11-K 1 d11k.txt FORM 11-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One): [X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002. ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15 [d] OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to _________ Commission file number 1-10890 ------------ HORACE MANN SUPPLEMENTAL RETIREMENT AND SAVINGS PLAN (Full title of the Plan) HORACE MANN EDUCATORS CORPORATION 1 Horace Mann Plaza, Springfield, Illinois 62715 Registrant's telephone number, including area code: (217) 789 - 2500 (Name, Address and Telephone Number of Issuer) REQUIRED INFORMATION Financial Statements: Item 4. In lieu of the requirements of Items 1-3, audited statements and schedule are prepared in accordance with the requirements of ERISA for the Plan's fiscal years ended December 31, 2002 and 2001 are presented on pages 2 through 12. Financial Statements and Supplemental Schedule Horace Mann Service Corporation Supplemental Retirement and Savings Plan Years ended December 31, 2002 and 2001 with Report of Independent Auditors Horace Mann Supplemental Retirement and Savings Plan Financial Statements and Supplemental Schedule Years ended December 31, 2002 and 2001 Contents Report of Independent Auditors ..................................................... 1 Financial Statements Statements of Net Assets Available for Benefits .................................... 2 Statements of Changes in Net Assets Available for Benefits ......................... 3 Notes to Financial Statements ...................................................... 4 Supplemental Schedule Schedule H, Line 4i - Schedule of Assets (Held at End of Year) ..................... 12
Report of Independent Auditors Pension Committee and The Board of Directors Horace Mann Educators Corporation We have audited the accompanying statements of net assets available for benefits of Horace Mann Supplemental Retirement and Savings 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. 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 at December 31, 2002 and 2001, and the changes in its net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying schedule of assets (held at end of year) as of December 31, 2002, is presented for purposes of additional analysis and is not a required part of the 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. The supplemental schedule has been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. May 16, 2003 1 Horace Mann Supplemental Retirement and Savings Plan Statements of Net Assets Available for Benefits
December 31 2002 2001 ------------------------------- Assets Investments: Group Annuity contract Equity securities $26,589,916 $35,075,088 Fixed income securities 8,695,259 10,386,614 Fixed fund, at contract value 38,025,921 36,447,269 Horace Mann Educators Corporation Common Stock, at fair value (cost $9,177,839 in 2002, $9,372,748 in 2001) 7,480,316 10,279,600 Participant loans 798,517 - Cash 160,636 - ------------------------------- Total assets 81,750,565 92,188,571 Liabilities Accrued administrative expenses 12,412 - ------------------------------- Net assets available for benefits $81,738,153 $92,188,571 ===============================
See accompanying notes to financial statements. 2 Horace Mann Supplemental Retirement and Savings Plan Statements of Changes in Net Assets Available for Benefits
Year ended December 31 2002 2001 -------------------------------- Additions Investment income (loss): Net realized and unrealized depreciation of investments $(10,953,263) $ (4,507,978) Interest 2,084,571 2,001,458 Participant loan interest income 4,702 - ------------------------------- (8,863,990) (2,506,520) Contributions: Employer 3,470,577 2,301,217 Employee 5,923,623 6,266,060 ------------------------------- Total additions 530,210 6,060,757 Deductions Withdrawals by participants (10,658,688) (9,082,208) Administrative fees (321,940) (240,327) ------------------------------- Total deductions (10,980,628) (9,322,535) ------------------------------- Net decrease (10,450,418) (3,261,778) Net assets available for benefits Beginning of year 92,188,571 95,450,349 ------------------------------- End of year $ 81,738,153 $ 92,188,571 ===============================
