GAINSCO Reports 2ndQ Loss of $4.8M

Texas-based GAINSCO INC. released its financial results for the second quarter of 2002, including a net loss of $4.8 million.

This compares to a second quarter 2001 net loss of $7.9 million (net loss applicable to common shareholders of $8.6 million), or $0.41 per common share, basic and diluted.

For the second quarter 2002 and 2001, the effects of common stock equivalents and convertible preferred stock are anti-dilutive due to the net losses. As a result, basic loss per share and diluted loss per share are reported as the same number.

“In February of this year, GAINSCO communicated its decision to exit the commercial insurance business to reduce the company’s exposure to the insurance industry and begin a long-term process of capital redeployment. This quarter, the company has decided to put itself in a position to exit its remaining active insurance business, personal automobile, in as orderly and productive a fashion as possible,” Glenn Anderson, GAINSCO’s president and CEO, said.

“To this end, and as the current primary focus, the company is seeking to sell its Miami, Florida-based nonstandard private passenger automobile operation, the Lalande Group, and an active strategic process is currently underway in this regard. As a result of this process, the company evaluated the related goodwill and recorded an impairment of approximately $2.9 million during the second quarter of 2002. The remaining goodwill as of June 30, 2002 is approximately $0.6 million and is related to the 1998 acquisition of the Lalande Group.

“During the quarter, the company also recorded an increase in estimated ultimate claims and related liabilities of $3.7 million. This was partially offset by a successful recovery of $1.9 million in previously recorded uncollectible receivables. Additionally, the company wrote down $0.4 million in miscellaneous systems and assets.

“Separately, the company announced it had signed an agreement to sell and transfer its management contract controlling GAINSCO County Mutual Insurance company (“GCM”) to an affiliate of Liberty Mutual Insurance Company for a total of up to $10.0 million, $1.0 million of which is payable upon closing and the balance in future contingent payments through September 2009.

Additionally, GAINSCO may receive from GCM approximately $3 million of principal and interest in redemption of GCM’s surplus debenture. Under terms of the agreement, GAINSCO and its subsidiaries will retain all assets and liabilities associated with GCM’s past, present and runoff commercial insurance business. The closing of this sale transaction is subject to regulatory approvals by the Texas, Oklahoma and North Dakota Departments of Insurance, to approval by GAINSCO’s bank and to other conditions,” Anderson said.

The company’s capital base at June 30, 2002 was approximately $41.9 million. This consisted of Shareholders’ Equity at June 30, 2002 of approximately $15.3 million and redeemable preferred stock at June 30, 2002 of approximately $26.6 million. The company’s capital base at March 31, 2002 was approximately $46.2 million (Shareholders’ Equity at March 31, 2002 of approximately $20.4 million and redeemable preferred stock of approximately $25.8 million). At June 30, 2002, $11.8 million had yet to be charged to Shareholders’ Equity related to the accretion of the discount on the redeemable preferred stock. Book Value per common share at the end of the second quarter 2002 (Shareholders’ Equity, less unaccreted discount on redeemable preferred stock, divided by common shares outstanding) was approximately $0.17.

The combined statutory policyholders’ surplus at the end of the second quarter 2002 was $38.7 million and compares to combined statutory policyholders’ surplus at March 31, 2002 of $41.6 million. The combined ratio under generally accepted accounting principles (“GAAP”) for the second quarter of 2002 was 125.7 percent, compared to a combined ratio of 139.1 percent for the 2001 second quarter. The GAAP claim ratio for the 2002 second quarter was 104.4 percent, compared with 96.1 percent for the second quarter of 2001.

Topics Profit Loss