-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pc3eMaKjacyeOrFxrXoOZl5jItenIWYW9t1q1yPWMe72L75v1p8I3Ekd6zeRkfw8 XAspwEpBO8YVdMRU4l6jFQ== 0000950131-03-002770.txt : 20030512 0000950131-03-002770.hdr.sgml : 20030512 20030512171800 ACCESSION NUMBER: 0000950131-03-002770 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED FIRE & CASUALTY CO CENTRAL INDEX KEY: 0000101199 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 420644327 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-39621 FILM NUMBER: 03693462 BUSINESS ADDRESS: STREET 1: 118 SECOND AVE SE CITY: CEDAR RAPIDS STATE: IA ZIP: 52407 BUSINESS PHONE: 3193995700 MAIL ADDRESS: STREET 1: P O BOX 73909 CITY: CEDAR RAPIDS STATE: IA ZIP: 52407 10-Q 1 d10q.txt FORM 10-Q ================================================================================ 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 MARCH 31, 2003 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 (Zip Code) offices) 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 May 2, 2003, 10,037,544 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 March 31, 2003 (unaudited) and December 31, 2002 2 Unaudited Consolidated Statements of Income for the three month periods ended March 31, 2003 and 2002 3 Unaudited Consolidated Statements of Cash Flows for the three month periods ended March 31, 2003 and 2002 4 Notes to Unaudited Consolidated Financial Statements 5 Independent Accountants' Review Report 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 Item 4. Controls and Procedures 16 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 17 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES PART I: FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (In thousands) - -------------------------------------------------------------------------------- March 31, December 31, 2003 2002 Unaudited Audited - -------------------------------------------------------------------------------- ASSETS Investments Fixed maturities Held-to-maturity, at amortized cost (market value $183,164 in 2003 and $199,441 in 2002) $ 170,876 $ 186,204 Available-for-sale, at market (amortized cost $1,340,479 in 2003 and $1,352,285 in 2002) 1,409,301 1,398,636 Trading, at market (amortized cost $9,437 in 2003 and $4,344 in 2002) 8,749 4,117 Equity securities, at market (cost $37,092 in 2003 and $35,229 in 2002) 94,622 99,494 Mortgage loans 23,461 12,109 Policy loans 8,125 7,930 Other long-term investments 9,831 11,821 Short-term investments 11,676 1,725 - -------------------------------------------------------------------------------- $ 1,736,641 $ 1,722,036 Cash and Cash Equivalents $ 177,160 $ 136,892 Accrued Investment Income 25,999 27,523 Premiums Receivable 115,012 108,372 Deferred Policy Acquisition Costs 87,368 90,391 Property and Equipment 15,510 15,922 Reinsurance Receivables 40,741 40,667 Prepaid Reinsurance Premiums 5,029 6,514 Intangibles 1,549 2,159 Income Taxes Receivable -- 1,872 Other Assets 9,191 7,127 - -------------------------------------------------------------------------------- TOTAL ASSETS $ 2,214,200 $ 2,159,475 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Future policy benefits and losses, claims and settlement expenses Property and casualty insurance $ 402,863 $ 392,649 Life insurance 1,154,858 1,128,749 Unearned premiums 228,981 219,968 Accrued expenses and other liabilities 39,268 50,725 Income taxes payable 3,431 -- Deferred income taxes 14,266 11,838 - -------------------------------------------------------------------------------- TOTAL LIABILITIES $ 1,843,667 $ 1,803,929 - -------------------------------------------------------------------------------- Redeemable Preferred Stock 6.375% cumulative convertible preferred stock - Series A, no par value $ 65,198 $ 65,113 Stockholders' Equity Common stock $ 33,459 $ 33,458 Additional paid-in capital 6,946 6,943 Retained earnings 208,150 199,597 Accumulated other comprehensive income, net of tax 56,780 50,435 - -------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $ 305,335 $ 290,433 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,214,200 $ 2,159,475 ================================================================================ 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 March 31, 2003 2002 - -------------------------------------------------------------------------------- Revenues Net premiums earned $ 110,848 $ 97,382 Investment income, net of investment expenses 26,063 24,902 Realized investment gains (losses) (2,773) 544 Commission and other income 738 418 - -------------------------------------------------------------------------------- $ 134,876 $ 123,246 - -------------------------------------------------------------------------------- Benefits, Losses and Expenses Losses and settlement expenses 68,098 65,650 Increase in liability for future policy benefits 2,325 1,481 Amortization of deferred policy acquisition costs 22,068 17,254 Other underwriting expenses 12,046 10,829 Interest on policyholders' accounts 13,854 12,504 - -------------------------------------------------------------------------------- 118,391 107,718 - -------------------------------------------------------------------------------- Income before income taxes 16,485 15,528 Federal income tax expense 4,864 4,436 - -------------------------------------------------------------------------------- Net Income $ 11,621 $ 11,092 ================================================================================ Less preferred stock dividends and accretions 1,185 -- ================================================================================ Earnings available to common shareholders $ 10,436 $ 11,092 ================================================================================ Weighted average common shares outstanding 10,037,466 10,036,475 ================================================================================ Basic earnings per common share $ 1.04 $ 1.11 ================================================================================ Diluted earnings per common share $ 0.99 $ 1.10 ================================================================================ Cash dividends declared per common share $ 0.19 $ 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 CASH FLOWS
