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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 2002
Commission File Number 2-39621
UNITED FIRE & CASUALTY COMPANY
(Exact name of registrant as specified in its charter)
Iowa 42-0644327
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
118 Second Avenue, S.E.
Cedar Rapids, Iowa 52407
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 399-5700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-----
As of August 2, 2002, 10,037,344 shares of common stock were outstanding.
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and
December 31, 2001 2
Consolidated Statements of Income (unaudited) for the three-month periods ended
June 30, 2002 and 2001 3
Consolidated Statements of Income (unaudited) for the six-month periods ended
June 30, 2002 and 2001 4
Consolidated Statements of Cash Flows (unaudited) for the six-month periods ended
June 30, 2002 and 2001 5
Notes to Unaudited Consolidated Financial Statements 6
Report of Independent Public Accountants 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Part II. Other Information
Item 2. Change in Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(In thousands)
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS June 30, December 31,
2002 2001
Unaudited Audited
- -------------------------------------------------------------------------------------------------------------------------------
Investments
Fixed maturities
Held-to-maturity, at amortized cost (market
value $223,435 in 2002 and $252,481 in 2001) $ 211,602 $ 241,616
Available-for-sale, at market (amortized cost $1,273,858
in 2002 and $1,142,669 in 2001) 1,288,217 1,142,614
Trading, at market (amortized cost $4,026) 3,910 -
Equity securities, at market (cost $39,013 in 2002 and $35,151 in 2001) 116,802 110,357
Policy loans 8,256 8,201
Other long-term investments, at market (cost $9,746 in 2002
and $10,002 in 2001) 9,489 10,166
Short-term investments 19,416 48,008
- -----------------------------------------------------------------------------------------------------------------------------
$1,657,692 $1,560,962
Cash and Cash Equivalents $ 52,462 $ 150
Accrued Investment Income 27,263 25,723
Accounts Receivable 110,185 88,380
Deferred Policy Acquisition Costs 111,019 102,703
Property and Equipment 14,348 15,233
Reinsurance Receivables 45,644 45,656
Prepaid Reinsurance Premiums 5,944 4,050
Intangibles 2,394 3,177
Income Taxes Receivable - 368
Other Assets 10,094 5,437
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,037,045 $1,851,839
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Future policy benefits and losses, claims and settlement expenses
Property and casualty insurance $ 369,332 $ 366,519
Life insurance 1,023,531 956,797
Unearned premiums 218,398 187,787
Accrued expenses and other liabilities 31,011 35,139
Employee benefit obligations 14,866 13,950
Income taxes payable 519 -
Deferred income taxes 16,753 12,659
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $1,674,410 $1,572,851
- -----------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred Stock
6.375% cumulative convertible preferred Stock - Series A, no par value $ 64,955 $ -
Stockholders' Equity
Common stock $ 33,458 $ 33,453
Additional paid-in capital 6,940 6,912
Retained earnings 199,851 189,214
Accumulated other comprehensive income, net of tax 57,431 49,409
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 297,680 $ 278,988
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,037,045 $1,851,839
=============================================================================================================================
The Notes to Unaudited Consolidated Financial Statements
are an integral part of these statements.
2
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data and number of shares)
- ---------------------------------------------------------------------------------------
Three months ended June 30,
2002 2001
- ---------------------------------------------------------------------------------------
Revenues
Net premiums earned $ 102,072 $ 89,935
Investment income, net 25,878 24,790
Realized investment (losses) gains and other income (8,643) 573
Commission and policy fee income 502 543
- ---------------------------------------------------------------------------------------
119,809 115,841
- ---------------------------------------------------------------------------------------
Benefits, Losses and Expenses
Losses and settlement expenses 66,823 72,179
Increase in liability for future policy benefits 1,894 1,331
Amortization of deferred policy acquisition costs 20,630 16,153
Other underwriting expenses 13,381 16,249
Interest on policyholders' accounts 12,629 11,900
- ---------------------------------------------------------------------------------------
115,357 117,812
- ---------------------------------------------------------------------------------------
Income (loss) before income taxes 4,452 (1,971)
Federal income tax (benefit) 634 (1,756)
- ---------------------------------------------------------------------------------------
Net income (loss) $ 3,818 $ (215)
- ---------------------------------------------------------------------------------------
Less preferred stock dividends 660 -
- ---------------------------------------------------------------------------------------
Earnings (loss) available to common shareholders $ 3,158 $ (215)
=======================================================================================
Weighted average common shares outstanding 10,037,032 10,035,819
=======================================================================================
Basic and diluted earnings (loss) per common share $ .31 $ (.02)
=======================================================================================
Cash dividends declared per common share $ 0.18 $ 0.18
=======================================================================================
The Notes to Unaudited Consolidated Financial Statements
are an integral part of these statements.
