GAINSCO Reports 3rd Quarter Results DALLAS, Nov. 12
/PRNewswire-FirstCall/ -- GAINSCO, INC. (OTC:GNAC) (BULLETIN BOARD:
GNAC) today reported net income for the third quarter 2004 of
approximately $1.6 million. After the accretion of the discount on
the Redeemable Preferred Stock of approximately $0.9 million and
the accrual of dividends on the Redeemable Preferred Stock of
approximately $0.3 million, net income available to common
shareholders for the third quarter 2004 was approximately $0.4
million, or $0.02 per common share, basic and diluted. For the nine
months ended September 30, 2004, net income was approximately $3.7
million. After the accretion of the discount on the Redeemable
Preferred Stock of approximately $2.5 million and the accrual of
dividends on the Redeemable Preferred Stock of approximately $0.8
million, net income available to common shareholders for the nine
months ended September 30, 2004 was approximately $0.3 million, or
$0.02 per common share, basic and diluted. "This quarter we
announced a proposed recapitalization transaction that
simultaneously addresses the Company's capital issues and enables
the Company to move forward in pursuit of a long-term, multi-state
growth plan in nonstandard personal automobile. The
recapitalization is subject to the approval of our shareholders.
The proxy materials for a special meeting of shareholders to
consider and vote on the recapitalization will be mailed to
shareholders after review thereof by the Securities and Exchange
Commission has been completed," said Glenn W. Anderson, GAINSCO's
president and chief executive officer. "Our insurance operations
continued to be profitable for the quarter due to the Company's
nonstandard personal automobile insurance business. Additionally,
we continued to exit the commercial lines business through the
ongoing process of settling and reducing our remaining inventory of
commercial claims," stated Anderson. As of September 30, 2004,
approximately $1.6 million had been recognized for financial
advisory and legal expenses and fees to those directors serving on
the Special Committee in respect of the Special Committee's
consideration of alternatives for dealing with its obligations to
the holders of its Preferred Stock, of which approximately $0.4
million was expensed in the quarter ended March 31, 2004 because
the proposals to which the amount related had been withdrawn, and
approximately $1.2 million was recorded as deferred expenses in
Other assets at September 30, 2004. The Company paid dividends of
$300,000 in the aggregate in respect of the Series B and Series C
Preferred Stock on each of July 1, 2004 and October 1, 2004.
Dividends accrue at the rate of 20% per annum, of which at least
half must be paid quarterly (or at least $150,000 in the aggregate
in respect of the Series B and Series C Preferred Stock). The
Company's capital base (total assets less total liabilities) at
September 30, 2004 was approximately $45.9 million. This amount
consisted of Shareholders' Equity of approximately $12.8 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 approximately
$33.1 million. At September 30, 2004, $4.8 million of unaccreted
discount on Redeemable Preferred Stock was included in
Shareholders' Equity. Almost all of this unaccreted discount will
be accreted from Shareholders' Equity to Redeemable Preferred Stock
by January 1, 2006, the redemption date of the Series A Preferred
Stock. At September 30, 2004, Shareholders' Equity per common share
was approximately $0.61 (which includes unaccreted discount on
Redeemable Preferred Stock of $0.23 per common share).
Shareholders' Equity less such unaccreted discount was
approximately $8.0 million or $0.38 per common share. The aggregate
redemption value of Redeemable Preferred Stock was approximately
$37.9 million ($37.6 million stated value plus accrued dividends of
approximately $0.3 million) at September 30, 2004. Combined
statutory policyholders' surplus at the end of the third quarter
2004 was $39.8 million and compares to combined statutory
policyholders' surplus at June 30, 2004 of $38.6 million. The
combined statutory policyholders' surplus at the end of the third
quarter 2004 does not include approximately $1.0 million of
after-tax, unrealized capital gains that existed in the statutory
bond portfolios. Net premiums written for the third quarter of 2004
were $11.8 million, compared to $8.8 million for the same period in
2003. Net premiums written for the nine months ended September 30,
2004 were $31.5 million, compared to $25.0 million for the nine
months ended 2003. Net premiums earned for the third quarter of
2004 were $10.1 million, compared to $8.0 million for the same
period in 2003. Net premiums earned for the nine months ended
September 30, 2004 were $27.9 million, compared to $24.5 million
for the nine months ended 2003. 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 and Arizona. The Company's net
unpaid claims and claim adjustment expenses (Unpaid claims and
claim adjustment expenses less Ceded unpaid claims and claim
adjustment expenses) at September 30, 2004 were $62.4 million,
compared to approximately $64.8 million at June 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 approximately $8.4 million at September 30, 2004, and
approximately $9.2 million at June 30, 2004 (the balances of which
are included in Reinsurance balances receivable). The principal
components of the net reduction in the reserve balances from June
