GAINSCO Reports 4th Quarter and Year 2004 Results DALLAS, March 11
/PRNewswire-FirstCall/ -- GAINSCO, INC. (OTC:GNAC) (BULLETIN BOARD:
GNAC) today reported net income for the fourth quarter 2004 of $1.8
million. After the accretion of the discount on the Redeemable
Preferred Stock of $0.9 million and dividends on the Redeemable
Preferred Stock of $0.3 million, net income available to common
shareholders for the fourth quarter 2004 was $0.6 million, or $0.03
per common share, basic and diluted. For the year ended December
31, 2004, net income was $5.5 million. After the accretion of the
discount on the Redeemable Preferred Stock of $3.4 million and
dividends on the Redeemable Preferred Stock of $1.1 million, net
income available to common shareholders for the twelve months ended
December 31, 2004 was $0.9 million, or $0.04 per common share,
basic and diluted. "Our profit this quarter was due to the
Company's continued success in its nonstandard personal automobile
insurance business and the realization of capital gains in its
investment portfolio. With the capital restructuring transaction
accomplished, the Company is now pursuing its long-term growth plan
in nonstandard personal automobile insurance. We began writing
business in Nevada and initiated our California program in the
fourth quarter of 2004, giving us additional momentum going into
2005," said Glenn W. Anderson, GAINSCO's president and chief
executive officer. The Company is now writing nonstandard personal
auto insurance in the five states of Florida, Texas, Arizona,
Nevada and California. As a result of the expansion and
diversification efforts currently in place, the Company experienced
significant growth in premiums written during the first two months
of 2005. The Company's implementation of its expansion plan is
occurring in an increasingly competitive environment and could be
adversely impacted by such market conditions. Net premiums written
and earned for the quarters and twelve months ended December 31,
2004 and December 31, 2003, are as follows: Quarter ended Twelve
months ended December 31 December 31 2004 2003 2004 2003 Net
premiums written $ 12,031 9,577 $ 43,553 34,582 Net premiums earned
$ 11,192 9,864 $ 39,066 34,389 The increases in Net premiums
written and earned for all periods relate to the nonstandard
personal auto business in Florida and the startup nonstandard
personal auto operations in Texas, Arizona and Nevada. The
Company's capital base (total assets less total liabilities) at
December 31, 2004 was $46.5 million. This amount consisted of
Shareholders' Equity of $12.9 million and three series of
Redeemable Preferred Stock, which are classified under generally
accepted accounting principles ("GAAP") as mezzanine financing in
the aggregate amount of $33.7 million. At December 31, 2004, $3.9
million of unaccreted discount on Redeemable Preferred Stock was
included in Shareholders' Equity. At December 31, 2004,
Shareholders' Equity per common share was $0.61 (which includes
unaccreted discount on Redeemable Preferred Stock of $0.19 per
common share). Shareholders' Equity less such unaccreted discount
was $8.9 million or $0.42 per common share. The aggregate
redemption value of Redeemable Preferred Stock at December 31, 2004
was its stated value of $37.6 million. Combined statutory
policyholders' surplus at the end of the fourth quarter 2004 was
$41.5 million and compares to combined statutory policyholders'
surplus at September 30, 2004 of $39.8 million. The combined
statutory policyholders' surplus at the end of the fourth quarter
2004 does not include $0.5 million of after-tax, unrealized capital
gains that existed in the statutory bond portfolios. The Company's
net unpaid claims and claim adjustment expenses (Unpaid claims and
claim adjustment expenses of $95.5 million less Ceded unpaid claims
and claim adjustment expenses of $37.0 million) at December 31,
2004 were $58.5 million, compared to $62.4 million (Unpaid claims
and claim adjustment expenses of $100.5 million less Ceded unpaid
claims and claim adjustment expenses of $38.1 million) at September
30, 2004. These balances do not include the beneficial effect of
ceded reserves to a reinsurer under a reserve reinsurance cover
agreement in the amount of $6.2 million at December 31, 2004, and
$8.4 million at September 30, 2004 (the balances of which are
included in Reinsurance balances receivable). The net reduction in
the reserve balances from September 30, 2004 to December 31, 2004
is primarily attributable to the exiting of commercial lines and
the ongoing settlement of the remaining commercial lines claims. In
addition, there was favorable development in nonstandard personal
auto. GAINSCO continued to exit the commercial lines business
through the ongoing process of settling and reducing its remaining
inventory of commercial claims. As of December 31, 2004, 264
commercial claims remained, compared to 327 at September 30, 2004
and 525 at December 31, 2003. GAAP ratios for the quarters and
twelve months ended December 31, 2004 and December 31, 2003, are as
follows: Quarter ended Twelve months ended December 31 December 31
2004 2003 2004 2003 Claims and Claims Adjustment Ratio 72.2% 82.4%
69.1% 74.2% Expense Ratio 26.7% 18.4% 27.5% 30.9% Combined Ratio
98.9% 100.8% 96.6% 105.1% The expense ratio for the fourth quarter
2003 is lower than the same period in 2004 due to an increase in