3
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data and number of shares)
- ----------------------------------------------------------------------------------------
Six months ended June 30,
2002 2001
- ----------------------------------------------------------------------------------------
Revenues
Net premiums earned $ 199,454 $ 177,739
Investment income, net 50,780 48,275
Realized investment (losses) gains and other income (8,088) 1,498
Commission and policy fee income 909 1,081
- ----------------------------------------------------------------------------------------
243,055 228,593
- ----------------------------------------------------------------------------------------
Benefits, Losses and Expenses
Losses and settlement expenses 132,473 128,662
Increase in liability for future policy benefits 3,375 2,803
Amortization of deferred policy acquisition costs 37,884 31,100
Other underwriting expenses 24,210 29,750
Interest on policyholders' accounts 25,133 23,328
- ----------------------------------------------------------------------------------------
223,075 215,643
- ----------------------------------------------------------------------------------------
Income before income taxes 19,980 12,950
Federal income tax 5,070 2,518
- ----------------------------------------------------------------------------------------
Net income $ 14,910 $ 10,432
- ----------------------------------------------------------------------------------------
Less preferred stock dividends 660 -
- ----------------------------------------------------------------------------------------
Earnings available to common shareholders $ 14,250 $ 10,432
========================================================================================
Weighted average common shares outstanding 10,036,755 10,035,819
========================================================================================
Basic earnings per common share $ 1.42 $ 1.04
========================================================================================
Diluted earnings per common share $ 1.41 $ 1.04
========================================================================================
Cash dividends declared per common share $ 0.36 $ 0.36
========================================================================================
The Notes to Unaudited Consolidated Financial Statements
are an integral part of these statements.
4
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- -----------------------------------------------------------------------------------------------------------
Six months ended June 30,
2002 2001
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 14,910 $ 10,432
- -----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities
Net bond discount accretion $ (481) $ (452)
Depreciation and amortization 1,845 2,124
Realized investment losses (gains) 8,142 (1,498)
Changes in:
Accrued investment income (1,540) (3,054)
Accounts receivable (21,805) (16,767)
Deferred policy acquisition costs (8,316) (1,695)
Reinsurance receivables 12 (888)
Prepaid reinsurance premiums (1,894) (609)
Income taxes receivable 887 (3,023)
Other assets (4,657) 338
Future policy benefits and losses, claims and
settlement expenses 9,614 8,736
Unearned premiums 30,611 22,620
Accrued expenses and other liabilities (4,339) (10,332)
Employee benefit obligations 916 272
Deferred income taxes (357) 531
Other, net (3,813) (5,301)
- -----------------------------------------------------------------------------------------------------------
Total adjustments $ 4,825 $ (8,998)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 19,735 $ 1,434
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments $ 226 $ 49,789
Proceeds from call and maturity of held-to-maturity investments 30,291 20,558
Proceeds from call and maturity of available-for-sale investments 62,027 54,052
Proceeds from sale of short-term and other investments 153,635 157,536
Purchase of held-to-maturity investments - (1,397)
Purchase of available-for-sale investments (204,905) (194,950)
Purchase of trading investments (4,026)
Purchase of short-term and other investments (124,882) (119,108)
Purchase of property and equipment (620) (585)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (88,254) $ (34,105)
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Policyholders' account balances
Deposits to investment and universal-life-type contracts $ 122,960 $ 106,888
Withdrawals from investment and universal-life-type contracts (63,027) (46,091)
Net proceeds from issuance of preferred stock 64,955 -
Proceeds from issuance of common stock 33 -
Payment of cash dividends (4,090) (3,612)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 120,831 $ 57,185
- -----------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents $ 52,312 $ 24,514
Cash and Cash Equivalents at Beginning of Period 150 -
- -----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 52,462 $ 24,514
===========================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
5
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The terms "United Fire," "we," "us," or "our" refer to United Fire &
Casualty Company or United Fire & Casualty Company and its consolidated
subsidiaries and affiliate, as the context requires. In the opinion of the
management of United Fire, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, the results of operations,
and cash flows for the periods presented. The results for the interim periods
are not necessarily indicative of the results of operations that may be expected
for the year. The financial statements contained herein should be read in
conjunction with our annual report on Form 10-K for the year ended December 31,
2001. The review report of Ernst & Young LLP as of and for the three and six
month periods ended June 30, 2002 accompanies the unaudited consolidated
financial statements included in Item 1 of Part I.
We maintain our records in conformity with the accounting practices
prescribed or permitted by the Insurance Departments of the states in which we
are domiciled. To the extent that certain of these practices differ from
accounting principles generally accepted in the United States, adjustments have
been made in order to present the accompanying financial statements on the basis
of accounting principles generally accepted in the United States.
To prepare our financial statements in conformity with accounting
principles generally accepted in the United States, we make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
We are a defendant in legal actions arising from normal business
activities. Management, after consultation with legal counsel, is of the opinion
that any liability resulting from these actions will not have a material impact
on our financial condition and operating results.
For purposes of reporting cash flows, cash and cash equivalents include
cash and non-negotiable certificates of deposit with original maturities of
three months or less. Net income taxes paid for the six-month periods ended June
30, 2002 and 2001 were $3,801,000 and $4,651,000, respectively. We made no
significant payments of interest through June 30, 2002 and 2001, other than
interest credited to policyholders' accounts.
