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FORM 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2002
Commission File Number: 1-9828
GAINSCO, INC. 401(k) PLAN
(Full Title of the Plan)
GAINSCO, INC.
(Name of Issuer)
1445 Ross Avenue, Suite 5300
Dallas, Texas 75202
(Principal Executive Office)
Notices and communications from the Securities and Exchange Commission relative to this report should be forwarded to:
Glenn W. Anderson
President
GAINSCO, INC.
1445 Ross Avenue, Suite 5300
Dallas, Texas 75202
(214) 647-0415
Copy to:
Byron F. Egan
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
(214) 953-5727
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REQUIRED INFORMATION
The GAINSCO, INC. 401(k) Plan is subject to the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). Attached hereto is a copy of the most recent financial statements and schedules of the Plan prepared in accordance with the financial reporting requirements of ERISA.
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Gainsco, Inc. 401(k) Plan
Financial Statements and Supplemental Schedule
December 31, 2002 and 2001
(With Independent Auditors’ Report Thereon)
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GAINSCO, INC. 401(k) Plan
Page | ||
1 | ||
2 | ||
3 | ||
4 | ||
Supplemental Schedule | ||
Schedule H, Line 4i – Schedule of Assets (Held at End of Year) | 9 |
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The Plan Administrator
GAINSCO, INC. 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits of the GAINSCO, INC. 401(k) Plan (the Plan) as of December 31, 2002 and 2001, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2002 and 2001, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. This supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
Dallas, Texas
June 13, 2003
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GAINSCO, INC. 401(k) Plan
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
Assets
| 2002 | 2001 | |||
Investments, at fair value | $ | 3,698,808 | 5,442,810 | ||
Receivables: | |||||
Participant contributions | 12,287 | 18,914 | |||
Employer contributions | 32,861 | 52,098 | |||
Accrued interest | 2,520 | 2,441 | |||
Total receivables | 47,668 | 73,453 | |||
Net assets available for benefits | $ | 3,746,476 | 5,516,263 | ||
See accompanying notes to financial statements.
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GAINSCO, INC. 401(k) Plan
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2002 and 2001
2002 | 2001 | ||||||
Additions to net assets attributed to: | |||||||
Investment income (loss): | |||||||
Net depreciation in fair value of investments | $ | (1,009,372 | ) | (844,086 | ) | ||
Interest and dividends | 65,530 | 159,265 | |||||
(943,842 | ) | (684,821 | ) | ||||
Contributions: | |||||||
Participant | 347,523 | 686,990 | |||||
Employer | 150,490 | 249,605 | |||||
498,013 | 936,595 | ||||||
Total (deductions) additions | (445,829 | ) | 251,774 | ||||
Deductions from net assets attributed to: | |||||||
Benefits paid to participants | 1,111,594 | 425,780 | |||||
Transfer of assets to Tri-State, Ltd. 401(k) Plan | 212,364 | — | |||||
Net decrease | (1,769,787 | ) | (174,006 | ) | |||
Net assets available for benefits, beginning of year | 5,516,263 | 5,690,269 | |||||
Net assets available for benefits, end of year | $ | 3,746,476 | 5,516,263 | ||||
See accompanying notes to financial statements.
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GAINSCO, INC. 401(K) PLAN
December 31, 2002 and 2001
(1) | Description of Plan and Accounting Policies |
The following description of GAINSCO, INC. 401(k) Plan (the Plan) provides only general information. Participants should refer to the plan document for a more complete description of the Plan’s provisions.
(a) | General |
The Plan is a defined contribution plan covering all employees of GAINSCO Service Corp., General Agents Insurance Company of America, Inc., MGA Insurance Company, Inc., Lalande Financial Group, Inc., National Specialty Lines, Inc., DLT Insurance Adjusters, Inc., and Tri-State, Ltd. (collectively, the Company) who have at least one hour of service. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
In February 2002, the Company had a reduction in staff due to its exit from the commercial insurance line of business. The employees affected became 100% vested in the employer matching contributions upon termination.
