UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(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
For the transition period from ____________ to ______________
COMMISSION FILE #0-11321
A. Full title of Plan and the address of the Plan, if different from
that of the issuer named below:
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
UNIVERSAL AMERICAN FINANCIAL CORP.
SIX INTERNATIONAL DRIVE, SUITE 190, RYE BROOK, NEW YORK 10573
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
FORM 11-K
TABLE OF CONTENTS
Page No(s).
-----------
Independent Auditors' Report F-1
Statements of Net Assets Available for Benefits as of December 31, 2002 and 2001 F-2
Statement of Changes in Net Assets Available for Benefits for the Year Ended
December 31, 2002 F-3
Notes to Financial Statements F-4 - F10
Supplemental Schedule:
Form 5500 Schedule H, Part IV, Line 4i - Schedule of Assets (Held at Year End)
as of December 31, 2002 F-11
Signature F-12
EXHIBITS
Exhibit 23.1 - Independent Auditors' Consent F-13
INDEPENDENT AUDITORS' REPORT
THE BOARD OF TRUSTEES OF
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
RYE BROOK, NEW YORK
We have audited the accompanying statements of net assets available for benefits
of Universal American Financial Corp. 401(k) Savings Plan (the "Plan") as of
December 31, 2002 and 2001, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2002. 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 as of
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.
Our audits were conducted for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at year end) as of December 31, 2002, is presented for the purpose 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 audit 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
New York, New York
October 15, 2003
F-1
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
2002 2001
---- ----
ASSETS
Investments at fair value:
Registered investment companies $ 228,619 $ 4,877,421
Employer securities - company stock 2,625,669 3,179,553
Participants' loans 262,135 318,894
Unsettled trades 4,519,498 -
--------------- ---------------
Total investments 7,635,921 8,375,868
--------------- ---------------
Receivables:
Employer's contributions 11,307 16,868
Participants' contributions 38,719 62,279
Receivable - other - 4,303
--------------- ---------------
Total receivables 50,026 83,450
--------------- ---------------
Cash and equivalents 906,985 990,225
--------------- ---------------
TOTAL ASSETS 8,592,932 9,449,543
--------------- ---------------
LIABILITIES
Due to participants 17,011 2,443
--------------- ---------------
TOTAL LIABILITIES 17,011 2,443
--------------- ---------------
NET ASSETS AVAILABLE FOR BENEFITS 8,575,921 9,447,100
================ ===============
See accompanying notes to financial statements.
F-2
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
2002
----
Investment income:
Net depreciation in fair value of investments:
Registered investment companies $ (987,720)
Employer securities - company stock (510,881)
----------------
Subtotal (1,498,601)
Dividend income on registered investment companies 104,658
Interest income on participant loans 25,312
----------------
Total investment income (loss) (1,368,631)
Contributions:
Employer's contributions 310,116
Employee's contributions 1,182,437
----------------
Total contributions 1,492,553
Benefits paid to participants (964,710)
Administrative expenses (30,391)
----------------
NET DECREASE (871,179)
NET ASSETS AVAILABLE FOR BENEFITS
January 1, 2002 9,447,100
----------------
December 31, 2002 $ 8,575,921
================
See accompanying notes to financial statements.
F-3
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE A - DESCRIPTION OF PLAN
- ------- -------------------
Effective April 1, 1992, Universal American Financial Corp. (hereafter called
the "Company") adopted the Universal American Financial Corp. 401(k) Savings
Plan (hereafter called the "Plan"), which is a voluntary defined contribution
plan under which employees may elect to defer income from taxation under Section
401(k) of the IRS Code of 1986. The Plan is subject to the provisions of the
Employee Retirement Income Security Act (ERISA) of 1984.
1. ADMINISTRATION OF THE PLAN
--------------------------
The Administrator is the named fiduciary that is responsible for
execution of the Plan's provisions, construction, required record
keeping, directing and advising the Trustees regarding investment and
payment procedures. They are also responsible for claims management
and exercising such authority and responsibility as they deem
appropriate to comply with ERISA and government regulations. Through
December 31, 2002, the Administrator was CBIZ Retirement Services,
Inc. Transamerica Retirement Services was named Administrator
effective January 1, 2003.
Reliance Trust Company was the custodian for all Plan investments
through December 31, 2002. Effective January 1, 2003, all Plan
investments were transferred to Investors Bank and Trust Company of
Boston, as custodian.