Note 2. New Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 141, "Business Combinations," which became
effective January 1, 2002. Statement of Financial Accounting Standard No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method. Additionally, Statement of Financial Accounting
Standard No. 141 requires an acquired intangible asset, whenever acquired, to be
recognized separately from goodwill if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented, or exchanged, regardless of the
acquirer's intent to do so. Recognized intangible assets (other than those with
an indefinite life) must then be amortized over their estimated useful lives. We
have evaluated the intangible asset of $7.9 million established in the purchase
of American Indemnity Financial Corporation in 1999 in accordance with Statement
of Financial Accounting Standard No.141, and determined that we are subject to
the provision of Statement of Financial Accounting Standard No.141 requiring an
intangible asset arising out of contractual or other legal rights to be
recognized separately from goodwill and amortized over its estimated useful
life. Through December 31, 2001, the basis of this intangible asset had been
reduced by $3.7 million as a result of adjustments to the deferred tax valuation
allowance established in the acquisition of American Indemnity Financial
Corporation. Through the second quarter of 2002, we have further reduced this
intangible asset by $548,000 due to additional adjustments to the deferred tax
valuation allowance. Future adjustments to this deferred tax valuation allowance
will reduce the intangible asset until the carrying value is zero. We are
amortizing the remaining intangible asset to expense on a straight-line basis
over a 10-year estimated useful life, which results in an annual amortization
expense of $412,000, or $103,000 per quarter. Accumulated amortization totaled
$1.9 million and $2.1 million for the periods ended December 31, 2001 and June
30, 2002, respectively.
6
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets,"
which became effective January 1, 2002. Statement of Financial Accounting
Standard No. 142 eliminates the amortization of goodwill over its estimated
useful life, but requires goodwill to be subject to at least an annual
assessment for impairment by applying a fair-value-based test. Pursuant to the
adoption of Statement of Financial Accounting Standard No. 141, we do not have
any unamortized goodwill reported at January 1, 2002. The adoption of Statement
of Financial Accounting Standard No. 142 had no effect on our Consolidated
Financial Statements.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 143, "Accounting for Asset Retirement
Obligations," which becomes effective for fiscal years beginning after June 15,
2002. Statement of Financial Accounting Standard No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible, long-lived assets and the associated asset retirement costs. We have
not yet determined the impact that the adoption of this statement will have on
our Consolidated Financial Statements.
In October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which becomes effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. Statement of Financial Accounting Standard No. 144 revises and clarifies
the existing professional guidance addressing: (a) recognition and measurement
of the impairment of long-lived assets to be held and used; (b) the measurement
of long-lived assets to be disposed of by sale; and (c) the reporting of
discontinued operations and components of an entity that either has been
disposed of (by sale, by abandonment, or in a distribution to owners) or is
classified as held for sale. The adoption of Statement of Financial Accounting
Standard No. 144 had no effect on our Consolidated Financial Statements.
On April 30, 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 145, "Rescission of Financial
Accounting Standards Board Statements No. 4, 44 and 64, Amendment of Financial
Accounting Standards Board Statement No.13, and Technical Corrections," which
becomes effective for fiscal years beginning after May 15, 2002. The rescission
of Statement of Financial Accounting Standard No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," and Statement of Financial Accounting Standard No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," which
had amended Statement of Financial Accounting Standard No. 4, will affect income
statement classification of gains and losses from extinguishment of debt.
Statement of Financial Accounting Standard No. 4 required material gains and
losses from extinguishment of debt to be classified as extraordinary items.
Under Statement of Financial Accounting Standard No. 145, extinguishment of debt
is now considered a risk management strategy by the reporting enterprise, and
the Financial Accounting Standards Board does not believe it should be
considered extraordinary under the criteria in APB Opinion No. 30, "Reporting
the Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," unless the debt extinguishment meets the unusual-in-nature and
infrequency-of-occurrence criteria in APB Opinion No. 30. Upon adoption of
Statement of Financial Accounting Standard No. 145, we will classify
extinguishments of debt, if any, under the criteria in APB Opinion No. 30. We
have not yet determined the impact that our adoption of this statement will have
on our Consolidated Financial Statements.
In July of 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No.146, "Accounting for Costs Associated with
Exit or Disposal Activities." Statement of Financial Accounting Standard No. 146
supersedes Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Statement of Financial
Accounting Standard No. 146 requires that, in certain instances, costs
associated with an exit or disposal plan be recognized when incurred rather than
at the date of a commitment to an exit or disposal plan. Statement of Financial
Accounting Standard No. 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. We have not yet determined the
impact that the adoption of this statement will have on our Consolidated
Financial Statements.
7
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Segment Information
We have two reportable business segments in our operations, property and
casualty insurance and life insurance. Our property and casualty segment
conducts business from four locations. All four locations are aggregated because
they target a similar customer base, market the same products, and use the same
marketing strategies. The life insurance segment operates from our home office.
Our management evaluates the two segments on both the basis of accounting
practices prescribed by our states of domicile and the basis of accounting
principles generally accepted in the United States basis. We analyze results
based on a variety of factors, including profitability, expenses and return on
equity. The basis for determining and analyzing segments and the measurement of
segment profit has not changed from that reported in our annual report on Form
10-K for the year ended December 31, 2001. Because all insurance is sold
domestically, we allocate no revenue to foreign operations. The following
analysis is reported on the basis of accounting principles generally accepted in
the United States and is reconciled to our unaudited Consolidated Financial
Statements.
- -----------------------------------------------------------------------------------
(In Thousands)
- -----------------------------------------------------------------------------------
Property and Life
Casualty Insurance Insurance Total
- -----------------------------------------------------------------------------------
Six Months Ended June 30, 2002
- -----------------------------------------------------------------------------------
Revenues $ 199,021 $ 44,206 $ 243,227
- -----------------------------------------------------------------------------------
Intersegment eliminations (63) (109) (172)
- -----------------------------------------------------------------------------------
Total revenues $ 198,958 $ 44,097 $ 243,055
===================================================================================
Net income (loss) $ 15,191 $ (281) $ 14,910
===================================================================================
Assets $ 816,741 $1,220,304 $2,037,045
===================================================================================
Six Months Ended June 30, 2001
- -----------------------------------------------------------------------------------
Revenues $ 180,256 $ 48,508 $ 228,764
- -----------------------------------------------------------------------------------
Intersegment eliminations (63) (108) (171)
- -----------------------------------------------------------------------------------
Total revenues $ 180,193 $ 48,400 $ 228,593
===================================================================================
Net income $ 5,449 $ 4,983 $ 10,432
===================================================================================
Assets $ 704,920 $1,050,596 $1,755,516
===================================================================================
Depreciation expense and property and equipment acquisitions are reflected in
the property and casualty insurance segment.