See accompanying notes to financial statements. 3 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements December 31, 2002 1. General Plan Information Description of the Plan The Horace Mann Supplemental Retirement and Savings Plan (the Plan) is sponsored by Horace Mann Service Corporation (HMSC) which is a wholly owned subsidiary of Horace Mann Educators Corporation (HMEC, HMSC and HMEC, collectively referred to as the Company). The following brief description of the Plan is provided for general information purposes. Readers should refer to the actual Plan Document or the employee Summary Plan Description entitled for additional information. The Plan is a defined-contribution plan covering all employees of the Company. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions and Vesting Participating employees may contribute up to 20% of eligible compensation, including salary, overtime, commissions, and certain incentive bonuses on a before-tax basis to one or more of twenty available investment funds. Prior to April 1, 2002, participants were able to contribute 10% of eligible compensation. Participating employees who reached age 50 or older during the 2002 Plan year had the opportunity to make pre-tax-catch-up contributions subject to federal limits. Prior to January 1, 2002, the Company contributed an amount equal to 50% of the first 6% of eligible compensation contributed by participating employees. Employer contributions and earnings thereon vested 20% for each year of service, with full vesting occurring after five years of service. In addition, employer contributions generally become fully vested in the event of disability or death. Forfeitures of nonvested employer contributions serve to reduce future Company matching contributions. Participant contributions and earnings thereon are fully vested at all times. Effective January 1, 2002, an automatic 3% Company contribution replaced the 50% Company match of the first 6% contributed. The 3% Companycontribution is 100% vested at the time the contribution is made and is participant-directed.Company match contributions made prior to January 1, 2002, will continue to vest at the rate of 20% per year of service. In accordance with the Omnibus Budget Reconciliation Act of 1993, eligible compensation for purposes of contributions were limited to $200,000 and $170,000 in 2002 and 2001, respectively. Prior to January 1, 2002, highly compensated employees were limited to 6% participant contributions and 3% Company matching contributions. However, effective January 1, 2002, with the adoption of the Company's "safe harbor" contribution, highly compensated employees may contribute up to 20% of eligible compensation. 4 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements (continued) 1.General Plan Information (continued) Participant Accounts and Benefits Each participant's account is credited with the participant's contribution, the Company's contribution, and an allocation of Plan investment earnings and charged with an allocation of administrative expenses. The benefit to which a given participant is entitled is the benefit that can be provided from that participant's vested account. A participant subaccount is maintained in each of the investment funds in which a participant chooses to invest. There were 2,612 and 2,160 participants at December 31, 2002 and 2001, respectively. At December 31, 2002 and 2001, the number of participants' subaccounts in the respective investment funds were as follows: 2002 2001 ----------------- HMLIC Mutual Funds Equity Fund 1,073 1,234 Balanced Fund 738 841 Small Cap Growth Fund 802 956 Socially Responsible Fund 583 689 International Equity Fund 644 793 Income Fund 279 221 Short-Term Investment Fund 117 100 Other Mutual Funds Wilshire Large Company Growth Portfolio 377 335 Wilshire 5000 Index Portfolio 333 391 T. Rowe Price Small Cap Value Fund 331 190 Fidelity VIP Mid Cap Growth Portfolio 273 185 Strong Opportunity Fund II 206 153 Fidelity VIP Growth Portfolio 224 169 T. Rowe Price Small Cap Stock Fund 269 167 Putnam VT Vista Fund 131 110 Davis Value Portfolio 93 76 J.P. Morgan U.S. Disciplined