(In thousands) - ----------------------------------------------------------------------------------------------------- Three months ended March 31, 2003 2002 - ----------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income $ 11,621 $ 11,092 - ----------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities Net bond discount accretion $ (127) $ (248) Depreciation and amortization 891 1,285 Realized investment (gains) losses 2,773 (544) Net cash flows from trading investments (5,093) -- Changes in: Accrued investment income 1,524 1,747 Premiums receivable (6,640) (8,302) Deferred policy acquisition costs (2,980) (6,127) Reinsurance receivables (74) 1,514 Prepaid reinsurance premiums 1,485 (1,676) Income taxes receivable 1,872 368 Other assets (2,064) 11 Future policy benefits and losses, claims and settlement expenses 17,482 1,581 Unearned premiums 9,013 11,166 Accrued expenses and other liabilities (11,457) (4,516) Income taxes payable 3,431 1,341 Deferred income taxes (441) 2,179 Other, net 1,660 (946) - ----------------------------------------------------------------------------------------------------- Total adjustments $ 11,255 $ (1,167) - ----------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 22,876 $ 9,925 - ----------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Proceeds from sale of available-for-sale investments $ 5,970 $ -- Proceeds from call and maturity of held-to-maturity investments 17,160 14,261 Proceeds from call and maturity of available-for-sale investments 43,987 36,315 Proceeds from sale of short-term and other investments 264 107 Purchase of held-to-maturity investments (1,606) -- Purchase of available-for-sale investments (41,405) (98,417) Purchase of short-term and other investments (22,213) (67) Purchase of property and equipment (629) (211) - ----------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities $ 1,528 $ (48,012) - ----------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Policyholders' account balances Deposits to investment and universal life contracts $ 40,431 $ 44,260 Withdrawals from investment and universal life contracts (21,590) (26,841) Issuance of common stock 4 19 Payment of cash dividends (2,981) (1,807) - ----------------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 15,864 $ 15,631 - ----------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents $ 40,268 $ (22,456) Cash and Cash Equivalents at Beginning of Year 136,892 46,263 - ----------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 177,160 $ 23,807 =====================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements. 4 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 Consolidated Financial Statements contained herein should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2002. The review report of Ernst & Young LLP as of and for the three-month period ended March 31, 2003 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, we have made adjustments to present the accompanying Consolidated Financial Statements on the basis of accounting principles generally accepted in the United States. To prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, we make estimates and assumptions that affect the amounts of assets and liabilities reported in our Consolidated Financial Statements, the disclosure of contingent assets and liabilities at the date of our Consolidated Financial Statements and the amounts of revenues and expenses during the reporting period reported in our Consolidated Financial Statements. Actual results could differ from those based on our estimates and assumptions. 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 position and operating results. For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts and non-negotiable certificates of deposit with original maturities of three months or less. We paid no income taxes for the three-month periods ended March 31, 2003 and 2002. We made no significant payments of interest for the three-month periods ended March 31, 2003 and 2002, other than interest credited to policyholders' accounts. Pursuant to Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation," we elected to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for stock options issued under our stock-based compensation plan. Opinion No. 25 prescribes the use of the intrinsic value method of accounting for our employee and director stock-based compensation awards. Accordingly, we have not recognized compensation expense for these awards. We have determined that the compensation cost for the three-month periods ended March 31, 2003 and 2002 determined upon application of Statement No. 123 has an immaterial impact on the net income and earnings per share reported in our Consolidated Financial Statements. Certain amounts included in the Consolidated Financial Statements for prior years have been reclassified to conform to the 2003 financial statement presentation. Note 2. New Accounting Standards In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amended Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation." The new standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, the Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in annual and interim financial statements about the 5 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS method of accounting for stock-based employee compensation and the effect of the method used on reported results. This Statement is effective for financial statements for fiscal years ending after December 15, 2002. In compliance with Statement No. 148, we have elected to continue to follow the intrinsic value method in accounting for our stock-based employee compensation arrangement as defined by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and we have made the applicable disclosures in Note 1. In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 149, "Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." This Statement improves financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, this Statement (a) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of Statement No. 133, (b) clarifies when a derivative contains a financing component, (c) amends the definition of an underlying variable to conform it to language used in Financial Accounting Standards Board Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," and (d) amends certain other existing pronouncements. These changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. Statement No. 149 is to be applied prospectively to contracts entered into or modified after June 30, 2003. We have not yet determined the impact that the adoption of this Statement will have on our 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 insurance segment conducts business from our home office in Cedar Rapids, Iowa and from three other 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 in Cedar Rapids, Iowa. Our management evaluates the two segments on both the basis of accounting practices prescribed by our states of domicile and also on the basis of accounting principles generally accepted in the United States. We analyze results based on a variety of factors, including profitability, expenses and return on equity. The basis we use to determine and analyze segments and to measure segment profit has not changed from that reported in our annual report on Form 10-K for the year ended December 31, 2002. Because all of our insurance products are sold only domestically, we allocate no revenue to foreign operations. We report the following analysis on the basis of accounting principles generally accepted in the United States. We have reconciled the analysis to our unaudited Consolidated Financial Statements to adjust for intersegment eliminations.