fourth quarter 2003 earned premiums and a decrease, for the same
period 2003, in the allowance for doubtful accounts for reinsurance
balances receivable associated with the Company's commutation of a
reinsurer's participation on several reinsurance contracts. Also,
the GAAP combined ratios and GAAP expense ratios presented above do
not include expenses of the holding company. For the fourth quarter
2003, net income was $1.5 million. After the accretion of the
discount on the Redeemable Preferred Stock of $0.8 million and the
accrual of dividends on the Redeemable Preferred Stock of $0.2
million, net income available to common shareholders for the fourth
quarter 2003 was $0.5 million, or $0.02 per common share, basic and
diluted. For the twelve months ended December 31, 2003, net income
was $3.4 million. After including the effect of the accretion of
the discount on the Redeemable Preferred Stock of $3.0 million and
the accrual of dividends on the Redeemable Preferred Stock of $0.7
million, net loss available to common shareholders for the twelve
months ended December 31, 2003 was $0.4 million, or $0.02 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. On January 21, 2005, the Company
closed the restructuring transaction more fully described in the
Company's proxy statement dated December 22, 2004. The
recapitalization substantially reduced and extended the Company's
previous Preferred Stock redemption obligations and resulted in
cash proceeds to the Company of $8.7 million (before an estimated
total of $2.2 million in transaction costs, of which $2.0 million
was recorded as deferred expenses in Other assets at December 31,
2004, and $3.4 million used to redeem the Series C Preferred
Stock). As a result of the restructuring transaction, the number of
shares of Common Stock outstanding increased from 21,169,736 to
61,084,960. Goff Moore Strategic Partners, L.P. now owns 33% of the
outstanding Common Stock of the Company, Robert W. Stallings, the
Company's Chairman of the Board, owns 22% and First Western
Capital, LLC, a limited liability company owned by James R. Reis,
owns 11%. GAINSCO, INC. is a Dallas, Texas-based holding company.
The Company's nonstandard personal automobile insurance products
are distributed through retail agents in Florida, Texas, Arizona,
Nevada and California. Its insurance company 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 "could be impacted," 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, and they should not place undue
reliance on such statements. These factors include, but are not
limited to, (a) the change in operational risks associated with
increased premium production and expansion into new markets or
states, (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) factors considered by A.M. Best in its
rating of the Company and acceptability of the Company's current
A.M. Best rating of "B-" (Fair), with a stable outlook, or its
future rating, to its end markets, (f) the Company's ability to
effectively adjust and settle remaining claims associated with its
exit from the commercial insurance business, (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
internal 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 insurers with
less than A.M. Best "Secure" ratings, (l) 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, and (m) 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 estimates thereof,
particularly with respect to new business and new markets, 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
only as of the date the statement is made and the Company
undertakes no obligation to update any forward-looking statement to
reflect events or circumstances arising after the date on which the
statement was 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 and Other Information for the
quarters and twelve months ended December 31, 2004 and December 31,
2003 follow.] GAINSCO, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except per share data)
Twelve months Quarter ended ended December 31 December 31 2004 2003
2004 2003 Net premiums earned $11,192 9,864 $39,066 34,389 Net
investment income 540 719 2,309 3,128 Realized gains 1,000 784
1,910 2,050 Other income 1,637 1,040 5,592 4,762 Total revenues
14,369 12,407 48,877 44,329 Claims & CAE incurred 8,080 8,127
27,008 25,516 Commissions 1,464 1,030 5,816 4,117 Change in
deferred acquisition costs (151) (161) (1,090) 383 Interest expense
0 0 0 104 Underwriting and operating expenses 3,183 1,910 11,643
10,833 Income before Federal income taxes 1,793 1,501 5,500 3,376
Federal income taxes 0 0 (9) 0 Net income $1,793 1,501 $5,509 3,376
Net income (loss) available to common shareholders $587 516 $928
(389) Income (loss) per common share, basic and diluted * $0.03
0.02 $0.04 (0.02) * The effects of convertible preferred stock and
common stock equivalents are antidilutive for both periods
therefore, diluted earnings per share is reported the same as basic
earnings per share. GAINSCO, INC. AND SUBSIDIARIES OTHER
INFORMATION ($ in thousands) Gross premiums written $12,161 9,572
$43,826 34,594 Net premiums written $12,031 9,577 $43,553 34,582
GAAP RATIOS: Claim & CAE Ratio 72.2% 82.4% 69.1% 74.2% Expense
Ratio 26.7% 18.4% 27.5% 30.9% Combined Ratio 98.9% 100.8% 96.6%
105.1% 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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