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 September 30, 2004
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES x NO ¨
As of November 4, 2004, 10,064,428 shares of common stock were outstanding.
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
INDEX
| Page No. | ||
| Item 1. Financial Statements |
||
| Consolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003 |
2 | |
| 3 | ||
| 4 | ||
| 5 | ||
| 6 | ||
| 10 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
18 | |
| Item 4. Controls and Procedures |
18 | |
| Item 6. Exhibits and Reports on Form 8-K |
19 | |
| 20 | ||
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
| (In thousands) |
September 30, 2004 |
December 31, 2003 | ||||
| (Unaudited) | ||||||
| ASSETS |
||||||
| Investments |
||||||
| Fixed maturities |
||||||
| Held-to-maturity, at amortized cost (fair value $99,712 in 2004 and $134,281 in 2003) |
$ | 93,470 | $ | 125,122 | ||
| Available-for-sale, at fair value (amortized cost $1,550,330 in 2004 and $1,424,828 in 2003) |
1,642,498 | 1,519,401 | ||||
| Equity securities, at fair value (cost $42,995 in 2004 and $37,858 in 2003) |
143,537 | 128,889 | ||||
| Trading securities, at fair value (amortized cost $6,745 in 2004 and $7,687 in 2003) |
7,026 | 8,099 | ||||
| Mortgage loans |
31,520 | 26,360 | ||||
| Policy loans |
8,078 | 8,068 | ||||
| Other long-term investments |
6,554 | 9,584 | ||||
| Short-term investments |
52,199 | 6,576 | ||||
| $ | 1,984,882 | $ | 1,832,099 | |||
| Cash and Cash Equivalents |
$ | 224,807 | $ | 265,064 | ||
| Accrued Investment Income |
27,849 | 26,795 | ||||
| Premiums Receivable |
129,026 | 117,209 | ||||
| Deferred Policy Acquisition Costs |
92,457 | 86,232 | ||||
| Property and Equipment |
20,106 | 18,094 | ||||
| Reinsurance Receivables |
31,596 | 30,463 | ||||
| Prepaid Reinsurance Premiums |
3,140 | 3,605 | ||||
| Intangibles |
805 | 1,362 | ||||
| Income Taxes Receivable |
1,352 | 4,574 | ||||
| Other Assets |
18,754 | 19,658 | ||||
| TOTAL ASSETS |
$ | 2,534,774 | $ | 2,405,155 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||
| Liabilities |
||||||
| Future policy benefits and losses, claims and settlement expenses |
||||||
| Property and casualty insurance |
$ | 453,739 | $ | 427,047 | ||
| Life insurance |
1,244,853 | 1,210,822 | ||||
| Unearned premiums |
245,963 | 231,939 | ||||
| Accrued expenses and other liabilities |
49,495 | 55,605 | ||||
| Deferred income taxes |
43,772 | 40,360 | ||||
| TOTAL LIABILITIES |
$ | 2,037,822 | $ | 1,965,773 | ||
| Redeemable Preferred Stock |
||||||
| 6.375% cumulative convertible preferred stock - Series A, no par value |
$ | 65,703 | $ | 65,456 | ||
| Stockholders’ Equity |
||||||
| Common stock |
$ | 33,547 | $ | 33,475 | ||
| Additional paid-in capital |
7,542 | 7,040 | ||||
| Retained earnings |
293,405 | 242,774 | ||||
| Accumulated other comprehensive income, net of tax |
96,755 | 90,637 | ||||
| TOTAL STOCKHOLDERS’ EQUITY |
$ | 431,249 | $ | 373,926 | ||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 2,534,774 | $ | 2,405,155 | ||
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 September 30, |
||||||
| 2004 |
2003 |
||||||
| Revenues |
|||||||
| Net premiums earned |
$ | 126,451 | $ | 118,527 | |||
| Investment income, net of investment expenses |
27,930 | 27,608 | |||||
| Realized investment gains (losses) |
2,281 | (252 | ) | ||||
| Other income |
105 | 218 | |||||
| 156,767 | 146,101 | ||||||
| Benefits, Losses and Expenses |
|||||||
| Losses and settlement expenses |
72,594 | 74,736 | |||||
| Increase in liability for future policy benefits |
4,500 | 1,502 | |||||
| Amortization of deferred policy acquisition costs |
27,284 | 25,188 | |||||
| Other underwriting expenses |
6,633 | 9,798 | |||||
| Interest on policyholders’ accounts |
14,113 | 14,244 | |||||
| 125,124 | 125,468 | ||||||
| Income before income taxes |
31,643 | 20,633 | |||||
| Federal income tax expense |
9,958 | 6,311 | |||||
| Net income |
$ | 21,685 | $ | 14,322 | |||
| Less preferred stock dividends and accretions |
1,186 | 1,185 | |||||
| Earnings available to common shareholders |
$ | 20,499 | $ | 13,137 | |||
| Weighted average common shares outstanding |
