GAINSCO Reports 4th Quarter and Year 2003 Results DALLAS, March 5
/PRNewswire-FirstCall/ -- GAINSCO, INC. (BULLETIN BOARD: GNAC)
today reported net income for the fourth quarter 2003 of
approximately $1.5 million. After the accretion of the discount on
the redeemable preferred stock of approximately $0.8 million and
the accrual of dividends on the redeemable preferred stock of
approximately $0.2 million, net income applicable to common
shareholders was approximately $0.5 million, or $0.02 per common
share, basic and diluted. For the twelve months ended December 31,
2003, net income was approximately $3.4 million. After the
accretion of the discount on the redeemable preferred stock of
approximately $3.0 million and the accrual of dividends on the
redeemable preferred stock of approximately $0.7 million, net loss
applicable to common shareholders was approximately $0.4 million,
or $0.02 per common share, basic and diluted. "The Company's
nonstandard personal automobile business in Floridacontinued to
produce profitable operating results this quarter. Additionally, in
furtherance of our strategic geographic diversification objective,
the Company began writing nonstandard personal automobile policies
in Texas during the fourth quarter and has begun its market
introduction in Arizona," said Glenn W. Anderson, GAINSCO's
president and chief executive officer. The Company continued to
exit the commercial lines business. As of December 31, 2003, 525
commercial claims remained, compared to 600 at September 30, 2003,
and 1,062 at December 31, 2002. Combined statutory policyholders'
surplus at the end of the fourth quarter 2003 was $41.7 million and
compares to combined statutory policyholders' surplus at September
30, 2003 of $40.6 million. The combined statutory policyholders'
surplus at the end of the fourth quarter 2003 does not include
approximately $2.0 million of after-tax, unrealized capital gains
that existed in the statutory bond portfolios. The Company expects
that a dividend from statutory policyholders' surplus of a
subsidiary to the holding company of approximately $4.2 million
will be paid on March 22, 2004. The Company's net unpaid claims and
claims adjustment expenses at December 31, 2003 were $76.6 million,
compared to approximately $79.0 million at September 30, 2003.
These balances do not include the beneficial effect of ceded
reserves to a reinsurer under a reserve reinsurance cover agreement
in the amount of approximately $13.8 million at December 31, 2003,
and approximately $15.4 million at September 30, 2003 (the balances
of which are included in Reinsurance Balances Receivable). The
principal components of the net reduction in the reserve balances
from September 30, 2003 to December 31, 2003 are the settlement of
claims in the normal course and a decrease in ultimate expected
liabilities in personal auto, which were partially offset by an
increase in ultimate expected liabilities in commercial lines. Net
premiums earned for the fourth quarter of 2003 were $9.9 million,
compared to $11.9 million for the same period in 2002. Net premiums
earned for the twelve months ended December 31, 2003 were $34.4
million, compared to $60.3 million for the twelve months ended
2002. The decreases in net premiums earned from 2002 to 2003, for
the fourth quarter and twelve month period, relate primarily to the
Company's exit from the commercial lines business. This decrease
was partially offset by the Company recording written and earned
premiums related to its commutation of a reinsurer's participation
on several reinsurance contracts. The combined ratio under
generally accepted accounting principles ("GAAP") for the fourth
quarter of 2003 was 100.8%, compared to a combined ratio of 121.5%
for the 2002 fourth quarter, in each case including both the
commercial lines business from which the Company is exiting and the
continuing personal lines business. The GAAP claims and claims
adjustment expenses ratio for the 2003 fourth quarter was 82.4%,
compared with 79.8% for the fourth quarter of 2002. The GAAP
expense ratio for the fourth quarter 2003 was 18.4%, compared to
41.7% for the 2002 fourth quarter. For the twelve months ended
2003, the GAAP combined ratio was 105.1%, compared to 125.9% for
the sameperiod in 2002. The GAAP claims and claims adjustment
expenses ratio for the twelve months ended 2003 was 74.2%, versus
93.6% for the twelve months ended 2002. The GAAP expense ratio for
the year ended 2003 was 30.9% versus 32.3% for the year ended 2002.
The decreases in the expense ratio for the fourth quarter and year
ended 2003, compared to the same periods in 2002, were due in large
part to an increase in earned premiums and a decrease in the
allowance for doubtful accounts for reinsurance balances receivable
associated with the previously described reinsurance commutation.
