Form 11-K
Table of Contents

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, 2003.

 

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)

 

Table of Contents

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, 2003 and 2002, and are presented on pages 2 through 14.

 

Table of Contents

Financial Statements and Supplemental Schedule

 

Horace Mann Service Corporation

Supplemental Retirement and Savings Plan

 

Years ended December 31, 2003 and 2002

with Report of Independent Registered Public Accounting Firm

 

Table of Contents

Horace Mann Supplemental

Retirement and Savings Plan

 

Financial Statements

and Supplemental Schedule

 

Years ended December 31, 2003 and 2002

 

Contents

 

Report of Independent Registered Public Accounting Firm

   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)

   14

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Report of Independent Registered Public Accounting Firm

 

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, 2003 and 2002, 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 the standards of the Public Company Accounting Oversight Board (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, 2003 and 2002, and the changes in its net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

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, 2003, 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.

 

/s/ Ernst & Young LLP

 

Chicago, Illinois

May 7, 2004

 

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Horace Mann Supplemental Retirement and Savings Plan

 

Statements of Net Assets Available for Benefits

 

     December 31
     2003
    2002

Assets

              

Investments:

              

Group Annuity Contract:

              

Equity securities

    $ 39,800,473    $ 26,589,916

Fixed income securities

      9,625,919      8,695,259

Fixed fund, at contract value

      36,797,699      38,025,921

Horace Mann Educators Corporation Common Stock, at fair value (cost $7,464,035 in 2003; $9,177,839 in 2002)

      6,031,534      7,480,316

Participant loans

      1,559,518      798,517

Cash

      204,984      160,636
    
  

Total assets

      94,020,127      81,750,565

Liabilities

              

Accrued administrative expenses

      42,911      12,412
    
  

Net assets available for benefits

    $ 93,977,216    $ 81,738,153
    
  

 

See accompanying notes to financial statements.

 

2

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Horace Mann Supplemental Retirement and Savings Plan

 

Statements of Changes in Net Assets Available for Benefits

 

     Year ended December 31
  
     2003
     2002
  

Additions

                 

Investment income (loss):

                 

Net realized and unrealized appreciation (depreciation) of investments

    $ 10,220,905     $ (10,953,263 )

Interest

      1,996,058       2,089,273  
    
 
       12,216,963       (8,863,990 )

Contributions:

                 

Employer

      3,704,732       3,470,577  

Employees

      6,448,028       5,923,623  
    
 

Total additions

      22,369,723       530,210  

Deductions

                 

Withdrawals by participants

      (9,569,188 )     (10,658,688 )

Administrative fees

      (561,472 )     (321,940 )
    
 

Total deductions

      (10,130,660 )     (10,980,628 )
    
 

Net increase (decrease)

      12,239,063       (10,450,418 )

Net assets available for benefits

                 

Beginning of year

      81,738,153       92,188,571  
    
 

End of year

    $ 93,977,216     $ 81,738,153  
    
 

 

See accompanying notes to financial statements.

 

3

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements

 

December 31, 2003

 

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 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 Plan year have the opportunity to make pretax, 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, the Plan became a “safe harbor” Plan. The Company contributes 3% of eligible compensation to every employee. The automatic 3% Company contribution replaces the 50% Company match of the first 6% contributed. The 3% Company contribution 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.

 

4

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

1. General Plan Information (continued)

 

In accordance with the Omnibus Budget Reconciliation Act of 1993, eligible compensation for purposes of contributions were limited to $200,000 in 2003 and 2002. 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.

 

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 2,553 and 2,612 participants at December 31, 2003 and 2002, respectively.

 

Trust Agreement

 

Except for participant loans, all Plan assets are in a Master Trust held by The Northern Trust Quantitative Advisors, Inc. The Master Trust also includes the specifically identified assets of the HMSC Money Purchase Pension Plan. The assets of the Plan represent 45% 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 Company (HMLIC) Group Annuity Contract (Fixed and Separate Accounts) or HMEC Common Stock Fund. Investments are available through the HMLIC Group Annuity Contract Separate Account that consist of any of seven Horace Mann Mutual Funds. Other mutual fund options are listed on the following page.