Note 4. Derivative Instruments
We write covered call options on our equity portfolio to generate
additional portfolio income; we do not use these instruments for hedging
purposes. We record covered call options at fair value and include them in
accrued expenses and other liabilities. We recognize any income or loss
associated with covered call options, including changes in the fair value of the
covered call options, currently in earnings as a component of realized
investment (losses) gains and other income. At June 30, 2002 we had $14,000 in
open covered call options.
Our investment portfolio also includes trading securities, primarily
convertible debt and equity instruments, with embedded derivatives. These
securities are recorded at fair value. Any income or loss, including the change
in the fair value of these trading securities, is recognized currently in
earnings as a component of realized investment (losses) gains and other income.
At June 30, 2002, we had $3,910,000 in trading securities.
We have analyzed our financial instruments with embedded derivatives in
accordance with Statement of Financial Accounting Standard No. 133 and
determined there is no material effect on our Consolidated Financial Statements.
Note 5. Comprehensive Income
Comprehensive income includes all changes in equity during a period except
those resulting from investments by shareholders and dividends to shareholders.
The primary components of our comprehensive income are net income and net
unrealized gains and losses on available-for-sale securities. Comprehensive
income was $22,932,000 and $12,755,000 for the six months ended June 30, 2002
and 2001, respectively. Comprehensive income (loss) was $13,942,000 and
$(2,431,000) for the three months ended June 30, 2002 and 2001, respectively.
8
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Escrow Agreement
During the third quarter of 2001, we presented a claim against an escrow
account held for the deferred payment of $1.00 per share to prior shareholders
of American Indemnity Financial Corporation ("AIFC"), which was acquired by us
in August 1999. As of September 30, 2001, the amount of this escrow totaled
$1,990,000 and is recorded as a part of other assets on our Consolidated Balance
Sheet. Representatives of AIFC have responded to our claim. We anticipate
further correspondence with AIFC's stockholder representatives and expect to
have a resolution to the escrow claim later this year.
Note 7. Earnings Per Share
We compute earnings per share in accordance with Statement of Financial
Accounting Standard No. 128, "Earnings per Share". Basic earnings per share is
computed by dividing net income or loss available to common shareholders (net
income or loss less dividends to preferred shareholders) by the weighted-average
number of common shares outstanding during the period. Diluted earnings per
share gives effect to all potentially dilutive common shares outstanding during
the period. The potentially dilutive shares which have been considered in our
diluted earnings per share calculation relate to our convertible preferred stock
outstanding as well as our stock options outstanding.
The dilutive effect of our convertible preferred stock is determined using
the if-converted method. Under this method, we add to the denominator of the
earnings per share calculation a number determined by multiplying the number of
convertible preferred shares by the stated conversion rate. We add the amount of
dividends to preferred shareholders back to the numerator of the earnings per
share equation under this method due to the assumed conversion of all the
convertible preferred stock to common stock. If the effect of the if-converted
method is anti-dilutive, the effect on diluted earning per share of our
convertible preferred stock is disregarded. This was the case in our diluted
earnings per share calculation for the three months ended June 30, 2002.
The dilutive effect of our stock options outstanding is determined using
the treasury stock method. Under this method, we assume the exercise of all of
the outstanding options whose exercise price is less than the weighted-average
fair market value of our stock during the period. This method also assumes that
the proceeds from the hypothetical stock option exercises are used to repurchase
shares of common stock at the weighted-average fair market value of the stock
during the period. The net of the assumed options exercised and assumed common
shares repurchased represents the number of potentially dilutive common shares,
which we add to the denominator of the earnings per share calculation. The
components of basic and diluted earnings per share are displayed in the
following table.
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) available to common shareholders $ 3,158,000 $ (215,000) $14,250,000 $10,432,000
Weighted average common shares outstanding 10,037,032 10,035,819 10,036,755 10,035,819
Effect of potentially dilutive common shares 8,539 - 538,745 368
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average common and potential shares outstanding 10,045,571 10,035,819 10,575,500 10,036,187
Basic earnings (loss) per share .31 (.02) 1.42 1.04
Diluted earnings (loss) per share .31 (.02) 1.41 1.04
====================================================================================================================================
9
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Preferred Stock
On May 6, 2002 we issued 2,760,000 shares of 6.375 percent convertible
preferred stock, Series A at $25 per share. In connection with the preferred
stock issuance, we collected net proceeds of approximately $65.0 million. The
preferred shares are nonvoting. Dividends on the preferred stock are cumulative
from the date of original issuance and are payable on March 15, June 15,
September 15 and December 15 of each year, beginning on June 15, 2002. Dividends
paid and accrued on our preferred stock through June 30, 2002 totaled $660,000.
The preferred stock has a liquidation preference and redemption price of $25 per
share.
Issuance costs in connection with our preferred stock offering totaled
approximately $4.0 million. We will accrete these costs over a 12 year period.
