UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
[ 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
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
Commission file number: 1-9250
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
ConsecoSave Plus Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive offices:
Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
CONSECOSAVE PLUS PLAN
INDEX
a) Financial Statements
Report of Independent Auditors....................................................................... 3
Statement of Net Assets Available for Benefits - December 31, 2002 and 2001.......................... 4
Statement of Changes in Net Assets Available for Benefits
for the year ended December 31, 2002............................................................. 5
Notes to Financial Statements........................................................................ 6
Supplemental Schedule(1)................................................................................ 12
----------------
(1) Other schedules required by Section 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 have been omitted because
they are not applicable.
b) Exhibits
23 Consent of Independent Auditors
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
2
REPORT OF INDEPENDENT AUDITORS
To the Participants and Plan Trustees of the
ConsecoSave Plus Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the ConsecoSave Plus Plan (the "Plan", formerly the ConsecoSave Plan) at
December 31, 2002 and 2001, and the changes in net assets available for benefits
for the year ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Our audits were conducted 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) as of December 31, 2002 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. The 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/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
July 11, 2003
3
CONSECOSAVE PLUS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2002 and 2001
2002 2001
------------ ------------
Assets:
Investments at fair value $158,896,045 $214,244,117
Employer contribution receivable 5,147,356 7,683,168
Employee contribution receivable 391,605 544,502
------------ ------------
Total assets 164,435,006 222,471,787
Liabilities:
Excess contribution refunds due to participants - 976,378
------------ ------------
Net assets available for benefits $164,435,006 $221,495,409
============ ============
The accompanying notes are an integral part of these financial statements.
4
CONSECOSAVE PLUS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
for the year ended December 31, 2002
Investment income (loss):
Interest and dividends $ 3,479,009
Net depreciation in the fair value of investments (44,398,416)
------------
Net investment loss (40,919,407)
------------
Contributions:
Employee contributions 22,148,103
Employer contributions 5,147,356
------------
Total contributions 27,295,459
------------
Deductions:
Benefits paid 43,425,392
Administrative expenses 11,063
------------
Total deductions 43,436,455
------------
Net decrease (57,060,403)
Net assets available for benefits, beginning of year 221,495,409
------------
Net assets available for benefits, end of year $164,435,006
============
The accompanying notes are an integral part of these financial statements.
5
CONSECOSAVE PLUS PLAN
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
The accompanying financial statements of the ConsecoSave Plus Plan (the "Plan",
formerly the ConsecoSave Plan prior to its name change effective October 1,
2002) have been prepared in accordance with generally accepted accounting
principles which require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of additions and deductions during the reporting period.
Actual results may differ from these estimates.
On December 17, 2002, Conseco Inc. ("Conseco") and certain other affiliates
(collectively referred to as the "Debtors") filed petitions for reorganization
under Chapter 11 of Title 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Northern
District of Illinois (the "Bankruptcy Court"). On March 18, 2003, the Bankruptcy
Court approved the Debtors Plan of Reorganization (the "Plan of Reorganization")
as described in the Debtors' Disclosure Statement, as containing adequate
information, as such term is defined in Section 1125 of the Bankruptcy Code, to
permit the solicitation of votes from creditors on whether or not to accept the
Plan of Reorganization. Conseco Services, LLC ("CSL"), a wholly-owned subsidiary
of Conseco and the Plan Sponsor, was not included in the petitions filed by the
Debtors. The impact that the Plan of Reorganization may have on the operations
of Conseco and its subsidiaries, including the Plan sponsor, cannot be
accurately predicted or quantified.
The assets of the Plan are not subject to the claims of the creditors of the
Debtors' that have filed petitions for reorganization and the Plan is continuing
to operate as in the past.
Investments
The Plan provides the following investment options for voluntary employee
contributions:
Conseco 20 Fund (a)
Conseco Balanced Fund (a)
Conseco Convertible Securities Fund (a)
Conseco Equity Fund (a)
Conseco Fixed Income Fund (a)
Conseco High Yield Fund (a)
American Funds Growth Fund of America (c)
American Funds Euro Pacific Growth Fund (c)
Ariel Appreciation Fund (c)
Dreyfus Bond Market Index Fund (c)
Dreyfus International Stock Index Fund (c)
Dreyfus Midcap Index Fund (c)
Dreyfus Small Cap Stock Index Fund (c)
MFS Value Fund (c)
Prudential Jennison Equity Opportunity Fund (c)
Prudential Stable Value Fund (c)
Vanguard Institutional Index (b)
Interest Income Fund
Conseco Stock Portfolio
---------------
(a) Such funds are offered by Conseco Fund Group, which is managed by Conseco
Capital Management, Inc., a wholly owned subsidiary of Conseco.