30, 2004 to September 30, 2004 are the settlement of claims in the
normal course of business and favorable development in 2004 for
nonstandard personal auto and commercial estimated ultimate
liabilities. As of September 30, 2004, 327 commercial claims
remained, compared to 356 at June 30, 2004 and 600 at September 30,
2003. The GAAP combined ratio for the third quarter of 2004 was
92.6%, compared to a combined ratio of 97.9% for the 2003 third
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 claim adjustment expenses ratio for
the 2004 third quarter was 66.3%, compared with 63.0% for the third
quarter of 2003. The GAAP expense ratio for the third quarter 2004
was 26.3%, compared to 34.9% for the 2003 third quarter. For the
nine months ended September 30, 2004, the GAAP combined ratio was
95.6%, compared to 106.8% for the same period in 2003. The GAAP
claims and claim adjustment expenses ratio for the nine months
ended September 30, 2004 was 67.9%, versus 70.9% for the same nine
months ended 2003. The GAAP expense ratio for the nine months ended
September 30, 2004 was 27.7% versus 35.9% for the same period in
2003. The GAAP combined ratios and GAAP expense ratios presented
above do not include expenses of the holding company. For the third
quarter 2003, net income was approximately $1.0 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 available to common shareholders and net income per common
share, basic and diluted, for the third quarter 2003 were
approximately break-even. For the nine months ended September 30,
2003, net income was approximately $1.9 million. After including
the effect of the accretion of the discount on the Redeemable
Preferred Stock of approximately $2.2 million and the accrual of
dividends on the Redeemable Preferred Stock of approximately $0.6
million, net loss available to common shareholders for the nine
months ended September 30, 2003 was approximately $0.9 million, or
$0.04 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. 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, Texas and Arizona. Its primary
insurance subsidiaries are General Agents Insurance Company of
America, Inc. and MGA Insurance Company, Inc., both of which are
currently rated "B-" (Fair), with a stable outlook, by A.M. Best.
Statements made in this release that are qualified with words such
as "will be," 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) the Company's ability to successfully expand operations
to new states, (e) contraction of the markets for the Company's
business, (f) factors considered by A.M. Best in its rating of the
Company and acceptability of the Company's current or future A.M.
Best rating to its end markets, (g) the successful consummation of
the current recapitalization transactions or, to the extent the
current recapitalization transactions are not consummated, the
Company's ability to meet its obligations in respect of its Series
A, B and C Redeemable Preferred Stock, (h) the ongoing level of
claims and claims-related expenses and the adequacy of claim
reserves, (i) the outcome of pending litigation, (j) the
effectiveness of investment strategies implemented by the Company's
investment manager, Goff Moore Strategic Partners, L.P. ("GMSP"),
or the Company's ability to effectively manage its investments
internally if the Company's investment management agreements with
GMSP are terminated in connection with the consummation of the
recapitalization transactions, (k) continued justification of
recoverability of goodwill in the future, (l) 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, (m) the Company's ability to
invest in new endeavors that are successful, (n) 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, (o) 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 (p) 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 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 nine months ended September 30,
2004 and September 30, 2003 follow.] GAINSCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except per
share data) Quarter ended Nine months ended September 30 September
30 2004 2003 2004 2003 Net premiums earned $10,138 7,998 $27,874
24,526 Net investment income 596 781 1,769 2,409 Net realized gains
293 0 911 1,266 Other income 1,381 1,197 3,954 3,721 Total revenues
12,408 9,976 34,508 31,922 Claims & CAE incurred 6,719 5,036
18,928 17,390 Commissions 1,719 1,191 4,351 3,087 Change in
deferred policy acquisition costs (327) (108) (939) 544 Interest
expense 0 25 0 104 Underwriting and operating expenses 2,673 2,836
8,460 8,922 Income before Federal income taxes 1,624 996 3,708
1,875 Federal income taxes 0 0 (8) 0 Net income $ 1,624 996 $ 3,716
1,875 Net income (loss) available to common shareholders $ 450 41 $
341 (904) Income (loss) per common share, basic and diluted * $
0.02 0.00 $ 0.02 (0.04) * The effects of convertible preferred
stock and common stock equivalents are antidilutive for all
periods. As a result, diluted earnings per share is reported the
same as basic earnings per share. GAINSCO, INC. AND SUBSIDIARIES
OTHER INFORMATION ($ in thousands) Gross premiums written $ 11,817
8,800 $ 31,665 25,022 Net premiums written $ 11,760 8,805 $ 31,522
25,006 GAAP RATIOS: Claim & CAE Ratio 66.3% 63.0% 67.9% 70.9%
Expense Ratio 26.3% 34.9% 27.7% 35.9% Combined Ratio 92.6% 97.9%
95.6% 106.8% 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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