Effective April 11, 2002, total assets of $212,364 were transferred out of the Plan relating to the Company’s sale of Tri-State, Ltd. during August 2001. The employees of Tri-State, Ltd. became 100% vested in the employer matching contributions upon transfer of assets out of the Plan.
(b) | Basis of Accounting |
The financial statements of the Plan are prepared under the accrual method of accounting.
(c) | Contributions |
Participants may elect to make a contribution in an amount not to exceed 15% of their annual compensation, as defined in the plan document.
A discretionary employer matching contribution policy was added to the Plan effective in 2000. This employer matching contribution is allocated in an amount not to exceed 100% of each participant’s first 6% of compensation. The employer matching contribution for the 2002 and 2001 plan year was 50% of each participant’s first 6% of compensation.
The Plan also has a profit sharing feature, which is discretionary. Employees are eligible to receive allocations of profit sharing contributions, if any, after completion of one year of service. The amount of the profit sharing contribution is decided upon by the Company and subject to certain maximum limits set by the board of directors and limitations imposed by the Internal Revenue Service. The amount of the profit sharing contribution allocated to each participant is based upon a pro rata share of the participant’s eligible compensation. There was no profit sharing contribution made in 2002 and 2001.
(d) | Participant Accounts |
Each participant’s account is credited with the participant’s contributions and allocations of the Company’s contributions and plan investment earnings. The earnings and losses from investments are allocated to the participants’ accounts based on their individual account balances.
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GAINSCO, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2002 and 2001
Forfeitures of nonvested plan participants who received a company contribution are used to reduce future employer contributions. Forfeitures for 2002 and 2001 were $33,441 and $28,257, respectively.
(e) | Investment Valuation and Income Recognition |
The Plan’s investments are stated at fair value based on quoted market prices. Shares of mutual funds are valued at the net asset value of shares held by the Plan at year-end. Participants’ loans are valued at unpaid principal balance, which approximates fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis.
(f) | Vesting |
Participants have a 100% vested interest in their voluntary contributions with graduated vesting in the Company’s discretionary contributions plus investment earnings thereon, determined by years of credited service. A participant is 100% vested after six years of credited service.
(g) | Participant Notes Receivable |
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. The loans are treated as directed account investments of the borrowing participant, are secured by the balance in the participant’s account, and bear interest at a rate commensurate with local prevailing rates as determined by the plan administrator. Interest rates range from 6.25% to 11.50% and 7.0% to 11.5% at December 31, 2002 and 2001, respectively.
(h) | Payment of Benefits |
Benefits are paid to participants upon retirement, permanent disability, or termination, or to beneficiaries upon death of the participant. The participant or beneficiary may elect, subject to the terms of the Plan, to receive his or her benefits in a lump-sum cash distribution, or through transfer to another retirement plan in an amount equal to the value of the participant’s vested account balance. Benefit payments are recorded when paid.
(i) | Plan Termination |
Although it has not expressed any intent to do so, the Company has the right to terminate the Plan at any time subject to the provisions of ERISA. In the event of plan termination, all plan participants would become fully vested and the net plan assets would be distributed to plan participants based on each participant’s account balance.
(j) | Expenses |
All administrative fees and expenses relative to the Plan are paid by the Company and are not charged to the Plan.
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GAINSCO, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(k) | Administration |
Merrill Lynch Trust Company was the trustee of the Plan during the 2002 and 2001 plan years and held all of the Plan’s assets and investments and was responsible for executing and recording transactions for the various funds.
(l) | Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of changes in net assets during the reporting period. Actual results could differ from those estimates.
(2) | Investments |
The trustee of the Plan holds the investments of the Plan in trust on behalf of the participants and beneficiaries. Consistent with the fiduciary standards of ERISA, the plan administrator believes safeguards are adhered to in protecting the interests of plan participants and their beneficiaries.