 

5

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

1. General Plan Information (continued)

 

The following presents investments held at December 31, 2003 and 2002:

 

     December 31

Description of Investment

    2003
    2002

Separate Account – Horace Mann

              

Mutual Funds:

              

Equity Fund*

    $ 12,679,207    $ 10,921,692

Balanced Fund*

      8,316,232      7,487,099

Small Cap Growth Fund*

      5,176,423      2,751,946

Socially Responsible Fund

      3,570,384      2,743,183

International Equity Fund

      2,921,609      2,027,009

Income Fund

      1,106,574      1,021,668

Short-Term Investment Fund

      203,113      186,492
    
  

Total separate account – Horace Mann Mutual Funds

      33,973,542      27,139,089

Other Mutual Funds:

              

T. Rowe Price Small Cap Value Fund

      2,721,361      1,558,162

Wilshire Large Company Growth Portfolio

      2,387,328      1,563,457

Wilshire 5000 Index Portfolio

      2,529,593      1,533,570

Fidelity VIP Mid Cap Portfolio

      1,929,880      943,026

Fidelity VIP Growth Portfolio

      1,424,878      580,755

Strong Opportunity Fund II

      1,268,766      535,681

T. Rowe Price Small Cap Stock Fund

      1,252,846      653,498

Davis Value Portfolio

      549,030      224,499

Fidelity VIP Overseas Portfolio

      536,309      164,369

Putnam VT Vista Fund

      504,349      251,810

J.P. Morgan U.S. Disciplined Equity Portfolio

      348,510      137,259
    
  

Total other mutual funds

      15,452,850      8,146,086

HMLIC Fixed Account*

      36,797,699      38,025,921

Horace Mann Educators Corporation Common Stock*

      6,031,534      7,480,316
    
  
     $ 92,255,625    $ 80,791,412
    
  
*Represents 5% or more of the Plan’s net assets.

 

6

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

1. General Plan Information (continued)

 

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 $1,559,518 and $798,517 from 177 and 104 active participants were outstanding at December 31, 2003 and 2002, respectively. Interest rates charged on loans ranged from 5.00% to 5.75%.

 

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 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.

 

7

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

2. Investments (continued)

 

The actual credited interest rate on the group annuity contract was 4.50% and 5.00% for the years ended December 31, 2003 and 2002, respectively.

 

The minimum guaranteed annual interest rate per the group annuity contract is 4.50%. The actual credited interest rate may be reset by HMLIC with 30 days advance notice. 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%. On August 1, 2003, the credited interest rate was changed from 4.75% to 4.50%.

 

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 11 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 Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) in value during 2003 and 2002 as follows:

 

     Net Realized and Unrealized
Appreciation (Depreciation) in
Fair Value of Investments
  
     2003
     2002
  

Mutual funds

    $ 10,813,393     $ (8,244,116 )

Common stock

      (592,488 )     (2,709,147 )
    
 
     $ 10,220,905     $ (10,953,263 )
    
 

 

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

2. Investments (continued)

 

Total annual returns for each of the mutual funds were as follows:

 

     Annual Investment Returns
  
     1 Year
     Period ended
December 31, 2003
  
     2003
     2002
     5 year
     10 year
  

HMLIC Mutual Funds

                         

Equity Fund

    27.57 %   (19.43 )%   (1.76 )%   7.33 %

Balanced Fund

    19.56     (8.27 )   2.11     7.77  

Small Cap Growth Fund

    58.95     (38.93 )   .85     —    

Socially Responsible Fund

    28.45     (13.48 )   3.97     —    

International Equity Fund

    32.49     (20.99 )   (.70 )   —    

Income Fund

    7.25     9.20     6.47     6.52  

Short-Term Investment Fund

    1.03     1.72     3.68     4.25  

Other Mutual Funds

                         

Wilshire Large Company Growth Portfolio

    26.44     (21.73 )   —       —    

Wilshire 5000 Index Portfolio

    29.62     (21.35 )   —       —    

T. Rowe Price Small Cap Value Fund

    36.24     (2.04 )   —       —    

Fidelity VIP Mid Cap Portfolio

    38.25     (10.03 )   —       —    

Strong Opportunity Fund II

    37.01     (26.82 )   —       —    

Fidelity VIP Growth Portfolio

    32.52     (16.84 )   —       —    

T. Rowe Price Small Cap Stock Fund

    32.06     (14.41 )   —       —    

Putnam VT Vista Fund

    33.16     (30.58 )   —       —    

Davis Value Portfolio

    29.76     (16.26 )   —       —    

J.P. Morgan U.S. Disciplined Equity Portfolio

    28.14     (24.62 )   —       —    

Fidelity VIP Overseas Portfolio

    43.04     (20.45 )   —       —    

 

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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, 2003 and 2002, was as follows:

 

     2003
     2002
  

Equity Fund:

             

Common and preferred stock

    99 %   99 %

Cash and short-term investments

    1     1  

Balanced Fund:

             

Equity Fund

    62     60  

Income Fund

    38     40  

Small Cap Growth Fund:

             