Equity Portfolio 79 58 Fidelity VIP Overseas Portfolio 83 56 Horace Mann Fixed Fund 2,273 1,214 HMEC Common Stock Fund 845 914 5 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements (continued) 1. General Plan Information (continued) Trust Agreement All plan assets are in a Master Trust held by The Northern Trust Quantitative Advisors, Inc. The Master Trust also includes the assets of the HMSC Money Purchase Pension Plan. The assets of the Plan represent 44% of the total assets in the Master Trust. The assets of the Plan are participant-directed investments and are deposited in a Horace Mann Life Insurance (HMLIC) Group Annuity Contract (Fixed and Separate Accounts) or an HMEC Common Stock Fund. Investments are available through the HMLIC Group Annuity Contract Separate Account that consists of any of seven Horace Mann Mutual Funds, the Wilshire Large Company Growth Portfolio and the Wilshire 5000 Index portfolio (collectively the Wilshire Funds), the Fidelity VIP Mid Cap Growth Portfolio, the Fidelity VIP Growth Portfolio, the Fidelity VIP Overseas Portfolio (collectively the "Fidelity Funds"), T. Rowe Price Small Cap Stock Fund and the T. Rowe Price Small Cap Value Fund, the Davis Value Portfolio, the Strong Opportunity Fund II, the J.P. Morgan U.S. Disciplined Equity Portfolio, the Putnam VT Vista Fund. Transfers and Withdrawals Participants may transfer all or a portion of their account balance between the various investment funds on a daily basis. Participant withdrawals (as allowed under the Plan) are permitted on a weekly basis. Loans Effective October 1, 2002, participants may borrow a minimum of $1,000 up to a maximum of 50% of their vested account balance, but no more than $50,000. The minimum term for a loan is 12 months and the maximum is 60 months (180 months for primary residence loans). Participants may have up to two active loans at one time. A $65 loan administration fee is deducted from the participant's loan proceeds. Loans totaling $798,517 from 104 active participants were outstanding at December 31, 2002. 5.75% interest was charged on participant loans. 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, participants become fully vested in the Company's pre- January 1, 2002 matching contributions and related investment earnings. 2. Investments HMLIC Group Annuity Contract - (Fixed and Separate Accounts) Fixed Account Within the HMLIC Group Annuity Contract plan participants may invest in a fixed interest rate fund. Plan assets invested in this contract are guaranteed by HMLIC and, as a result, are presented in the financial 6 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements (continued) 2. Investments (continued) statements at contract value. Contract value represents contributions made under the contract, plus interest at the contract rate, less withdrawals by participants. The fair value of the group annuity contract is approximately equal to contract value. The actual credited interest rate on the group annuity contract was 5.00% and 5.25% for the years ended December 31, 2002 and 2001, respectively. The minimum guaranteed annual interest rate per the group annuity contract is 4.5%. The actual credited interest rate may be reset by HMLIC with 30 days advance notice, but is generally changed once at the beginning of each Plan year. On November 1, 2002, the credited interest rate was changed from 5.25% to 5.00%. Beginning January 1, 2003 the actual crediting rate was continued at 5.00%, until March 1, 2003. The actual crediting rate on March 1, 2003 was changed to 4.75%. Separate Account Within the HMLIC Group Annuity Contract, a separate account is available for the purpose of separately investing Plan assets in one or more of seven HMLIC mutual funds, (Equity Fund, Balanced Fund, Small Cap Growth Fund, Socially Responsible Fund, International Equity Fund, Income Fund, and Short-Term Investment Fund) and eleven additional mutual fund options including the Wilshire Funds, the Fidelity Funds, T. Rowe Price Small Cap Stock Fund and the T. Rowe Price Small Cap Value Fund, the Davis Value Portfolio, the Strong Opportunity Fund II, the J.P. Morgan U.S. Disciplined Equity Portfolio, and the Putnam VT Vista Fund. The investments in mutual funds are valued at quoted market prices, which represent the net asset values of shares held by the Plan at year-end. The investments of the underlying mutual funds are primarily common stocks, U.S. government and corporate bonds, and short-term commercial paper. The common stocks and bonds are presented at fair value, based on quoted market prices, and the short-term commercial paper is presented at cost, which approximates fair value. The following presents investments that represent 5 percent or more of the Plan's net assets:
