DALLAS, March 29 /PRNewswire-FirstCall/ — GAINSCO, INC. today reported net income and net income available to common shareholders for the fourth quarter 2006 of $5.1 million, or $0.21 per common share, basic and diluted (including the favorable impact of a deferred tax benefit, discussed below, of $5.5 million, or $0.23 per share, basic and diluted). This compares to fourth quarter 2005 net income of $5.5 million and net income available to common shareholders of $4.9 million, or $0.23 per common share, basic and diluted (including the favorable impact of a deferred tax benefit of $3.6 million, or $0.17 per share, basic and diluted).
For the year ended December 31, 2006, net income was $11.4 million versus $8.9 million for the year ended December 31, 2005. Net income available to common shareholders for the year ended 2006 was $9.6 million, or $0.43 per common share, basic and diluted (including the favorable impact of a deferred tax benefit, discussed below, of $5.5 million, or $0.23 per share, basic and diluted). Net income available to common shareholders for the year ended 2006 included an approximately $1.4 million write-off during the first quarter 2006 of the unaccreted discount on redeemable preferred stock that was fully redeemed during the first quarter 2006. The net income available to common shareholders for the year ended December 31, 2005 was $6.0 million, or $0.30 per common share, basic and diluted (including the favorable impact of a deferred tax benefit in the fourth quarter 2005 of $3.6 million, or $0.18 per share, basic and diluted).
During the fourth quarter of 2006, the Company recorded a deferred tax benefit of $5.5 million as a result of a further 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 asset for net operating loss carryforwards due to uncertainty, at the time, of future taxable income that could utilize those assets. During the fourth quarter of 2006, the Company considered available evidence, both objective and subjective, including historical levels of income and expectations and risks associated with estimates of future taxable income in assessing the need for the valuation allowance. As a result of this analysis, the Company considered it was more likely than not that additional portions of the deferred tax asset would be used in future periods, and the valuation allowance was reduced accordingly. As of December 31, 2006, the remaining valuation allowance for its net operating loss carryforwards was $15.5 million.
Gross premiums written during the fourth quarter 2006 were approximately 22% above gross premiums written in the same period 2005. Gross premiums written by geographic region for the quarter and twelve months ended December 31, 2006 and December 31, 2005, were as follows:
Quarter endedTwelve months ended(dollars in millions)December 31December 312006200520062005Regions:Southeast$24.321.0113.575.3South Central$188.8.131.527.8Southwest$184.108.40.2063.1West$1.22.28.010.0Total$44.636.5202.4116.2
GAAP ratios for the quarters and twelve months ended December 31, 2006 and December 31, 2005, were as follows:
Quarter endedTwelve months endedDecember 31December 312006200520062005Total Company:C & CAE Ratio (1)75.8 %61.1 %71.2 %64.7 %Expense Ratio (2)(3)26.4 %31.7 %27.2 %30.7 %Combined Ratio(2)102.2 %92.8 %98.4 %95.4 %Nonstandard PersonalAutomobile:C & CAE Ratio (1)81.4 %69.5 %73.8 %69.8 %(1) C & CAE is an abbreviation for Claims and claims adjustmentexpenses, stated as a percentage of net premiums earned.(2) The Expense Ratio and Combined Ratio do not reflect expenses of theholding company.(3) Commissions, change in deferred acquisition costs, underwritingexpenses and operating expenses (insurance subsidiaries only) areoffset by agency revenues and are stated as a percentage of netpremiums earned.
The Company continues to adjust and settle claims associated with its runoff lines. For the fourth quarters of 2006 and 2005, the estimates of ultimate liabilities for prior periods for runoff lines were reduced by $2.8 million (reduction of 5.6 claims ratio points) and $2.5 million (reduction of 8.5 claims ratio points), respectively. For the twelve months of 2006 and 2005, the estimates of ultimate liabilities for prior periods for runoff lines were reduced by $4.9 million (reduction of 2.6 claims ratio points) and $4.6 million (reduction of 5.1 claims ratio points), respectively.
As regards the Company’s nonstandard personal automobile business, the Company’s estimates of ultimate liabilities for prior periods were increased during the fourth quarter 2006 by $3.2 million (increase of 6.3 claims ratio points), compared to a reduction during the fourth quarter 2005 of $1.2 million (reduction of 4.0 claims ratio points). The estimates of ultimate liabilities for prior periods for the nonstandard personal automobile business were increased for the twelve months ended 2006 by $3.1 million (increase of 1.6 claims ratio points), compared to a reduction for the twelve months ended 2005 of $2.3 million (reduction of 2.6 claims ratio points). A portion of the increases in the fourth quarter and year 2006 relates to a provision for extra-contractual obligations on known claims.
As of December 31, 2006, the Company had $63.5 million in net unpaid claims and claims adjustment expenses (“C&CAE”) (Unpaid C&CAE of $77.9 million less Ceded unpaid C&CAE of $14.4 million), compared to net unpaid C&CAE at September 30, 2006 of $64.9 million (Unpaid C&CAE of $82.3 million less Ceded unpaid C&CAE of $17.4 million). These amounts include net unpaid C&CAE in respect of the Company’s runoff lines of $15.9 million at December 31, 2006, and $20.6 million at September 30, 2006. As of December 31, 2006, the outstanding inventory of runoff claims was 73, compared to 108 at September 30, 2006.