(b) Such investment option was added in 2001.
(c) Such investment options were added in 2002.
The Conseco Fund Group Money Market Fund was discontinued as an investment
option in 2002.
6
CONSECOSAVE PLUS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (continued)
The Conseco Stock Portfolio invests solely in the common stock of Conseco. The
Conseco common stock is valued at the average of the high and low quoted market
prices in the over the counter market at the end of each trading day. Effective
August 9, 2002, no additional participant contributions were permitted to be
invested in the Conseco Stock Portfolio.
The Interest Income Portfolio consists of guaranteed interest contracts. The
guaranteed interest contracts are carried at accumulated contract values, which
are cost adjusted for interest credited (at an average rate of 4.88 percent for
the year ended December 31, 2002). Such carrying value approximates fair value.
The interest rate on the guaranteed interest contracts at December 31, 2002 and
2001, was 4.75 percent and 5.00 percent, respectively. Effective January 1,
2003, the Interest Income Fund was discontinued and such amounts were invested
in the Prudential Stable Value Fund.
The Prudential Stable Value Fund is a bank collective investment fund which
invests in investment contracts and security-backed contracts, both of which are
benefit responsive. The investment contracts are carried at contract value which
represents contributions made under the contract less any participant-directed
withdrawals plus accrued interest at the contract rate. The security-backed
contracts are carried at contract value, in the aggregate, which consists of the
market value of the underlying securities, accrued interest on the underlying
securities, and the fair value of the contract value liquidity agreements, which
generally represents the difference between the contract amounts and market
values of the underlying securities plus accrued interest. The contract value
approximates fair value for all investment contracts and security-backed
contracts.
The remaining funds are valued using the net asset value at the end of each New
York Stock Exchange business day.
7
CONSECOSAVE PLUS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
1. Summary of Significant Accounting Policies (Continued)
Investments (continued)
The Plan presents in the statement of changes in net assets available for
benefits the net appreciation (depreciation) in the fair value of its
investments which consists of the realized gains (losses) and the unrealized
appreciation (depreciation) on those investments.
Administrative Expenses
Operating expenses and maintenance fees incurred during the year ended December
31, 2002, of $432,237, were paid by CSL, the Plan sponsor on behalf of the Plan.
Future payment of such expenses by CSL is at its discretion.
Tax Status
Under Sections 401(a) and 501(a), respectively, of the Internal Revenue Code
(the "IRC"), the Plan is qualified and the ConsecoSave Trust, a trust
established under the Plan, is tax-exempt as stated in a determination letter
received from the Internal Revenue Service dated May 12, 2003. The Plan has been
amended since receiving its last determination letter. However, the Plan
administrator believes that the Plan is currently designed and being operated in
compliance with the applicable requirements of the IRC.
The net assets available for benefits in the accompanying financial statements
are approximately $47,000 higher than such assets available for benefits as
reported in the Form 5500. Such amount represents accrued benefits approved for
distribution but not paid as of December 31, 2002.
Risks and Uncertainties
The Plan provides for various investment options pursuant to which the
underlying investments are exposed to various risks, such as interest rate,
market or credit. Due to the level of risk associated with certain investments
and the level of uncertainty related to changes in the value of such
investments, it is at least reasonably possible that changes in risks in the
near term could materially affect participants' account balances and the amounts
reported in the statement of net assets available for benefits and the statement
of changes in net assets available for benefits.
2. Plan Description
The Plan is a defined contribution plan pursuant to Section 401(k) of the IRC.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA"). Established on April 1, 1989, and amended and restated on
January 1, 1993, October 1, 1995, January 1, 1997, and November 15, 1999, the
Plan includes all employees of CSL as determined pursuant to the Plan of CSL and
any participating employer (unless otherwise excluded pursuant to the Plan).
Participation is voluntary. Every employee is eligible to become a participant
on the first day of the first month (fourth month prior to October 1, 2002)
immediately following the employee's date of hire.