10,060,503 | 10,038,127 | |||||
| Basic earnings per common share |
$ | 2.04 | $ | 1.31 | |||
| Diluted earnings per common share |
$ | 1.83 | $ | 1.22 | |||
| Cash dividends declared per common share |
$ | 0.20 | $ | 0.19 | |||
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) |
Nine months ended September 30, |
||||||
| 2004 |
2003 |
||||||
| Revenues |
|||||||
| Net premiums earned |
$ | 365,175 | $ | 342,458 | |||
| Investment income, net of investment expenses |
82,965 | 80,293 | |||||
| Realized investment gains (losses) |
3,300 | (3,100 | ) | ||||
| Other income |
202 | 1,776 | |||||
| 451,642 | 421,427 | ||||||
| Benefits, Losses and Expenses |
|||||||
| Losses and settlement expenses |
203,010 | 214,365 | |||||
| Increase in liability for future policy benefits |
8,533 | 5,374 | |||||
| Amortization of deferred policy acquisition costs |
81,406 | 70,065 | |||||
| Other underwriting expenses |
28,277 | 33,570 | |||||
| Interest on policyholders' accounts |
42,640 | 42,233 | |||||
| 363,866 | 365,607 | ||||||
| Income before income taxes |
87,776 | 55,820 | |||||
| Federal income tax expense |
27,565 | 16,904 | |||||
| Net income |
$ | 60,211 | $ | 38,916 | |||
| Less preferred stock dividends and accretions |
3,545 | 3,544 | |||||
| Earnings available to common shareholders |
$ | 56,666 | $ | 35,372 | |||
| Weighted average common shares outstanding |
10,054,934 | 10,037,776 | |||||
| Basic earnings per common share |
$ | 5.64 | $ | 3.52 | |||
| Diluted earnings per common share |
$ | 5.10 | $ | 3.31 | |||
| Cash dividends declared per common share |
$ | 0.60 | $ | 0.57 | |||
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) |
Nine months ended September 30, |
|||||||
| 2004 |
2003 |
|||||||
| Cash Flows From Operating Activities |
||||||||
| Net income |
$ | 60,211 | $ | 38,916 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Net bond discount accretion |
$ | (209 | ) | $ | (678 | ) | ||
| Depreciation and amortization |
2,927 | 2,892 | ||||||
| Realized investment (gains) losses |
(3,300 | ) | 3,100 | |||||
| Net cash flows from trading investments |
1,212 | (4,302 | ) | |||||
| Deferred income tax benefit |
601 | (1,798 | ) | |||||
| Changes in: |
||||||||
| Accrued investment income |
(1,054 | ) | 1,171 | |||||
| Premiums receivable |
(11,817 | ) | (13,278 | ) | ||||
| Deferred policy acquisition costs |
(3,784 | ) | (11,862 | ) | ||||
| Reinsurance receivables |
(1,133 | ) | 3,815 | |||||
| Prepaid reinsurance premiums |
465 | 2,914 | ||||||
| Income taxes receivable |
3,222 | (741 | ) | |||||
| Other assets |
904 | (5,592 | ) | |||||
| Future policy benefits and losses, claims and settlement expenses |
42,030 | 38,481 | ||||||
| Unearned premiums |
14,024 | 21,452 | ||||||
| Accrued expenses and other liabilities |
(4,090 | ) | (6,540 | ) | ||||
| Deferred income taxes |
29 | 4,641 | ||||||
| Other, net |
2,014 | 1,581 | ||||||
| Total adjustments |
$ | 42,041 | $ | 35,256 | ||||
| Net cash provided by operating activities |
$ | 102,252 | $ | 74,172 | ||||
| Cash Flows From Investing Activities |
||||||||
| Proceeds from sale of available-for-sale investments |
$ | 10,641 | $ | 21,774 | ||||
| Proceeds from call and maturity of held-to-maturity investments |
32,506 | 46,242 | ||||||
| Proceeds from call and maturity of available-for-sale investments |
180,801 | 129,946 | ||||||
| Proceeds from short-term and other investments |
11,106 | 12,998 | ||||||
| Purchase of held-to-maturity investments |
— | (1,606 | ) | |||||
| Purchase of available-for-sale investments |
(319,267 | ) | (225,585 | ) | ||||
| Purchase of short-term and other investments |
(61,321 | ) | (32,375 | ) | ||||
| Purchase of property and equipment |
(4,900 | ) | (5,365 | ) | ||||
| Net cash used in investing activities |
$ | (150,434 | ) | $ | (53,971 | ) | ||
| Cash Flows From Financing Activities |
||||||||
| Policyholders’ account balances: |
||||||||
| Deposits to investment and universal life contracts |
$ | 86,543 | $ | 120,301 | ||||
| Withdrawals from investment and universal life contracts |
(67,850 | ) | (55,550 | ) | ||||
| Issuance of common stock |
574 | 24 | ||||||
| Payment of cash dividends |
||||||||