Dallas-based GAINSCO Inc. reported net income for the fourth quarter 2005 of $5.5 million. Net income available to common shareholders for the same period, after the accretion of the discount and the dividend on redeemable preferred stock, was $4.9 million, or $0.24 per common share, basic and diluted.
For the twelve months ended Dec.31, 2005, net income was $8.9 million. After including the effect of the accretion of the discount and the dividends on redeemable preferred stock, net income available to common shareholders for the same period was $6.0 million, or $0.33 per common share, basic and diluted.
During the fourth quarter of 2005, the company recorded a deferred tax benefit of $3.6 million as a result of a reduction in the valuation allowance for its deferred Federal income tax assets. The company had previously recorded a 100 percent valuation allowance against its deferred tax assets (net operating loss carry forwards and other temporary differences) due to uncertainty, at the time, of future taxable income that could utilize those assets. Because of continued increasing levels of taxable operating income and continued positive expectations for the future, the company considered it proper to reduce the valuation allowance.
As of Dec. 31, 2005, the deferred tax asset was $27.2 million and the remaining valuation allowance was $23.5 million. In addition, net income for the quarter included a $1.5 million non-cash expense associated with the grant of restricted shares and units under the company’s 2005 Long-Term Incentive Compensation Plan approved by shareholders at the company’s annual meeting in November 2005.
“Operationally, the company continued to invest in building a long-term franchise in the nonstandard personal automobile insurance industry,” said Glenn W. Anderson, president and chief executive officer. “Significant expenditures continue to be made in expanding the long-term processing and servicing capacity of our new operating center in Dallas and in marketing initiatives to accelerate the growth of our agency distribution network and customer base. While these expenditures are substantial and are, along with the generally higher loss ratios on new business, minimizing current returns, we continue to focus on the longer-term potential of our developing company.
“In the first quarter of 2006, the company addressed one component of its capital structure with the issuance, through a wholly-owned subsidiary, of 30- year capital securities, the net proceeds of which were used primarily to redeem our preferred stock obligation due in five years. Our growth, however, continues to place demands on the overall capital adequacy of the company. We continue to caution that the financial and operational risks and uncertainties associated with our capital plan and the execution of our business plan are significant and could potentially alter our business plan in the future,” added Anderson.
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