We will review the accretion period annually to determine if we need to
accelerate the accretion.
The preferred stock is convertible at the option of the holder at any time,
unless previously redeemed, into shares of common stock at an initial conversion
price of $40.26 per share of common stock, which is equivalent to .621 shares of
common stock for each share of preferred stock converted. The conversion price
is subject to adjustment upon the occurrence of certain events.
We may redeem all or any shares of preferred stock on or after May 15,
2005. The preferred stock will be subject to mandatory redemption on May 15,
2014.
10
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Stockholders and Board of Directors of
United Fire & Casualty Company
We have reviewed the accompanying consolidated balance sheet of United Fire &
Casualty Company (an Iowa corporation) and subsidiaries as of June 30, 2002, and
the related consolidated statement of income for the three-month and six-month
periods ended June 30, 2002, and the consolidated statement of cash flows for
the six-month period ended June 30, 2002. These financial statements are the
responsibility of the Company's management. We did not make a similar review of
the consolidated financial statements for the corresponding periods of the prior
year (2001).
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements at June 30, 2002,
and for the three-month and six-month periods then ended, for them to be in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
August 2, 2002
11
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENT
This discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 which are not historical facts and that involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. Such forward-looking statements are based on current
expectations, estimates, forecasts and projections about the industry in which
we operate, management's beliefs and assumptions made by management. Words such
as "expects," "anticipates," "intends," "plans," "believes," "continues,"
"seeks," "estimates," "predicts," "should," "could," "may," "will continue,"
"might" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve risks, uncertainties and assumptions that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed in such forward-looking statements. Among the
factors that could cause our actual outcomes and results to differ are the
following: uncertainties with respect to loss reserving; the occurrence of
catastrophic events or other insured or reinsured events with a frequency or
severity exceeding our estimates; the actual amount of new and renewal business
and demand for our products and services; the competitive environment in which
we operate, including price, product and service competition; developments in
domestic and global financial markets that could affect our investment portfolio
and financing plans; estimates of the financial statement impact of regulatory
actions; uncertainties relating to government and regulatory policies; legal
developments; changing rates of inflation, interest rates and other economic
conditions; the impact of mergers and acquisitions, including our ability to
successfully integrate acquired businesses and achieve cost savings; a
continuation, or worsening of global economic conditions, a continuation of, or
a slow recovery of the United States recession; our relationship with our
agencies; the valuation of invested assets; the recovery of deferred acquisition
costs; or our relationship with our reinsurers. These are representative of the
risks, uncertainties and assumptions that could cause actual outcomes and
results to differ materially from what is expressed in forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. Except as
required under the federal securities laws and the rules and regulations of the
Securities and Exchange Commission, we do not have any intention or obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. Our discussion and
analysis of our results of operations and financial condition are based upon our
condensed consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. We evaluate our estimates on an on-going basis. We base our
estimates on historical experience and on other assumptions that we believe to
be reasonable under the circumstances. Actual results could differ from those
estimates. We believe that our most critical accounting policies are those
described on the following page.
12
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Investments
Our accounting policy for investment impairment recognition requires that
an impairment charge be recorded when we determine that a decline in value of an
investment is deemed to be other-than-temporary. Factors considered in
evaluating whether a decline in value is other-than-temporary include the length
of time and the extent to which the fair value has been less than cost, the
financial conditions and near-term prospects of the issuer, and our intent and
ability to retain the investment for a period of time sufficient to allow for
any anticipated recovery and other factors. Impairment charges on investments
are included in net realized gains and losses.
Deferred Policy Acquisition Costs - Property and Casualty Segment
To the extent recoverable, we defer and capitalize commissions and other
costs of underwriting insurance that are primarily related to the production of
our property and casualty lines of business. To match revenue to expense, we
amortize the deferred acquisition costs asset over the life of the insurance
policies written. The method we use to compute deferred policy acquisition costs
limits the amount of such deferred costs to their estimated realizable value,
which gives effect to the premium to be earned, losses and loss settlement
expenses and certain other costs we expect to be incurred as the premium is
earned. Future changes in estimates, the most significant of which occur with
respect to expected losses and loss settlement expenses, may require adjustments
to deferred policy acquisition costs. Deferral of underwriting expenses involves
the use of estimates and assumptions that affect the assets and expenses
reported in our financial statements. Actual results could differ materially
from our estimates.
Deferred Policy Acquisition Costs - Life Segment
We amortize deferred policy acquisition costs related to traditional life
insurance policies over the premium-paying period of the related policies in
proportion to the ratio of the present value of annual expected premium income
to the present value of total expected premium income.
We defer and amortize deferred policy acquisition costs related to
investment contracts and universal life contracts sold by our life segment using
the retrospective deposit method. Under the retrospective deposit method, we
amortize acquisition costs in proportion to the present value of expected gross
profits from investment, mortality and expense margins and surrender charges.
Actual gross profits can vary from our estimates, resulting in increases or
decreases in the rate of amortization. We periodically review these estimates
and evaluate the recoverability of the deferred acquisition costs asset. When
appropriate, we revise our assumptions on the estimated gross profits of these
contracts, and we re-estimate and adjust cumulative amortization for our books
of business by a cumulative charge or credit to income.
A material adverse deviation in certain critical assumptions, including
surrender rates, mortality experience, or investment performance, would
negatively affect our reported earnings and stockholders' equity.