- ------------------------------------------------------------------------------------------- (In Thousands) - ------------------------------------------------------------------------------------------- Property and Casualty Life Insurance Insurance Total - ------------------------------------------------------------------------------------------- Three months ended March 31, 2003 - ------------------------------------------------------------------------------------------- Revenues $ 109,383 $ 25,580 $ 134,963 - ------------------------------------------------------------------------------------------- Intersegment eliminations (31) (56) (87) - ------------------------------------------------------------------------------------------- Total revenues $ 109,352 $ 25,524 $ 134,876 =========================================================================================== Net income (loss) $ 11,777 $ (156) $ 11,621 =========================================================================================== Assets $ 838,903 $ 1,375,297 $ 2,124,200 =========================================================================================== Three months ended March 31, 2002 - ------------------------------------------------------------------------------------------- Revenues $ 97,705 $ 25,627 $ 123,332 - ------------------------------------------------------------------------------------------- Intersegment eliminations (31) (55) (86) - ------------------------------------------------------------------------------------------- Total revenues $ 97,674 $ 25,572 $ 123,246 =========================================================================================== Net income $ 8,368 $ 2,724 $ 11,092 =========================================================================================== Assets $ 736,621 $ 1,150,862 $ 1,887,483 ===========================================================================================
Depreciation expense and property and equipment acquisitions are reflected in the property and casualty insurance segment. 6 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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 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 gains (losses). At March 31, 2003 we had no open covered call options. Our investment portfolio includes trading securities with embedded derivatives, which are primarily convertible debt and equity instruments. These securities are recorded at fair value. 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 gains (losses). At March 31, 2003, our trading portfolio of debt and equity securities had a market value of $8,853,000. 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 $17,966,000 and $8,990,000 for the three months ended March 31, 2003 and 2002, respectively. 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, which was acquired by us in August 1999. The amount of this escrow totaled $1,990,000 and is recorded as a part of other assets on our Consolidated Balance Sheets. We have filed a lawsuit to enforce the payment to us of the amount of our claim, and we anticipate American Indemnity Financial Corporation's stockholder representatives will resist our claim. It is too early in the litigation to make an estimate as to the likelihood or amount of recovery. Note 7. Earnings Per Share We compute earnings per share in accordance with Statement of Financial Accounting Standard No. 128, "Earnings per Share." Accordingly, we compute basic earnings per share by dividing net income or loss available to common stockholders (net income or loss less dividends to preferred stockholders and accretions of preferred stock issuance costs) 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 we consider in our diluted earnings per share calculation relate to our convertible preferred stock outstanding and our outstanding stock options. We determine the dilutive effect of our convertible preferred stock 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 to the numerator of the earnings per share equation the amount of preferred dividends and accretions 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 earnings per share of our convertible preferred stock is disregarded. The effect of the if-converted method was dilutive for the first quarter of 2003, and was therefore included in the calculation of the first quarter diluted earnings per share. We determine the dilutive effect of our outstanding stock options 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 common stock during the period. This method 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. 7 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The components of basic and diluted earnings per share are as follows: - ------------------------------------------------------------------------------ Three months ended March 31 2003 2002 - ------------------------------------------------------------------------------ Net income $ 11,621,000 $ 11,092,000 Earnings available to common stockholders 10,436,000 11,092,000 Weighted average common shares outstanding 10,037,466 10,036,475 Potentially dilutive common shares 1,721,591 7,396 - ------------------------------------------------------------------------------ Weighted average common and potential shares outstanding 11,759,057 10,043,871 Basic earnings per share $ 1.04 $ 1.11 Diluted earnings per share 0.99 1.10 ============================================================================== Note 8. Redeemable 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. The issuance of the preferred stock resulted in the collection of net proceeds totaling $64,884,000. The preferred shares are non-voting. 