2. PARTICIPATION IN THE PLAN
-------------------------
Any employee who, on the effective date of the Plan, is not:
1. included in a collective bargaining unit;
2. a non-resident who is not paid compensation;
3. a part-time employee (i.e., works less than 20 hours per week);
4. under 21 years of age
may participate on that date. Thereafter, each employee who meets the
above criteria and additionally either completes three months of
employment as a full-time employee and exceeds 250 hours or service
during three months of continuous employment is eligible as of the
next quarter. An employee ceases to be a participant if he ceases
employment for any reason (including death or retirement), or if the
Company ceases to exist. If a person no longer meets the requirements
for participation while he is an employee, he shall remain a
participant but shall not be entitled to a share of any company
contributions, and may not make elective contributions until those
requirements are met. Additionally, an employee who has contributed
less than $3,000 may, at the election of the Company, be refunded the
sum of his contribution, plus interest.
F-4
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE A - DESCRIPTION OF PLAN (CONT'D)
- ------ ----------------------------
3. CONTRIBUTIONS
-------------
Eligible employees may contribute to the Plan, through payroll
deductions, up to 20% of his compensation to a variety of funds,
including the Company's common stock. He may also contribute
distributions from qualified defined benefit or contribution plans,
which would exclude plans that provide for the payment of benefits in
the form of a life annuity or a qualified joint and survivor annuity.
The Company may match employees' contributions with its common stock.
Presently, the Company will match 50% of the participant's
contributions up to a maximum of two percent of the participant's
eligible salary. The percentage may be adjusted or discontinued as of
a valuation date that is thirty (30) days after written notice of the
change has been furnished to employees.
The deferral percentage for highly compensated employees shall not
exceed either the percentage allowed for other participants by 25% or
by two percentage points and 100%. The deferral percentage means the
average of the ratios of the amount of the elective contribution
account for such Plan year.
4. PARTICIPANTS' ACCOUNTS
----------------------
Each participant's account is credited with the participant's
contribution and allocations of the Company's contribution and Plan
earnings, and is charged with Plan losses and an allocation of
administrative expenses. Allocations are based on participant account
balances. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's vested account.
The participants' account balances that are reflected in the total
asset value of the Plan is not the same as the total participants
vested benefits, as all participants are not fully vested.
5. VESTING
-------
The entire interest of a participant in his elective contribution
account and non-elective contribution accounts is 100% vested at all
times. The interest of a participant in his discretionary and
matching contributions accounts vest 25% after two years, 25% more
per year thereafter, with 100% vestment after five years of service.
Additionally, the entire interest of a participant in his
discretionary and matching contributions accounts shall become 100%
vested upon the occurrence of any of the following events: the
cessation of participation due to retirement, death, attainment of
age 65, or termination of the Plan. Upon (partial) termination of the
Plan, or trust, or the final dissolution and liquidation of the
Company, to the extent terminated, the interest in the Plan of each
affected participant shall become fully vested. If a person ceases to
be a participant for any reason, and his entire interest in his
discretionary and matching contribution accounts has not become fully
vested, the unvested portion of these accounts are forfeited.
F-5
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE A - DESCRIPTION OF PLAN (CONT'D)
- ------ ----------------------------
6. INVESTMENT OPTIONS
------------------
Amounts credited to participants' accounts under the Plan are
invested by the employer-appointed investment committee. Upon
enrollment in the Plan, a participant may direct employee
contributions in any of the various investment options. These options
consist of various equity investments (funds) and a qualifying
employer security: the Company's common stock.
The participant may elect, on not more frequently than any valuation
date, to have all or any portion of his interest in any investment
fund(s) transferred to any other investment fund(s). The participant
may not transfer to any other fund the following contributions:
a.) a matching contribution made by the Company,
b.) non-elective contribution,
c.) discretionary contribution that is made in the form of
Company stock.