13
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Future Policy Benefits and Losses, Claims and Settlement Expenses
Reserves for the life insurance segment are based upon applicable Iowa
insurance laws. Our life insurance subsidiary's reserves meet, or exceed, the
minimum statutory requirements. The reserves reflected in our Consolidated
Financial Statements are calculated in accordance with accounting principles
generally accepted in the United States, and are based upon our best estimates
of mortality and morbidity, persistency, expenses and investment income.
Reserves determined for statutory purposes are based upon mortality rates and
interest rates specified by state law. All of our reserves are developed and
analyzed annually by independent consulting actuaries.
To establish claim and settlement expense reserves for the property and
casualty segment, we make estimates and assumptions that affect the amounts of
assets, liabilities, revenues and expenses reported in our financial statements.
Actual results could differ materially from those estimates. Our estimate of
these reserves is subjective and complex and is based on our estimates about the
future payout of claims, which are inherently uncertain. When we establish and
adjust reserves, we do so given our knowledge of the circumstances and claim
facts. To the extent we have over- or under-estimated our loss and loss
adjustment expense reserves, we adjust the reserves in the period the over- or
under-estimate is determined.
RESULTS OF OPERATIONS
Our net operating income for the three months ended June 30, 2002 was $8.8
million, or 88 cents per share, versus a net operating loss of $.6 million, or 6
cents per share, for the three months ended June 30, 2001. For the second
quarter of 2002, net income was $3.8 million or 31 cents per share (basic and
diluted). For the three months ended June 30, 2001, net loss was $.2 million, or
2 cents per share. We recorded net realized investment losses (before tax) of
$8.6 million in the second quarter of 2002, compared to net realized gains of
$.6 million in the second quarter of 2001. Included in the 2002 net realized
investment losses were other-than-temporary impairments recorded on securities,
including $5.5 million relating to WorldCom Inc. bonds. Additionally, we
recorded other-than-temporary impairments on an additional 5 issuers of fixed
income securities, totaling $3.5 million.
Changes in revenues discussed in this paragraph compare the second quarter
of 2002 with the second quarter of 2001. Total revenues were up $4 million to
$119.8 million. Premiums earned were $102.1 million compared to $89.9 million,
with much of the growth driven by the continuation of pricing increases
throughout many of our lines of property and casualty business. Investment
income increased by four percent to $25.9 million.
Net operating income for the six months ended June 30, 2002 was $19.5
million, or $1.95 per share, versus net operating income of $9.4 million, or 94
cents per share, for the six months ended June 30, 2001. For the first half of
2002, net income was $14.9 million or $1.42 per share. Diluted net income for
the first half of 2002 was $1.41 per share. For the six months ended June 30,
2001, net income was $10.4 million, or $1.04 per share. Net realized losses
(before tax) were $8 million through June 30, 2002, compared to net realized
gains of $1.5 million for the first six months of 2001. All of our 2002
other-than-temporary impairments were recorded in the second quarter.
14
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Property and Casualty Insurance Segment
Our property and casualty segment's net operating income was $6.7 million
in the second quarter of 2002, compared to a net operating loss of $2.6 million
for the same period of 2001. The combined ratio, determined on the basis of
accounting principles generally accepted in the United States, was 97 percent
versus 116 percent for the second quarter of 2001. The six-month combined ratio
was 96 percent, compared to 106 percent for the same period of 2001. The
improvement between quarters and between the six months ended June 30, 2002 and
June 30, 2001 in the combined ratio was driven primarily by a decrease in the
number and severity of catastrophes and pricing increases throughout many of our
lines of business.
Three-month pre-tax catastrophe losses, net of reinsurance, were $4.6
million, which added 5 points to the combined ratio, with an after-tax earnings
impact of 30 cents per share. For the same period of 2001, pre-tax catastrophe
losses were $10.1 million, which added 12 points to the combined ratio, with an
after-tax earnings impact of 66 cents per share.
Six-month pre-tax catastrophe losses, net of reinsurance, were $5.1
million, which added 3 points to the combined ratio, with an after-tax earnings
impact of 33 cents per share. For the same period of 2001, pre-tax catastrophe
losses were $11.5 million, which added 7 points to the combined ratio, with an
after-tax earnings impact of 75 cents per share.
Net premiums written increased by $18.4 million, or 20 percent, primarily
as the result of pricing increases. In the second quarter of 2002, we filed for
rate increases of approximately 10 to 15 percent in various states for our
personal lines of business. We filed for commercial lines premium rate increases
in various states of approximately 10 to 25 percent.
For the second quarter of 2002, our direct pure loss ratio for commercial
lines of insurance was 48 percent, compared with 59 percent for the same period
of 2001, due primarily to a decrease in the number and severity of catastrophe
losses, and the increase in premium rates. Our personal lines of insurance had a
direct pure loss ratio of 70 percent versus 89 percent for the second quarter of
2001.
For the six months ended June 30, 2002, our direct pure loss ratio for
commercial lines of insurance was 47 percent, compared with 52 percent for the
same period of 2001, due primarily to a decrease in the number and severity of
catastrophe losses, and the increase in premium rates. Our personal lines of
insurance had a direct pure loss ratio of 68 percent versus 90 percent for the
first six months of 2001.
Life Insurance Segment
Our life insurance segment's net operating income was $2.1 million for the
second quarter of 2002, compared to $2.0 million for the second quarter of 2001.