Employee contributions to the Plan are made through periodic payroll deductions
in increments of 1.0 percent of the participant's annual earnings, not to exceed
the lesser of 30.0 percent (15 percent prior to October 1, 2002) of the
participant's annual earnings or the maximum amount specified by federal tax law
($11,000 for pre-tax contributions for 2002). Participants can make pre-tax
and/or after-tax contributions. Participants designate the portfolios in which
their contributions are invested.
8
CONSECOSAVE PLUS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
2. Plan Description (continued)
Employer contributions are at the discretion of the Plan sponsor and may be made
in Conseco Stock, cash to be used to purchase Conseco Stock, or in cash. Prior
to 2002, the employer contributions were made in Conseco Stock and were equal to
50 percent of each eligible participant's pre-tax contributions, up to a maximum
of 6 percent of the participant's annual earnings. For 2002, the employer
contributions were made in cash and were equal to 50 percent of each eligible
pre-tax contributions to the Plan during the first nine months of 2002, up to a
maximum of 6 percent of the participant's earnings compensation earned through
the nine months ended September 30, 2002. The employer contribution receivable
at December 31, 2002 represents the employer contributions for 2002 as described
in the previous sentence. There was no employer contribution related to the last
three months of 2002.
ERISA and the IRC provide that qualified plans, such as the Plan, cannot
discriminate in favor of highly compensated individuals. Certain highly
compensated individuals may be required to receive refunds of any contributions
in excess of the IRC Sections 401(k)(3) and 401(m) limits and all earnings
attributable to such contributions. Amounts in excess of the limits discussed
above are presented in the statement of net assets available for benefits
as "Excess contribution refunds due to participants" and generally were refunded
within 2-1/2 months of the Plan's year end.
Participants are immediately vested in their voluntary contributions plus actual
earnings thereon. Participants have a gradual vesting schedule based upon length
of service and are fully vested in Conseco's contributions after five years of
service (six years prior to October 1, 2002). At December 31, 2002 and 2001,
forfeited non-vested amounts totaled $227,700 and $328,613, respectively. These
non-vested interests of withdrawn participants were used to reduce the employer
contribution receivable at December 31, 2002 and 2001. Participant accounts are
credited for the return on their investments in proportion to their investment
in the respective fund within the Plan.
Benefits under the Plan are paid in cash in a lump sum, in quarterly or annual
installment payments, whole shares of Conseco common stock, or a combination
thereof. Participants may make withdrawals after reaching age 55 or 59 1/2, and
under certain circumstances are allowed to make hardship withdrawals and
after-tax deposit account withdrawals. Participants are permitted to transfer
account balances between portfolios at any time in 1.0 percent increments. Prior
to the suspension of additional investments in the Conseco Stock Portfolio on
August 9, 2002, transfers involving participant-directed contributions to the
Conseco Stock Portfolio could only be made during a 10-business day period each
quarter, beginning on the 3rd business day following the quarterly earnings
release. Benefits approved for distribution but not paid at December 31, 2002,
totaled approximately $47,000.
Participants may obtain loans up to 50.0 percent of the vested portion of their
account balances, excluding employer contributions, to a maximum loan of
$50,000. Only one loan may be outstanding at a time. Repayment of both principal
and interest is made to the participant's account via payroll deduction or a
lump sum. As of December 31, 2002, the participant loans had interest rates
ranging from 4.75 percent to 9.5 percent, and maturity dates ranging from
January 2003 to April 2019. The loans are collateralized by the participants'
vested account balances.
The Plan is administered by CSL, which establishes the rules and procedures
necessary for the Plan's operations. Although it has not expressed any intent to
do so, CSL has the right to terminate the Plan. In the event that the Plan is
terminated, each participant's account shall be non-forfeitable with respect to
both the participant's and employer's contributions and the net assets shall be
set aside for payment to the participants. Distribution shall be made by the
trustee in a lump sum or in substantially equal installments during a period not
exceeding one year following such termination.
The Plan was amended in 2002 to reflect certain provisions of the Economic
Growth and Tax Relief Reconciliation Act of 2001.
9
CONSECOSAVE PLUS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
2. Plan Description (continued)
The foregoing description of the Plan provides only limited information.
Participants should refer to the Summary Plan Description for a more complete
description of the Plan's provisions.