For the fourth quarter 2002, net income was approximately
break-even. After the accretion of the discount on the redeemable
preferred stock of approximately $0.7 million and the accrual of
dividends on the redeemable preferred stock of approximately $0.2
million, net loss applicable to common shareholders for the fourth
quarter 2002 was approximately $0.8 million, or $0.04 per common
share, basic and diluted. For the twelve months ended December 31,
2002, net loss was approximately $8.8 million. After including the
effect of the accretion of the discount on the redeemable preferred
stock of approximately $2.7 million and the accrual of dividends on
the redeemable preferred stock of approximately $0.7 million, net
loss applicable to common shareholders for the twelve months ended
December 31, 2002 was approximately $12.1 million, or $0.57 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 share results
are reported as the same number. The Company's capital base at
December 31, 2003 was approximately $45.5 million. This consisted
of Shareholders' Equity of approximately $13.4 million and three
series of Redeemable Preferred Stock of approximately $32.1
million. At December 31, 2003, $7.4 million of unaccreted discount
had yet to be charged to Shareholders' Equity related tothe
accretion of the discount on the Redeemable Preferred Stock. Almost
all of this unaccreted discount will be charged to Shareholders'
Equity by January 1, 2006, the redemption date of the Series A
Preferred Stock. At December 31, 2003, Shareholders' Equity per
common share was approximately $0.63 (which includes unaccreted
discount on Redeemable Preferred Stock of $0.34 per common share).
Shareholders' Equity less such unaccreted discount was
approximately $6.0 million or $0.29 per common share. The aggregate
redemption value of the Preferred Stock was approximately $39.5
million ($37.6 million stated value plus accrued dividends of
approximately $1.9 million) at December 31, 2003. On March 23,
2001, the Series A Preferred Stock was called for redemption so
that on January 1, 2006 the Company will be obligated to pay $31.6
million to the holder to the extent that it may legally do so and,
to the extent it may not do so, the Company will be obligated to
pay quarterly an amount equal to 8% interest per annum on any
unpaid balance. The Series B and C Preferred Stock becomes
redeemable at the option of holders commencing March 23, 2007 for
the aggregate liquidation amount of $6.0 million plus accrued
dividends. The Company anticipates paying dividends aggregating
$2.1 million on the Series B and C Preferred Stock on April 1,
2004, which would bring dividends current to that point, and
thereafter dividends will accrue at the rate of 20% per annum, of
which at least half must be paid quarterly. The Board of Directors
has been focusing on the Company's obligations to the holders of
the Preferred Stock, which are affiliates of three of the Company's
eight directors, and has formed a Special Committee of independent
and disinterested directors to address the alternatives for
providing for these obligations. The Special Committee first
considered, with the assistance of an investment banking firm,
proposals from holders of Preferred Stock for the recapitalization
of the Company, includinga proposal that would have involved an
investment by two consultants and the President of the Company. No
agreement was reached with the holders of the Preferred Stock, and
all recapitalization proposals were withdrawn. The Board then
expanded the mandate of the Special Committee to consider
alternatives that might be available with unaffiliated third
parties. The Special Committee intends to engage an investment
banking firm to advise it as to any such alternatives that may be
available to the Company. No prediction can be made at this time as
to what will eventuate from this process or how long it will take.
The annual meeting of the shareholders of GAINSCO, INC. will be
held on May 12, 2004, at 9:00 a.m. Central Time, in the French Room
of The Fairmont Hotel Dallas for the purposes of the election of
directors and such other business that may properly come before the
meeting. The persons entitled to notice of or to vote at this
meeting will be those shareholders of record as of the closeof
business on March 26, 2004. GAINSCO, INC. is a Dallas, Texas-based
holding company. The Company's nonstandard personal automobile
insurance products are distributed primarily through retail agents
in Florida. Its primary insurance subsidiaries are General Agents
Insurance Company of America, Inc. and MGA Insurance Company, Inc.
