellaneous lines.
The claims and claims adjustment expense (“C&CAE”) ratio for the Company’s nonstandard personal automobile operations for the fourth quarter 2005 was 69.5%. The C&CAE ratio for 2005 for the same business was 72.6% versus 70.1% for 2004. The increase from 2004 to 2005 was primarily due to favorable development in estimated ultimate liabilities in 2004 which recurred at a lower level of magnitude in 2005 than in 2004 and to generally higher ratios on new business.
As of December 31, 2005, the Company had $55.8 million in net unpaid C&CAE (Unpaid C&CAE of $78.5 million less Ceded unpaid C&CAE of $22.7 million). This includes net unpaid C&CAE of $28.6 million at December 31, 2005, in respect of the Company’s runoff lines.
The Company’s capital base (total assets less total liabilities) at December 31, 2005 was $73.2 million. This amount consisted of Shareholders’ Equity of $56.6 million and Redeemable convertible preferred stock – Series A (“Series A Preferred Stock”), which is classified under U.S. generally accepted accounting principles (“GAAP”) as mezzanine financing, of $16.6 million.
As previously disclosed, the Company, through its newly-formed and wholly- owned subsidiary, GAINSCO Capital Trust I, completed the private placement of $25 million in 30-year capital securities during the first quarter of 2006. The net proceeds were used by the Company during the same quarter to redeem the outstanding Series A Preferred Stock held by Goff Moore Strategic Partners, L.P. for a total, including accrued dividends, of $18.5 million, and for general corporate purposes. During January 2006, the Company contributed $5 million to one of its insurance subsidiaries to support future business expansion.
During the fourth quarter of 2005, the Company completed a 1-for-4 reverse stock split of the Company’s outstanding common stock, par value $0.10 per share. The reverse stock split was effective November 21, 2005, and there were 20,225,574 common shares outstanding at year end.
For the fourth quarter 2004, net income was $1.8 million. Net income available to common shareholders for the fourth quarter 2004, after the accretion of the discount and the dividend on the redeemable preferred stock, was $0.6 million, or $0.10 per common share, basic and diluted.
For the twelve months ended December 31, 2004, net income was $5.5 million. After including the effect of the accretion of the discount and the dividends on the redeemable preferred stock, net income available to common shareholders for the twelve months ended December 31, 2004 was $0.9 million, or $0.15 per common share, basic and diluted.
For all periods presented, the effects of common stock equivalents and convertible preferred stock are antidilutive. Therefore, basic and diluted per common share results are reported as the same number. Additionally, per common share results have been adjusted for the rights offering in August 2005, as well as the reverse stock split in November 2005.
GAINSCO, INC. is a Dallas, Texas-based holding company. The Company’s nonstandard personal automobile insurance products are distributed through retail agents in Florida and South Carolina (Southeast Region), Texas (South Central Region), Arizona and Nevada (Southwest Region) and California (West Region). Its insurance company subsidiaries are General Agents Insurance Company of America, Inc. and MGA Insurance Company, Inc.
Some of the statements made in this release may be forward-looking statements. Forward-looking statements relate to future events or future financial performance and may involve known or unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements.
These forward-looking statements reflect current views but are based on assumptions and are subject to risks, uncertainties, and other variables which should be considered when making an investment decision, including, (a) operational risks and other challenges associated with rapid growth into new and unfamiliar markets and states, (b) adverse market conditions, including heightened competition, (c) the Company’s ability to adjust and settle the remaining claims associated with its exit from the commercial insurance business on terms consistent with its estimates and reserves, (d) uncertainties in the outcome of pending litigation and adverse trends in litigation and regulation, (e) inherent uncertainty arising from the use of estimates and assumptions in decisions about pricing and reserves, (f) the effects on claims levels or business operations resulting from natural disasters and other adverse weather conditions, (g) the availability of reinsurance and the Company’s ability to collect reinsurance recoverables, (h) the availability and cost of capital which may be required in order to implement the Company’s strategies, and (i) limitations on the Company’s ability to use net operating loss carryforwards. Please refer to the Company’s 2005 SEC filings, including the Current Report on Form 8-K filed on May 13, 2005, and the Annual Report on Form 10-K for the year ended December 31, 2004, for more information regarding factors that could affect the Company’s results.
Forward-looking statements are relevant only as of the dates made, and the Company undertakes no obligation to update any forward-looking statement to reflect new information, events or circumstances after the date on which the statement is made. All written or oral forward-looking statements that are made by or are attributable to the Company are expressly qualified in their entirety by this cautionary notice. Actual results may differ significantly from the results discussed in these forward-looking statements.
[The GAINSCO, INC. and Subsidiaries Consolidated Statements of Operations and Other Information for the quarters and twelve months ended December 31, 2005 and December 31, 2004 follow.]
GAINSCO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Quarter ended Twelve months ended DECEMBER 31 DECEMBER 31 2005 2004 2005 2004 Net premiums earned $28,985 11,192 $85,755 39,066 Net investment income 1,257 540 3,669 2,309 Realized gains 87 1,000 73 1,910 Other income 2,400 1,637 10,090 5,592 Total revenues 32,729 14,369 99,587 48,877 Claims & CAE incurred 17,691 8,081 57,748 27,008 Policy acquisition costs 3,987 1,519 12,647 5,389 Underwriting and operating expenses 9,169 2,976 23,865 10,980 Income before Federal income taxes 1,882 1,793 5,327 5,500 Federal income taxes (3,571) 0 (3,545) (9) Net income $5,453 1,793 $8,872 5,509 Net income available to common shareholders $4,950 587 $6,040 928 Income per common share, basic and diluted: * Basic $0.24 0.10 $0.33 0.15 Diluted $0.24 0.10 $0.33 0.15 * The effects of convertible preferred stock and common stock equivalents are antidilutive for all periods presented. Therefore, basic and diluted per common share results are reported as the same number. Additionally, per common share results have been adjusted for the rights offering in August 2005, as well as the reverse stock split in November 2005. GAINSCO, INC. AND SUBSIDIARIES OTHER INFORMATION (In thousands, except per share data) Quarter ended Twelve months ended DECEMBER 31 DECEMBER 31 2005 2004 2005 2004 Gross premiums written $36,456 12,161 $112,646 43,826 Net premiums written $36,200 12,031 $112,150 43,553 GAAP RATIOS: Claims & CAE ratio 61.0% 72.2% 67.3% 69.1% Expense ratio 31.8% 26.7% 27.9% 27.5% Combined ratio 92.8% 98.9% 95.2% 96.6%
CONTACT: Scott A. Marek, Asst. Vice President-IR, +1-972-629-4493, orRichard M. Buxton, Senior Vice President, +1-972-629-4408, both of GAINSCO,INC., [email protected]
Web site: http://www.gainsco.com/