December 31 2002 2001 --------------------------------- Equity Fund $10,921,692 $15,559,955 Balanced Fund 7,487,099 9,535,942 Small Cap Growth Fund - 4,948,649 HMLIC group annuity contract - Fixed Account 38,025,921 36,447,269 Horace Mann Educators Corporation common stock 7,480,316 10,279,600
7 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements (continued) 2. Investments (continued) The Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) depreciated in value during 2002 and 2001 as follows: Net Realized and Unrealized Depreciation in Fair Value of Investments 2002 2001 Mutual funds $ (8,244,116) $(3,493,605) Common stock (2,709,147) (168,236) ---------------------------------------- Total $(10,953,263) $(3,661,841) ======================================== Total annual returns for each of the mutual funds were as follows:
Annual Investment Returns ------------------------------------------------------------ Period ended 1 Year December 31, 2002 ------------------------------------------------------------ 2002 2001 5 year 10 year ------------------------------------------------------------ HMLIC Mutual Funds: Equity Fund (19.43)% (5.41)% (5.04)% 7.45% Balanced Fund (8.27) 0.12 (0.01) 8.05 Small Cap Growth Fund (38.93) (30.70) (7.05) - Socially Responsible Fund (13.48) (8.47) (.76) - International Equity Fund (20.99) (27.29) (2.81) - Income Fund 9.20 7.53 6.61 7.31 Short-Term Investment Fund 1.72 3.86 4.48 4.75 Other Mutual Funds Wilshire Large Company Growth Portfolio (21.73) (16.62) - - Wilshire 5000 Index Portfolio (21.35) (11.50) - - T. Rowe Price Small Cap Value Fund (2.04) (21.84) - - Fidelity VIP Mid Cap Portfolio (10.03) (3.49) - - Strong Opportunity Fund II (26.82) (3.92) - - Fidelity VIP Growth Portfolio (16.84) (17.85) - - T. Rowe Price Small Cap Stock Fund (14.41) 6.60 - - Putnam VT Vista Fund (30.58) (33.53) - - Davis Value Portfolio (16.26) (10.38) - - J.P. Morgan U.S. Disciplined Equity Portfolio (24.62) (11.92) - - Fidelity VIP Overseas Portfolio (20.45) (21.15) - -
8 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements (continued) 2. Investments (continued) The composition of the underlying investments in each of the mutual funds at December 31, 2002 and 2001, was as follows: 2002 2001 --------------- Equity Fund: Common and preferred stock 99% 99% Cash and short-term investments 1 1 Balanced Fund: Equity Fund 60 62 Income Fund 40 38 Small Cap Growth Fund: Common stock 98 96 Cash and short-term investments 2 4 Socially Responsible Fund: Common and preferred stock 98 97 Cash and short-term investments 2 3 International Equity Fund: Common and preferred stock 98 95 Cash and short-term investments 2 5 Income Fund: U.S. and foreign government and agency obligations 50 62 Corporate bonds/notes 46 38 Cash and short-term investments 4 - Short-Term Investment Fund: U.S. and foreign government and agency obligations 43 92 Repurchase agreements 48 - Cash and short-term investments 9 8 Wilshire Large Company Growth Portfolio: Common and preferred stocks 100 100 T. Rowe Price Small Cap Value Fund: Common and preferred stocks 100 100 9 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements (continued) 2. Investments (continued) 2002 2001 --------------- Wilshire 5000 Index Portfolio: Common and preferred stocks 100% 100% Fidelity VIP Mid Cap Portfolio: Common and preferred stocks 100 100 T. Rowe Price Small Cap Stock Fund: Common and preferred stocks 100 100 Fidelity VIP Growth Portfolio: Common and preferred stocks 100 100 Strong Opportunity Fund II: Common and preferred stocks 100 100 Putnam VT Vista Fund: Common and preferred stocks 97 97 