When comparing the second quarters of 2002 and 2001, premium volume increased by
$809,000, or 12 percent to $7.3 million. An increase in net investment income of
$1.3 million to $19 million was offset by an increase in underwriting expenses
of $.8 million to $2.4 million, and an increase in interest credited on
policyholders' accounts of $.7 million to $12.6 million.
For the six-months ended June 30, 2002, net operating income was $4.7
million, compared to $4.4 million for the same period of 2001. Revenue increases
for the six-month period included net premiums earned of $1.3 million and net
investment income of $2.9 million. Total operating expenses increased $3.8
million for the six months ended June 30, 2002, compared to the same period of
2001. For the six-month period ended June 30, 2002, the life insurance segment's
largest increase in operating expenses was $1.8 million of interest on
policyholders accounts, due primarily to the growth in annuity deposits.
15
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Investment Results
We recorded consolidated pre-tax investment income of $25.9 million for the
second quarter of 2002, compared with $24.8 million for the same period in 2001.
During the first six months of 2002, our invested assets grew from $1.56 billion
to $1.66 billion.
We recorded pre-tax impairments on investment securities of $9.0 million
for the three and six-month periods ended June 30, 2002, compared to none for
the same time periods in 2001.
The composition of our investment portfolio at June 30, 2002 is presented
in the following table in accordance with accounting principles generally
accepted in the United States:
Property & Casualty Life
Segment Segment Total
--------------------- ------------------------ -----------------------
($ in thousands) Percent of Percent of Percent of
Total Total Total
---------- ---------- ----------
Fixed income securities/(1)/ $ 420,519 75.9% $ 1,083,210 98.2% $ 1,503,729 90.7%
Equity securities 110,242 19.9 6,560 0.6 116,802 7.0
Policy loans - - 8,256 0.7 8,256 0.5
Short-term 14,019 2.5 5,397 0.5 19,416 1.2
Other 9,489 1.7 - - 9,489 0.6
--------- ---------- ----------- ---------- ----------- ---------
Total $ 554,269 100.0% $ 1,103,423 100.0% $ 1,657,692 100.0%
========= ========== =========== ========== =========== =========
(1) Available for sale and trading fixed income securities are carried at fair
value, while held to maturity fixed income securities are carried at
amortized cost.
Income Taxes
The effective income tax rate for the three months ended June 30, 2002 was
14 percent, compared to 89 percent for the same period of 2001. This variance
resulted from the significant increase in taxable income between the two
periods. For the three months ended June 30, 2002, taxable income was $1.8
million, compared to $(4.9) for the three months ended June 30, 2001. Taxable
income was negative for the second quarter of 2001, and the deduction for
municipal interest lowered the tax rate even further. There was no significant
change in the provision for federal income taxes from operations for the first
six months of 2002 compared to the first six months of 2001.
FINANCIAL CONDITION
As of June 30, 2002, when compared to December 31, 2001, our assets,
liabilities and stockholders' equity increased by ten percent, six percent and
seven percent, respectively. At June 30, 2002, our consolidated total assets
were $2.04 billion compared to $1.85 billion at December 31, 2001. Invested
assets, primarily fixed income securities, increased $96.7 million, or six
percent, from December 31, 2001. Included in this growth is an increase of $16.6
million attributable to changes in the market prices of our securities
classified as available-for-sale and other invested assets, both of which are
reported at fair value. The unrealized appreciation from these investments is
reported net of tax as a separate component of stockholders' equity.
At June 30, 2002, $1,288 million, or 86 percent, of our fixed income
security portfolio was classified as available-for-sale, compared to $1,143
million, or 83 percent, at December 31, 2001. At June 30, 2002, our portfolio of
trading securities was comprised primarily of convertible preferred equities. We
did not have securities classified as trading securities at December 31, 2001.
Our remaining fixed income securities are classified as held-to-maturity and are
reported at amortized cost.
16
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our property and casualty insurance segment's deferred policy acquisition
costs asset increased $8.4 million, or 29 percent, to $37.7 million at June 30,
2002, from the deferred policy acquisition costs asset at December 31, 2001. The
growth was attributable primarily to the increase in net premiums written.
One component of our life segment's estimate of the deferred policy
acquisition costs asset related to universal life and annuity business is the
impact of unrealized gains and losses resulting from certain available-for-sale
securities in our investment portfolio. While deferrable expenses increased by
$3.9 million, the unrealized investment loss component of our life segment's
deferred acquisition costs calculation contributed a decrease of $3.9 million in
the reported deferred acquisition costs asset.
Cash flow and liquidity is primarily derived from operating cash flows. We
invest premiums and annuity deposits in assets maturing at regular intervals in
order to meet our obligations to pay policy benefits, claims and claim adjusting
expenses. Net cash provided by our operating activities was $19.6 million
through the six months ended June 30, 2002, compared to $1.4 million through the
six months ended June 30, 2001. We also have significant cash flows from sales
of investments and scheduled and unscheduled investment security maturities,
redemptions and prepayments. These cash flows totaled $92.5 million through June
30, 2002 and $124.4 million through June 30, 2001. If our operating and
investment cash flows are not sufficient to support our operations, we use
short-term investments. We may also borrow up to $20 million on a bank line of
credit. We did not utilize our line of credit during 2002 or 2001. Our credit
agreement provides for interest to be paid at the lender's prevailing prime
rate, minus one percent.
We invest funds in money market accounts and fixed income securities for
our short-term cash needs. At June 30, 2002, our consolidated invested assets
included $19.4 million of short-term investments.