The following table presents the fair value of investments that represent 5% or more of the Plan’s net assets available for benefits as of December 31, 2002 and 2001:
2002 | 2001 | |||||||||
Units/shares | Fair value | Units/shares | Fair value | |||||||
Merrill Lynch Retirement Reserves Money Fund* | 724,940 | $ | 724,940 | 929,011 | $ | 929,011 | ||||
MFS Capital Opportunities Fund CL A | 26,187 | 244,587 | 25,980 | 348,913 | ||||||
Merrill Lynch Basic Value Fund CL D* | 14,217 | 330,966 | 15,937 | 465,205 | ||||||
AIM Small Cap Growth Fund CL A | 13,087 | 241,842 | 18,580 | 476,962 | ||||||
Merrill Lynch S&P 500 Index Fund CL A* | 44,852 | 482,608 | 70,016 | 985,828 | ||||||
Merrill Lynch Aggregate Bond Index Fund CL A* | 45,400 | 497,130 | 41,639 | 437,210 | ||||||
Participants’ Loan Fund* | — | 208,169 | — | 280,630 | ||||||
Alliance Premier Growth Fund CLA | 18,024 | 366,255 |
* | Party in interest |
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GAINSCO, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(3) | Tax Status |
The Plan obtained its latest determination letter on February 16, 1995, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter. The Plan has not applied for a new determination letter. The plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC and the related trust was tax-exempt as of the financial statement date.
(4) | Concentration of Credit Risk |
Assets invested in the funds are not deposits, are not guaranteed by the trustee, are not federally insured by the FDIC, and are subject to certain risks, including loss of principal.
(5) | Nonexempt Transactions |
During 2001, the Plan had a nonexempt transaction totaling $3,589 due to the untimely remittance of participant contributions. The Company made a $212 payment to the Plan, which represents interest and investment earnings on the untimely remittance. There were no prohibited transactions during 2002.
(6) | Reconciliation of Financial Statements to Form 5500 |
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
December 31, | |||||||
2002 | 2001 | ||||||
Net assets available for benefits per the financial statements | $ | 3,746,476 | 5,516,263 | ||||
Amounts allocated to withdrawing participants | (1,480,738 | ) | (1,135,323 | ) | |||
Net assets available for benefits per the Form 5500 | $ | 2,265,738 | 4,380,940 | ||||
The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500 for the years ended December 31, 2002 and 2001:
2002 | 2001 | ||||||
Benefits paid to participants per the financial statements | $ | 1,111,594 | 425,780 | ||||
Add amounts allocated to withdrawing participants at end of year | 1,480,738 | 1,135,323 | |||||
Less amounts allocated to withdrawing participants at beginning of year | (1,135,323 | ) | (487,517 | ) | |||
Benefits paid to participants per the Form 5500 | $ | 1,457,009 | 1,073,586 | ||||
Amounts allocated to withdrawing participants are recorded on the Form 5500 for participants who separated from service during 2002 or a prior plan year who have not yet begun to receive their benefits.
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GAINSCO, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2002 and 2001
(7) | Subsequent Event |
In February 2003, Merrill Lynch notified the Plan of their intention to withdraw support for plan transactions involving acquisition of shares of GAINSCO, INC. common stock due to the delisted status of the stock and market conditions affecting the price and liquidity of the stock. The 401(k) Plan Investment Committee met to discuss the issues brought about by Merrill Lynch and approved the following changes to the Plan.
Effective February 28, 2003, the Plan will no longer offer a GAINSCO, INC. stock purchase option. Employees will no longer be able to buy GAINSCO, INC. stock from inside of the Plan; shares of GAINSCO, INC. stock already held within the Plan can continue to be held. All contributions (employer and employee) that were designated to be directed into purchases of GAINSCO, INC. stock will be redirected to the Merrill Lynch Retirement Reserves Money Fund after February 28, 2003. Employees may continue to borrow against their funds in the Plan but the value of GAINSCO, INC. stock held in their account will be excluded for the purposes of determining the possible loan amount.