Short-term investments 3 3 Davis Value Portfolio: Common and preferred stocks 100 100 Fidelity VIP Overseas Portfolio Common and preferred stocks 100 100 J.P. Morgan U.S. Disciplined Equity Portfolio: Common and preferred stocks 100 100 HMEC Common Stock Fund The Plan's HMEC Common Stock Fund at December 31, 2002 and 2001, consisted of a pooled investment in 487,953 shares and 484,430 shares, respectively, of HMEC common stock, which is traded on the New York Stock Exchange under the symbol HMN. This investment is presented in the financial statements at fair value with a quoted market price of $15.33 and $21.22 per share, respectively. Total annual returns for investments in the HMEC Common Stock Fund were as follows: Annual Investment Returns ------------------------------------------------- 1 Year Since inception ----------------------------- 2002 2001 (November 1991) ----------------------------- ------------------ (26.06)% 1.5% 6.47% 10 Horace Mann Supplemental Retirement and Savings Plan Notes to Financial Statements (continued) 3. Administrative Expenses The Plan pays for its own administrative fees, consisting primarily of trustee, audit, and legal fees. All investment fees have been included in the quarterly performance gains or losses reported for individual Plan funds. 4. Income Tax Status The Plan has received a determination letter from the Internal Revenue Service (IRS) dated May 17, 1994, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "Code"), and therefore, the related trust is exempt from taxation. On February 28, 2002, the Plan was amended and restated to conform with the plan changes effective January 1, 2002, the series of tax acts collectively referred to as "GUST" and the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), and submitted to the IRS for favorable determination. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended, is qualified and the related trust is tax exempt. 11 Supplemental Schedule EIN: 37-0972590 Plan: 004 Horace Mann Supplemental Retirement and Savings Plan Schedule H, Line 4i - Schedule of Assets (Held at End or Year) December 31, 2002
Number of Shares Contract or or Units Description of Investment Cost Fair Value -------------------------------------------------------------------------------------------------------- Separate Account - Horace Mann Mutual Funds*: 676,941 Equity Fund $15,117,102 $10,921,692 461,813 Balanced Fund 8,255,547 7,487,099 364,405 Small Cap Growth Fund 5,281,554 2,751,946 227,665 Socially Responsible Fund 2,992,767 2,743,183 241,035 International Equity Fund 3,269,527 2,027,009 64,472 Income Fund 930,345 1,021,668 16,659 Short-Term Investment Fund 182,496 186,492 -------------------------------- Total separate account - Horace Mann Mutual Funds 36,029,338 27,139,089 Other Mutual Funds: 64,274 Wilshire Large Company Growth Portfolio 3,234,497 1,563,457 61,850 T. Rowe Price Small Cap Value Fund 1,615,561 1,558,162 208,230 Wilshire 5000 Index Portfolio 1,888,376 1,533,570 53,420 Fidelity VIP Mid Cap Portfolio 1,013,034 943,026 26,900 T. Rowe Price Small Cap Stock Fund 714,258 653,498 23,230 Fidelity VIP Growth Portfolio 752,657 580,755 27,512 Strong Opportunity Fund II 675,077 535,681 27,842 Putnam VT Vista Fund 320,427 251,810 26,696 Davis Value Portfolio 255,225 224,499 13,110 Fidelity VIP Overseas Portfolio 212,665 164,369 13,815 J.P. Morgan U.S. Disciplined Equity Portfolio 166,698 137,259 -------------------------------- Total other mutual funds 10,848,475 8,146,086 N/A HMLIC Fixed Account* 38,025,921 38,025,921 487,953 Horace Mann Educators Corporation Common Stock* 9,177,839 7,480,316 Participant loans - 798,517 -------------------------------- $94,081,573 $81,589,929 ================================
*Represents a party in interest 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Pension Plan Committee of the Horace Mann Supplemental Retirement and Savings Plan has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Date 27 June 2003 HORACE MANN SUPPLEMENTAL RETIREMENT AND ----------------- SAVINGS PLAN /s/ Kathryn E. Karr ----------------------------------- Kathryn E. Karr Plan Administrator Vice President, Corporate Benefits Administration 13