Cash provided by financing activities was $120.8 million through the first
six months of 2002, compared to $57.2 through the first six months of 2001. Most
of this increase resulted from net proceeds of approximately $65 million related
to the issuance of 2,760,000 shares of preferred stock on May 6, 2002.
Stockholders' equity increased from $279.0 million at December 31, 2001 to
$297.7 million at June 30, 2002, an increase of seven percent. Net income of
$14.9 million increased stockholders equity, and unrealized appreciation
increased stockholders' equity by $7.9 million. Decreases to stockholders'
equity included stockholder dividends of $4.3 million. At June 30, 2002, book
value was $29.66 per common share, compared to $27.80 per common share at
December 31, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to market risk arising from potential losses due to
adverse changes in interest rates and market prices. Our primary market risk
exposure is changes in interest rates, although we have some exposure to changes
in equity prices and limited exposure to foreign currency exchange rates.
The active management of market risk is integral to our operations. We have
investment guidelines that define the overall framework for managing our market
and other investment risks, including accountability and controls. In addition,
we have for each of our subsidiaries specific investment policies that delineate
the investment limits and strategies that are appropriate given each entity's
liquidity, surplus, product and regulatory requirements. We respond to market
risk by rebalancing our existing asset portfolio or by changing the character of
future investment purchases.
Covered call options are written from time to time on common stocks that we
own. Generally, the calls are written on stocks we view as over-priced relative
to their market value. We have not written in-the-money calls at transaction
date, but we are not restricted in any way from doing so. The practice of
writing covered calls is considered a conservative equity strategy by market
analysts.
There have been no material changes in our market risk or market risk
factors from that reported in our annual report on Form 10-K for the year ended
December 31, 2001.
17
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 2. Change in Securities
On May 6, 2002 we issued 2,760,000 shares of 6.375 percent convertible preferred
stock, Series A. The purchase price was $25 to the public with an underwriting
discount of $1.25. We collected $23.75 per share, resulting in proceeds of
approximately $65.0 million. Our preferred stock will rank, with respect to
dividend rights and rights upon liquidation, senior to our common stock. Our
registration statement on Form S-3 was declared effective on May 3, 2002.
Item 4. Submission of Matters to a Vote of Security Holders
On March 25, 2002, we held a special meeting of our common stockholders in order
to amend our Articles of Incorporation. The proposed amendments were as follows:
1. to increase the amount of our authorized capital stock,
2. to authorize the issuance of preferred stock, and
3. to authorize the Board of Directors to provide for the issuance of the
shares of preferred stock in series, to establish from time to time the
number of shares to be included in each such series and to fix the
preferences, limitations, and relative rights of the series.
Our common shareholders approved the above amendments pursuant to the following
vote:
7,448,691: FOR 90,004: AGAINST 22,864: ABSTAINING
At United Fire's Annual Stockholders' Meeting on May 15, 2002, the following
proposal was adopted by the margins indicated.
To elect directors to hold office until the next annual stockholders'
meeting or until their respective successors have been elected or appointed.
- --------------------------------------------------------------------------------
Number of Shares
- --------------------------------------------------------------------------------
VOTED FOR ABSTAINING
- --------------------------------------------------------------------------------
Scott McIntyre, Jr. 6,872,030 118,119
- --------------------------------------------------------------------------------
Casey D. Mahon 6,981,560 8,588
- --------------------------------------------------------------------------------
Byron G. Riley 6,982,766 7,383
- --------------------------------------------------------------------------------
Frank S. Wilkinson, Jr. 6,980,318 9,831
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Fourth Restated Articles of Incorporation (incorporated by reference
to Exhibit 4.1 of Amendment No. 1 to our Form S-3 Registration
Statement filed with the Securities and Exchange Commission on April
4, 2002, SEC File Number 333-83446)
First Amendment to Fourth Restated Articles of Incorporation
(incorporated by reference to Exhibit 4.3 of Amendment No. 3 to our
Form S-3 Registration Statement filed with the Securities and
Exchange Commission as of May 3, 2002, SEC File Number 333-83446)
3.2 By-Laws of United Fire & Casualty Company, as amended, incorporated
by reference to the Registrant's form S-8 Registration Statement,
filed with the Commission on December 19, 1997.
10.1 United Fire & Casualty Company Nonqualified Employee Stock Option
Plan, incorporated by reference to Registrant's Form S-8
Registration Statement, filed with the Commission on September 9,
1998.
10.2 United Fire & Casualty Company Employee Stock Purchase Plan,
incorporated by reference to Registrant's Form S-8 Registration
Statement, filed with the Commission on December 22, 1997.
99.1 Certification of John A. Rife, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, dated August 14, 2002.
99.2 Certification of Kent G. Baker, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, dated August 14, 2002.
(b) Reports on Form 8-K
On June 25, 2002, we filed a report on Form 8-K announcing that our Board
of Directors had appointed Ernst & Young LLP our independent auditor for
2002, replacing Arthur Andersen LLP.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED FIRE & CASUALTY COMPANY
- ---------------------------------------
(Registrant)
Aug 14, 2002
- ---------------------------------------
(Date)
/s/ John A. Rife
- ---------------------------------------
John A. Rife
President, Chief Executive Officer
/s/ Kent G. Baker
- ---------------------------------------
Kent G. Baker
Vice President, Chief Financial Officer and Principal Accounting Officer
19