Common stock

    99     98  

Cash and short-term investments

    1     2  

Socially Responsible Fund:

             

Common and preferred stock

    97     98  

Cash and short-term investments

    3     2  

International Equity Fund:

             

Common and preferred stock

    99     98  

Cash and short-term investments

    1     2  

Income Fund:

             

U.S. and foreign government and agency obligations

    56     50  

Corporate bonds/notes

    36     46  

Cash and short-term investments

    8     4  

Short-Term Investment Fund:

             

U.S. and foreign government and agency obligations

    57     43  

US corporate securities

    4     —    

Repurchase agreements

    6     48  

Cash and short-term investments

    33     9  

T. Rowe Price Small Cap Value Fund:

             

Common and preferred stocks

    100     100  

Wilshire Large Company Growth Portfolio:

             

Common and preferred stocks

    100     100  

Wilshire 5000 Index Portfolio:

             

Common and preferred stocks

    100     100  

 

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

2. Investments (continued)

 

     2003
     2002
  

Fidelity VIP Mid Cap Portfolio:

             

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  

T. Rowe Price Small Cap Stock Fund:

             

Common and preferred stocks

    100     100  

Davis Value Portfolio:

             

Common and preferred stocks

    100     100  

Fidelity VIP Overseas Portfolio

             

Common and preferred stocks

    100     100  

Putnam VT Vista Fund:

             

Common and preferred stocks

    97     97  

Short-term investments

    3     3  

J.P. Morgan U.S. Disciplined Equity Portfolio:

             

Common and preferred stocks

    100     100  

 

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

2. Investments (continued)

 

HMEC Common Stock Fund

 

The Plan’s HMEC Common Stock Fund at December 31, 2003 and 2002, consisted of 431,749 shares and 487,953 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 $13.97 and $15.33 per share, respectively.

 

Total annual returns for investments in the HMEC Common Stock Fund were as follows:

 

Annual Investment Returns
1 Year
    

Since inception

 
2003
   2002
    

(November 1991)

(6.18)%   (26.06 )%   5.37%

 

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. Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

 

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Horace Mann Supplemental Retirement and Savings Plan

 

Notes to Financial Statements (continued)

 

5. Income Tax Status

 

The Plan has received a determination letter from the Internal Revenue Service (IRS) dated August 21, 2003, 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. 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.

 

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Supplemental Schedule

 

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EIN: 37-0972590

Plan: 004

 

Horace Mann Supplemental Retirement and Savings Plan

 

Schedule H, Line 4i – Schedule of Assets (Held at End of Year)

 

December 31, 2003

 

Number

of Shares

or Units

   

Description of Investment

   

Contract or

Fair Value

     Separate Account – Horace Mann Mutual Funds*:       
616,028   

Equity Fund

    $ 12,679,207
429,034   

Balanced Fund

      8,316,232
430,719   

Small Cap Growth Fund

      5,176,423
230,688   

Socially Responsible Fund

      3,570,384
262,225   

International Equity Fund

      2,921,609
65,056   

Income Fund

      1,106,574
17,958   

Short-Term Investment Fund

      203,113
         
     Total separate account – Horace Mann Mutual Funds      33,973,542
     Other Mutual Funds:       
79,290    T. Rowe Price Small Cap Value Fund      2,721,361
77,370    Wilshire Large Company Growth Portfolio      2,387,328
264,107    Wilshire 5000 Index Portfolio      2,529,593
79,076    Fidelity VIP Mid Cap Portfolio      1,929,880
43,009    Fidelity VIP Growth Portfolio      1,424,878
47,562    Strong Opportunity Fund II      1,268,766
39,051    T. Rowe Price Small Cap Stock Fund      1,252,846
50,315    Davis Value Portfolio      549,030
29,906    Fidelity VIP Overseas Portfolio      536,309
41,878    Putnam VT Vista Fund      504,349
27,375    J.P. Morgan U.S. Disciplined Equity Portfolio      348,510
         
     Total other mutual funds      15,452,850
N/A    HMLIC Fixed Account*      36,797,699
431,749    Horace Mann Educators Corporation Common Stock*      6,031,534
     Participant loans (interest rates from 5.00% to 5.75%)      1,559,518
         
          $ 93,815,143
         
* Represents a party in interest.

 

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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 24 June 2004

  

HORACE MANN SUPPLEMENTAL RETIREMENT

AND SAVINGS PLAN

       

/s/ Kathryn E. Karr

       

Kathryn E. Karr

       

Plan Administrator

       

Vice President,

       

Human Resources Operations

 

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EXHIBITS

 

23. Consent of Independent Registered Public Accounting Firm

 

16