3. Investments
Investments that represent 5 percent or more of the Plan's net assets available
for benefits as of December 31, 2002 and 2001, are summarized as follows:
2002 2001
---- ----
Conseco Equity Fund $54,226,573 $78,423,637
Prudential Stable Value Fund 26,552,303
Vanguard Institutional Index Fund 20,837,050 30,788,904
Interest Income Fund 16,727,705 16,428,441
Conseco Fixed Income Fund 15,867,384 17,391,698
Conseco Stock Portfolio (a) 17,100,082
Conseco Money Market Fund 30,557,814
-----------------------
(a) Includes both participant-directed and non-participant-directed
investments.
During 2002, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated (depreciated) as
follows:
Mutual funds $(20,918,774)
Collective fund 314,055
Conseco Stock Portfolio (23,793,697)
------------
$(44,398,416)
============
10
CONSECOSAVE PLUS PLAN
NOTES TO FINANCIAL STATEMENTS - (Continued)
4. Conseco Stock Portfolio
The Conseco Stock Portfolio includes both participant-directed and
nonparticipant-directed investments. At December 31, 2002, the Conseco Stock
Portfolio consisted of shares of Conseco stock. At December 31, 2001, the
Conseco Stock Portfolio consisted primarily of Conseco stock and short-term
investments. Changes in net assets relating to this portfolio for the year ended
December 31, 2002, are as follows:
Net investment income (loss):
Interest and dividends $ 3,351
Net depreciation in fair value of stock (23,793,697)
------------
Net investment loss (23,790,346)
------------
Contributions:
Employee contributions 1,412,541
Employer contributions 7,683,168
------------
Total contributions 9,095,709
------------
Deductions:
Benefits paid 2,219,603
Administrative expenses 11,063
------------
Total deductions 2,230,666
------------
Net employee transfers to participant-
directed investments 57,280
------------
Net decrease for the year (16,868,023)
Balance, beginning of year 17,100,082
------------
Balance, end of year $ 232,059
============
11
CONSECOSAVE PLUS PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (held at end of year)
(a) (b) (c) (d) (e)
Identity of Issuer, Borrower, Description Total Current
Lessor or Similar Party of Investment Cost Value
------------------------------------------------------------------------------------------------------------------------------------
Mutual funds:
* Prudential Insurance Company of America Prudential Jennison Equity Opportunity Fund $ 480,308
American Funds Euro Pacific Growth Fund 818,592
Vanguard U.S. Stock Index Funds Vanguard Institutional Index Fund 20,837,050
Ariel Funds Ariel Appreciation Fund 1,007,554
American Funds Growth Fund of America 1,237,323
MFS Value Funds MFS Value Fund A 1,346,149
Dreyfus Funds Dreyfus International Stock Index Fund 73,588
Dreyfus Funds Dreyfus Small Cap Stock Index Fund 373,143
Dreyfus Funds Dreyfus Bond Market Index Fund 2,267,921
Dreyfus Funds Dreyfus Mid Cap Index Fund 317,056
* Conseco Fund Group Conseco Fixed Income Fund 15,867,384
* Conseco Fund Group Conseco High Yield Fund 1,137,962
* Conseco Fund Group Conseco 20 Fund 2,622,616
* Conseco Fund Group Conseco Balanced Fund 7,128,187
* Conseco Fund Group Conseco Convertible Securities 1,067,770
* Conseco Fund Group Conseco Equity Fund 54,226,573
Collective funds:
* Prudential Insurance Company of America Prudential Stable Value Fund 26,552,303
Guaranteed interest contract:
* Conseco Annuity Assurance Company Interest Income Fund 16,727,705
* Conseco Company Stock Conseco Company Stock (4,629,162 shares) $43,010,314 232,059
* Participant Loans Interest rates from 4.75% to 9.50%, maturity
dates from January 2003 to April 2019 0 4,574,802
------------
Total assets (held at end of year) $158,896,045
============
------------------
* Party-in-interest
12
CONSECOSAVE PLUS PLAN
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees of the Plan have duly caused this annual report to be signed on its
behalf by the undersigned thereunto duly authorized.
CONSECOSAVE PLUS PLAN
Dated: July 11, 2003 By: /s/ William J. Shea
-----------------------------
William J. Shea, Trustee
13