On November 21, 2006, the Company completed a common stock rights offering in which each shareholder was provided the opportunity to purchase .2222 of a share of common stock for each share owned. The rights offering raised approximately $17.9 million in net proceeds and resulted in the issuance of 4,532,045 shares of common stock.
In December 2006, a wholly-owned subsidiary, GAINSCO Statutory Trust II, issued $18 million of 30-year capital securities. The capital securities require quarterly payments of interest at a floating interest rate equal to the 3-month LIBOR (London interbank offered rate for U.S. dollar deposits) plus a margin of 3.75%. The capital securities will mature on March 15, 2037 and are redeemable at the Company’s option beginning after March 15, 2012, in whole or in part, at the liquidation amount of $1,000 per capital security. Taken together, the Company’s obligations provide a full, irrevocable and unconditional guarantee of payments of distributions and other amounts due on the capital securities, subject to the subordination provisions of the agreements.
The net proceeds of the offering were used by GAINSCO Statutory Trust II to acquire debt securities of the Company that have the same maturity and bear interest at the same rate as the capital securities. The Company acquired 100% of the common securities of GAINSCO Statutory Trust II. The Company intends to use the proceeds for general corporate purposes.
As of December 31, 2006, the Company’s Shareholders’ equity was $84.7 million, Subordinated debentures was $43.0 million and Note payable was $2.0 million. This compares to Shareholders’ equity of $61.9 million, Subordinated debentures of $25.0 million and Note payable of $1.0 million at September 30, 2006.
Certain prior year amounts have been reclassified to conform to current year presentation. In addition, some numbers may not add to totals shown due to rounding.
The effect of convertible preferred stock (fully redeemed in the first quarter 2006) caused diluted earnings per share to be antidilutive for the quarter ended December 31, 2005, and the twelve months ended December 31, 2006 and 2005. Therefore, basic and diluted per common share amounts are reported as the same number. Additionally, per common share amounts for all periods presented have been adjusted for the rights offerings in November 2006 and 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) and Arizona, Nevada and New Mexico (Southwest Region), and through an independent managing general agency in 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) factors considered by A.M. Best in the rating of our insurance subsidiaries, and the acceptability of our current rating, or a future rating, to agents and customers, (d) the Company’s ability to adjust and settle the remaining claims associated with its runoff business on terms consistent with its estimates and reserves, (e) the adoption or amendment of legislation, uncertainties in the outcome of litigation and adverse trends in litigation and regulation, (f) inherent uncertainty arising from the use of estimates and assumptions in decisions about pricing and reserves, (g) the effects on claims levels or business operations resulting from natural disasters and other adverse weather conditions, (h) the availability of reinsurance and the Company’s ability to collect reinsurance recoverables, (i) the availability and cost of capital, which may be required in order to implement the Company’s strategies, and (j) limitations on the Company’s ability to use net operating loss carryforwards. Please refer to the Company’s recent SEC filings, including the Annual Report on Form 10-K for the year ended December 31, 2005 and the Company’s Form S-3 Registration Statement filed October 4, 2006, 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.
GAINSCO, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)Twelve monthsQuarter endedendedDecember 31,December 31,2006200520062005Net Premiums earned$50,660 28,985 $186,759 89,273Net investment income2,0561,2576,9843,669Net realized gains1418713773Agency revenues3,4142,24812,3635,958Other income, net130152234614Total revenues56,401 32,729206,477 99,587Claims & CAE incurred38,402 17,691132,947 57,748Policy acquisition costs9,1743,98731,355 12,647Underwriting and operating expenses7,9799,16934,726 23,864Interest expense64112,2741Income before Federal income taxes2051,8815,1755,327Federal income taxes(4,929) (3,572)(6,213) (3,545)Net income$5,1345,453$11,3888,872Net income available to commonshareholders$5,1344,950$9,5506,040Income per common share, basicand diluted:Basic$0.210.23$0.430.30Diluted*$0.210.23$0.430.30* The effect of convertible preferred stock caused diluted earnings pershare to be antidilutive for the quarter ended December 31, 2005, andthe twelve months ended December 31, 2006 and 2005. Therefore, dilutedincome per common share is reported the same as basic income per commonshare.GAINSCO, INC. AND SUBSIDIARIESOTHER INFORMATION(In thousands, except per share data)Quarter ended Twelve months endedDecember 31,December 31,2006200520062005Gross premiums written$44,634 36,456 $202,446 116,164Net premiums written$44,366 36,200 $201,161 115,668GAAP RATIOS:C & CAE Ratio (1)75.8%61.1%71.2%64.7%Expense Ratio (2)(3)26.4%31.7%27.2%30.7%Combined Ratio (2)102.2%92.8%98.4%95.4%(1) C & CAE is an abbreviation for Claims and claims adjustmentexpenses, stated as a percentage of net premiums earned.(2) The Expense Ratio and Combined Ratio do not reflect expenses ofthe holding company.(3) Commissions, change in deferred acquisition costs, underwritingexpenses and operating expenses (insurance subsidiaries only) areoffset by agency revenues and are stated as a percentage of netpremiums earned.
CONTACT: Scott A. Marek, Asst. Vice President-IR, +1-972-629-4493, orRichard M. Buxton, Senior Vice President, +1-972-629-4408, or [email protected] ,both of GAINSCO, INC.
Web site: http://www.gainsco.com/