Statements made in this release that are qualified with words such
as "will be," "may," "anticipates," "intends to engage," "expects,"
etc., are forward-looking statements. Investors are cautioned that
important factors, representing certain risks and uncertainties,
could cause actual results to differ materially from those
contained in the forward-looking statements. These factors include,
but are not limited to, (a) the Company's ability to effectively
adjust and settle remaining claims associated with its exit from
the commercial insurance business, (b) heightened competition from
existing competitors and new competitor entrants into the Company's
markets, (c) the extent to which market conditions firm up, the
acceptance of higher prices in the market place and the Company's
ability to realize and sustain higher rates, (d) contraction of the
markets for the Company's business, (e) acceptability of the
Company's A.M. Best rating to its end markets, (f) the Company's
ability to meet its obligations in respect of its Redeemable
Preferred Stock, (g) the ongoing level of claims and claims-related
expenses and the adequacy of claim reserves, (h) the outcome of
pending litigation, (i) the effectiveness of investment strategies
implemented by the Company's investment manager, (j) continued
justification of recoverability of goodwill in the future, (k) the
availability of reinsurance and the ability to collect reinsurance
recoverables, including amounts that may become recoverable from
two reinsurers with less than A.M. Best "Secure" ratings, (l) the
Company's ability to invest in new endeavors that are successful,
(m) the limitation on the Company's ability to use net operating
loss carryforwards as a result of constraints caused by ownership
changes within the meaning of Internal Revenue Code Section 382,
(n) the ability of the Company to realize contingent acquisition
payments in connection with its sale of the management contract
controlling GAINSCO County Mutual Insurance Company, which was
prejudiced by legislation passed in the session of the Texas
Legislature ended June 2, 2003, and (o) general economic
conditions, including fluctuations in interest rates. In addition,
the actual emergence of losses and loss expenses may vary, perhaps
materially, from the Company's estimate thereof, because (a)
estimates of loss and loss expense liabilities are subject to large
potential errors of estimation as the ultimate disposition of
claims incurred prior to the financial statement date, whether
reported or not, is subject to the outcome of events that have not
yet occurred (e.g., jury decisions, court interpretations,
legislative changes, subsequent damage to property, changes in the
medical condition of claimants, public attitudes and
social/economic conditions such as inflation), (b) estimates of
losses do not make provision for extraordinary future emergence of
new classes of losses or types of losses not sufficiently
represented in the Company's historical data base or which are not
yet quantifiable, and (c) estimates of future costs are subject to
the inherent limitation on the ability to predict the aggregate
course of future events. A forward-looking statement is relevant as
of the date the statement is made. The Company undertakes no
obligation to update any forward-looking statements to reflect
events or circumstances arising after the date on which the
statements are made. Please refer to the Company's recent SEC
filings for further information regarding factors that could affect
the Company's results. [The GAINSCO, INC. and Subsidiaries
Consolidated Statements of Operations for the quarters and twelve
months ended December 31, 2003 andDecember 31, 2002 follow.]
GAINSCO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data) Quarter Twelve
months ended ended December 31 December 31 2003 2002 2003 2002
Gross premiums written $9,572 6,846 $34,594 44,223 Net premiums
written $9,577 7,209 $34,582 42,594 Net premiums earned $9,864
11,897 $34,389 60,267 Net investment income 719 941 3,128 4,315 Net
realized gains 784 1,001 2,050 2,049 Other income 1,040 1,401 4,762
6,847 Total revenues 12,407 15,240 44,329 73,478 Claims & CAE
incurred 8,127 9,494 25,516 56,414 Commissions 1,030 1,021 4,117
7,487 Change in deferred acquisition costs (161) 678 383 1,514
Interest expense 0 63 104 310 Underwriting and operating expenses
1,910 3,974 10,833 14,430 Goodwill impairment 0 0 0 2,860 Income
(loss) before Federal income taxes 1,501 10 3,376 (9,537) Federal
income taxes 0 (13) 0 (776) Net income (loss) $1,501 23 $3,376
(8,761) Net income (loss) available to common shareholders $516
(848) $(389) (12,089) Income (loss) per common share, basic and
diluted: Net income (loss) per common share * $0.02 (0.04) $(0.02)
(0.57) GAAP RATIOS: Claim & CAE Ratio 82.4% 79.8% 74.2% 93.6%
Expense Ratio 18.4% 41.7% 30.9% 32.3% Combined Ratio 100.8% 121.5%
105.1% 125.9% * The effects of common stock equivalents and
convertible preferred stock are antidilutive. Therefore, basic and
diluted per share results are reported as the same number.
DATASOURCE: GAINSCO, INC. CONTACT: Scott A. Marek, Asst. Vice
President-Investor Relations, +1-214-647-0427, or Richard M.
Buxton, Senior Vice President, +1-214-647-0428, both of GAINSCO,
INC., Web site: http://www.gainsco.com/
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