Following the conversion of the Series B Preferred Stock, SSHW will have sufficient voting power to be able to approve a short-form merger with the Company without a vote of the Board or the stockholders not affiliated with CSFB. However, CSFB has agreed in the Exchange Agreement that the Company will not consummate such a transaction at a cash price per share that does not reflect fair value under the applicable Delaware law as reasonably determined by the controlling stockholder; provided that, prior to January 1, 2005, such price cannot be less that $.40 per share. The stockholders not affiliated with CSFB would have appraisal rights under Delaware law in connection with any short-form merger.
Series A Preferred Stock dividends (1,759 ) (3,263 ) (2,932 )
General. The primary sources of cash for the Company’s consolidated operations are premiums and fees from insurance policies, sales and maturity of invested assets and investment income while the primary uses of cash are payments of insurance policy benefits, claims and commissions, and general operating expenses. Net cash used in operations totaled $1.1 million, $5.0 million and $6.6 million for the years ended December 31, 2003, 2002 and 2001, respectively. The decrease in cash used by operations from year to year is principally due to a decline in the cash basis ratio of benefits and claims to premiums.
Ascent is a holding company, the principal assets of which consist of the capital stock of its subsidiaries and invested assets. Ascent’s principal sources of funds are comprised of dividends from its non-insurance subsidiaries. The Insurance Subsidiaries are precluded from paying dividends without prior approval of the Texas Insurance Commissioner, as the Insurance Subsidiaries’ earned surplus is negative due to statutory losses incurred in recent years (see “Business - State Regulation” at Item 1). Ascent’s principal uses of cash are for making discretionary additional investments in its Insurance Subsidiaries in the form of capital contributions to maintain certain minimum statutory capital and surplus levels in the Insurance Subsidiaries and general and administrative expenses. Ascent funded capital contributions to the Insurance Subsidiaries totaling approximately $812,000, $2.3 million and $19.3 million during 2003, 2002, and 2001, respectively. The Insurance Subsidiaries reported statutory net income (losses) for 2003, 2002, and 2001 of $1.1 million, ($2.7) million, and ($12.7) million, respectively. As of December 31, 2003, Ascent had approximately $2.4 million in unrestricted cash and invested assets as compared to $375,000 at December 31, 2002.
The CSFBM Credit Agreement is secured, pursuant to a guarantee and security agreement and pledge agreements, by substantially all of the assets of Ascent and its subsidiaries (excluding the capital stock and the assets of AICT, FLICA, NFL, NFIC, NCM, Ascent Funding, Inc. and Ascent Management, Inc., some or all of which is pledged as collateral for bank financing described below). Ascent’s subsidiaries (other than those listed above) have also guaranteed Ascent’s obligations under the CSFBM Credit Agreement. At December 31, 2003, there were no events of default.
The following table provides information on the Company’s known contractual obligations, in thousands, as of December 31, 2003:
(1) Excludes interest at a rate equal to 6% that may be paid in cash or in kind by issuance of additional notes.
Net Cash Used for Operating Activities (1,104 ) (4,950 ) (6,552 )
Estimated market values represent the quoted closing sales prices of marketable securities. The amortized cost and estimated market values of investments in fixed maturities are summarized by category as follows:
Issues through 1980 use the 1955-1960 Ultimate Table; issues subsequent to 1980 through 1992 use the 1965-1970 Ultimate Table. Issues for 1993 and later years use the 1975-1980 Ultimate Table.
Claims incurred related to prior years were a $0.2 million benefit and a $0.4 million expense for 2003 and 2002, respectively and approximated 1% of the prior year claim liability for both years. Claims incurred related to prior years for 2001 provided a benefit of $1.8 million, which was primarily attributable to actual medical trends for the latter part of 2000 developing more favorably than management’s estimates.
Basic - pro forma $ (0.52 ) $ (0.69 ) $ (0.84 )
$ 65 $ 29,143 $ 3,059 $ (32,440 ) $ 37,331