7. PARTICIPANT NOTES RECEIVABLE
----------------------------
The Administrator may permit a participant to borrow from the trust
fund an amount equal to between $1,000 and generally 50% of the value
of his vested interest, but he may not borrow in the aggregate an
amount greater than $50,000, reduced by the highest outstanding
balance on loans to the participant during the twelve month period
preceding the date a new loan is to be made. The loan shall be
adequately secured and must be repaid within five years, unless the
loan is used to acquire a dwelling unit. The participant must direct
the Company to withhold from each payment and pay to the Trustee an
amount sufficient to repay the loan over its term. If a loan is in
default, the Administrator may treat the unpaid amount as a
distribution to the participant from the Trust Fund. A participant
may not apply for a loan while he has another loan outstanding.
Participants with more than a 10% interest in the capital or profits
of the Company or 5% owners of the Company must also have approval
from the appropriate regulatory authority.
Effective December 31, 2002 participants have outstanding loan
balances totaling $262,135. These loans have various maturity dates,
with interest rates ranging from between 6.25% and 11.5%.
8. PAYMENT OF BENEFITS
-------------------
Unless the participant otherwise elects he normally shall start to
receive benefits, in either lump sum or installment payments, not
later than the 60th day after the close of the Plan year in which the
latest of the following occurs:
a.) participant's attainment of age 65;
b.) participant's attainment of his tenth year in the Plan;
c.) termination of participant's employment.
The entire interest will be distributed no later than April 1
following the calendar year in which he attains age 70 1/2, or if
later, in the year in which he retires (applies to other than a 5%
owner of the Company; a 5% or greater owner must take distributions
by April 1 of the calendar year following attainment of age 70 1/2).
In cases of hardship, the participant may have a portion of his
vested interest distributed to him. Upon attainment of age 59 1/2, he
may elect in writing to receive a single sum of his entire interest
while continuing to stay in the Plan. If a participant dies, his
beneficiary shall be paid a lump sum amount. If he elects to not
receive a distribution of his vested interest as of the date he
ceases to be a participant, any amount of his company contribution
account in excess of his vested interest shall be forfeited. The
participant may elect to have any portion of his benefits to be
directly transferred to an eligible retirement plan.
F-6
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE A - DESCRIPTION OF PLAN (CONT'D)
- ------ ----------------------------
9. FORFEITED ACCOUNTS
------------------
At December 31, 2002, forfeited nonvested accounts totaled $58,117.
These accounts will be used to reduce future employer contributions.
10. NOTE TO PLAN DESCRIPTION
------------------------
The plan description above provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
- ------- ------------------------------
1. BASIS OF ACCOUNTING
-------------------
The financial statements of the Plan are prepared under the accrual
method of accounting.
2. USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect certain
amounts reported in the financial statements and accompanying notes.
Accordingly, actual results could differ from those estimates.
3. INVESTMENT VALUATION AND INCOME RECOGNITION
-------------------------------------------
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices which
represent the net asset value of shares held by the Plan at year end.
The Company stock is valued at its quoted market price. Participant
notes receivable are valued at cost, which approximates fair market
value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date.
4. PAYMENT OF BENEFITS
-------------------
Benefit payments to participants are recorded upon distribution.
5. ADMINISTRATIVE EXPENSES
-----------------------
Administrative expenses consist of custodial costs of servicing and
accounting for the assets of the Plan.
F-7
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE C - PLAN AMENDMENT AND TERMINATION
- ------ ------------------------------
Although it has not expressed any intent to do so, the Company has
the right to terminate or partially terminate the Plan, subject to
the provisions of ERISA. In the event of Plan termination,
participants will become 100% vested in their accounts. The Company
also has the right or obligation to amend the Plan; various
amendments have been made subsequent to the original Plan filing
date.
NOTE D - TAX STATUS
- ------ ----------
The Plan has received a determination letter from the Internal
Revenue Service dated January 17, 1995, 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 has
indicated that it will take the necessary steps, if any, to maintain
the Plan's qualified status.
NOTE E - CONTRIBUTION INCOME
- ------ -------------------
The participants are allowed to choose among various investment
alternatives. The contribution to these funds in calendar year 2002
originated from the participants' salary deferral contributions of
$1,160,086 and from participants' rollover contributions of $22,351.
The remaining contributions were made by the Company in the amount of
$310,116, comprising the total contribution of $1,492,553.