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Schedule 1
GAINSCO, INC. 401(k) Plan
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)
December 31, 2002
Identity of issuer, | Investment description | Number of units/ shares | Current value | ||||
Cash and cash equivalents | |||||||
Merrill Lynch Trust Company* | Merrill Lynch Retirement Reserves Money Fund* | 724,940 | $ | 724,940 | |||
CMA Money Fund | 38,616 | 38,616 | |||||
763,556 | |||||||
Common stocks | |||||||
GAINSCO, INC.* | GAINSCO, INC. Common Stock Fund* | 184,911 | 16,642 | ||||
Mutual funds | |||||||
Merrill Lynch Trust Company* | AIM Small Cap Growth Fund CL A | 13,087 | 241,842 | ||||
Alliance Bernstein Utility Inc. | 907 | 10,127 | |||||
Alliance Premier Growth Fund CL A | 11,517 | 158,249 | |||||
Blackrock Mid Cap Growth Equity Portfolio CL A | 1,003 | 6,018 | |||||
Eaton Vance Information Age Fund CL A | 513 | 5,597 | |||||
Eaton Vance Worldwide Health Sciences Fund CL A | 14,144 | 108,202 | |||||
ING Pilgrim Convertible Fund CL A | 336 | 4,919 | |||||
Merrill Lynch Aggregate Bond Index Fund CL A* | 45,400 | 497,130 | |||||
Merrill Lynch Basic Value Fund CL D* | 14,217 | 330,966 | |||||
Merrill Lynch Global Allocation Fund CL D* | 2,134 | 24,345 | |||||
Merrill Lynch International Index Fund CL A* | 218 | 1,544 | |||||
Merrill Lynch S&P 500 Index Fund CL A* | 44,852 | 482,608 | |||||
Merrill Lynch Small Cap Value Fund CL D* | 1,296 | 23,366 | |||||
Merrill Lynch U.S. Govt. Mortgage Fund CL D* | 13,175 | 136,362 | |||||
MFS Capital Opportunities Fund CL A | 26,187 | 244,587 | |||||
Munder Netnet Fund CL A | 382 | 3,807 | |||||
Oppenheimer International Growth Fund CL A | 10,801 | 117,947 | |||||
Oppenheimer Quest Balance Value Fund CL A | 7 | 89 | |||||
Phoenix Strategic Equity Series Fund | 580 | 3,771 | |||||
�� | PIMCO Innovation Fund CL A | 1,882 | 20,274 | ||||
PIMCO Real Return Bond Fund CL A | 3,491 | 39,305 | |||||
The Oakmark International Fund CL II | 566 | 7,426 | |||||
The Oakmark Select Fund CL II | 802 | 19,023 | |||||
Van Kampen American Value Fund CL A | 2,495 | 37,705 | |||||
Van Kampen Comstock Fund CL A | 15,011 | 185,232 | |||||
2,710,441 | |||||||
Loans | |||||||
Participants’ Loans* | Loan Fund (interest rates range from 6.25% to 11.5%) | 208,169 | |||||
$ | 3,698,808 | ||||||
*Party | in interest |
See accompanying independent auditors’ report.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the persons who administer the GAINSCO, INC. 401(k) Plan have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
GAINSCO, INC. 401(k) PLAN | ||
By: | /s/ Glenn W. Anderson Glenn W. Anderson, Chairman of the GAINSCO, INC. 401(k) Plan Investment Committee |
Date: June 27, 2003
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INDEX TO EXHIBITS
EXHIBIT NUMBER | DESCRIPTION | |
23 | Independent Auditors’ Consent of KPMG LLP | |
99 | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chairman of the GAINSCO, INC. 401(k) Plan Investment Committee |