All of the Company contributions purchased shares of the Company's
common stock, as the participants do not direct the investment
alternatives for the Company contribution
F-8
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE F - INVESTMENTS
- -------- -----------
The following schedule of plan assets presents investments at December 31, 2002:
Employer Securities
* Universal American Financial Corp. (Company stock) $2,625,669
Registered Investments Companies
Alger Midcap Growth Class A Stock Fund 228,619
Participants' Loans 262,135
Unsettled Trades 4,519,498
-------------
Total Investments $ 7,635,921
=============
In connection with the change in Plan Administrators, new investment funds
replaced the previous funds. In preparation for the transfer the following funds
were liquidated, however, the trades were not settled as of December 31, 2002:
Employer Securities
* Universal American Financial Corp. (Company stock) $480,174
Registered Investments Companies
Stock Funds:
Baron Asset 221,119
Fidelity Diversified International 144,257
* Spartan US Equity Index 774,881
Fidelity Contrafund 360,436
* Fidelity Magellan 679,916
Janus Worldwide 389,163
Neuberger Berman Partners Trust 243,688
Total stock funds 2,813,460
Bond Funds
Strong corporate bond 316,194
Blended Funds
* Janus balanced 909,670
-------------
Total Investments $4,519,498
=============
All investments are participant directed except for the matching employer
contribution of company stock which is nonparticipant-directed.
The investments that are marked by an asterisk ("*") represent 5% or more of the
net assets of the Plan.
F-9
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
Under the new Plan Administrator participants can select from the following
funds:
SPECIALITY LARGE/MID VALUE EQUITY
Franklin Micro Cap Value Fund Diversified Value and Income Fund
INTERNATIONAL EQUITY HYBRID
Templeton Foreign Fund Janus Adviser Balanced Fund
GLOBAL EQUITY BOND
Oppenheimer Global Fund Diversified Core Bond Fund
Strong Government Securities Fund
LARGE/MID GROWTH EQUITY
Transamerica Premier Equity Fund CASH EQUIVALENTS
Transamerica Premier Growth Opportunities Fund Transamerica Stable Value Fund
Diversified Mid Cap Growth Fund
Janus Adviser Capital Appreciation Fund OTHER
Universal American Financial Corp.
LARGE/MID BLEND EQUITY Company Stock
Transamerica Premier Core Equity Fund
Diversified Stock Index Fund
NOTE G - NONPARTICIPANT-DIRECTED INVESTMENTS
- ------ -----------------------------------
Information about the net assets and the significant components of the changes
in net assets relating to the nonparticipant-directed investments, for the year
ended December 31, 2002, is as follows:
Employer securities - company stock:
2002
Balance at beginning of year $ 3,179,553
Contributions 514,866
Net appreciation (depreciation) - realized and unrealized (510,881)
Benefits paid to participants (84,433)
Inter-fund transfers, unsettled trades, and fees (473,436)
-------------
Balance at end of year $ 2,625,669
F-10
EIN# 11-2580136
PLAN#002
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT YEAR END)
AS OF DECEMBER 31, 2002
($ IN THOUSANDS)
IDENTITY OF ISSUE DESCRIPTION OF INVESTMENT
BORROWER INCLUDING MATURITY DATE,
LESSOR OR RATE OF INTEREST, COLLATERAL, CURRENT
SIMILAR PARTY PAR, OR MATURITY VALUE COST VALUE
---------------------------- ------------------------------------------------------ ---------- --------------
(A) (B) (C) (D) (E)
UNIVERSAL AMERICAN FINANCIAL CORP. STOCK FUND
---------------------------------------------
* Universal American Universal American Financial Corp.
Financial Corp. common stock (450,500 shares) 5.819 $ 2,626
STOCK FUNDS
-----------
Alger Alger Midcap Growth Class A ** 229
OTHER INVESTMENTS
-----------------
Unsettled Trades 4,519
LOAN FUND
---------
* Loans to Participants Loans Receivable from Participants, maturing at
various dates bearing interest at rates from
6.25% - 11.50% N/A 262
-----------
TOTAL $ 7,636
===========
* Indicates party-in-interest
** Cost information not required for member directed investments.
F-11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Investment Committee of the Universal American Financial Corp. 401(k)
Savings Plan has duly caused this annual report to be signed in its behalf by
the undersigned thereunto duly authorized.
UNIVERSAL AMERICAN FINANCIAL CORP. 401(K) SAVINGS PLAN
By: /s/ Robert A. Waegelein
-------------------------------------------------
Robert A. Waegelein, Trustee
Date: October 15, 2003
F-12