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. We incurred dividends of $1,100,000 on our preferred stock in the first quarter of 2003. The preferred stock has a liquidation preference and redemption price of $25 per share. Issuance costs in connection with our preferred stock offering totaled $4,116,000. We are accreting these costs over a 12-year period. Through March 31, 2003, we have accreted $314,000 related to the preferred stock issuance costs, of which $85,000 was accreted in the first quarter of 2003. 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. 8 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 March 31, 2003, and the related consolidated statement of income for the three-month period ended March 31, 2003, and the consolidated statement of cash flows for the three-month period ended March 31, 2003. 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 (2002). 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 March 31, 2003, and for the three-month period then ended, for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of United Fire & Casualty Company and subsidiaries as of December 31, 2002, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended, not presented herein, and in our report dated February 17, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Ernst & Young LLP May 2, 2003 Chicago, Illinois 9 The following is a copy of Arthur Andersen LLP's previously issued report. Arthur Andersen has ceased practicing before the Securities and Exchange Commission and is therefore unable to reissue this report. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 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 March 31, 2002, and the related consolidated statements of income for the three-month periods ended March 31, 2002 and 2001, and the consolidated statements of cash flows for the three-month periods ended March 31, 2002 and 2001. These financial statements are the responsibility of the Company's management. 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, the objective of which is the expression of 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 financial statements referred to above in order for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of United Fire & Casualty Company and Subsidiaries as of December 31, 2001 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented separately herein) and, in our report dated February 8, 2002, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Arthur Andersen LLP Chicago, Illinois May 6, 2002 10 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 may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Act of 1934 for forward-looking statements. The forward-looking statements are not historical facts and 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; impact of regulatory actions on our Consolidated Financial Statements; uncertainties relating to government and regulatory policies; legal developments; changing rates of inflation, interest rates and other economic conditions; a continuation, or worsening of global economic conditions; a continuation of, or a slow recovery from 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. REGULATION G COMPLIANCE MEASURES In response to new disclosure regulations adopted by the Securities and Exchange Commission as part of its implementation of the Sarbanes-Oxley Act of 2002 (specifically Regulation G which became effective March 2003), measures used in this discussion that are not based on accounting principles generally accepted in the United States (Non-GAAP) are defined and reconciled to the most directly comparable GAAP measures and operating measures in the "Definitions of Non-GAAP information and reconciliation to comparable GAAP measures" section at the end of this discussion. 11 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net income for the first quarter of 2003 was $11,621,000, or $1.04 per share (after providing for the dividend on the convertible preferred stock), which includes net realized capital losses of $2,773,000, compared to first quarter 2002 net income of $11,092,000, or $1.11 per share, which included net realized capital gains of $544,000. First quarter diluted earnings were $.99 per share and $1.10 per share for 2003 and 2002, respectively. Net operating income for the first quarter of 2003 was $12,238,000 versus $10,738,000 for the first quarter of 2002. First quarter operating earnings were $1.22 per share (after providing for the dividend on the convertible preferred stock) and $1.07 per share for 2003 and 2002, respectively. Premiums earned through March 31, 2003 were $110,848,000 compared to $97,382,000 through March 31, 2002. This premium growth was attributable to property and casualty premium rate increases in 2002 and the continuation of these pricing increases in the first quarter of 2003. Investment income, net of expenses, increased by $1,161,000 or 5 percent, compared to the first three months of 2002. We attribute investment income growth between quarters to an increase in cash provided by premiums and annuity deposits. Pre-tax net realized investment losses totaled $2,773,000, versus pre-tax net realized investment gains of $544,000 for the first three months of 2002. The deterioration was primarily attributable to investment write-downs of $3,504,000 in the first quarter of 2003, compared to none in the first quarter of 2002. Property and Casualty Insurance Segment Net premiums written in the first quarter of 2003 were $114,292,000, compared to $100,412,000 in the first quarter of 2002. Net premiums earned in the first quarter of 2003 were $103,357,000, compared to $90,535,000 in the first quarter of 2002. The strong results in both premiums written and premiums earned is due primarily to premium rate increases in 2002 and 2003, as the number of policies in force has actually declined over the past year. The loss ratio, which includes loss adjustment expenses, was 61.4 percent for the first quarter of 2003, versus 67.9 percent for the first quarter of 2002. The improvement in the loss ratio is primarily attributable to an increase in premium rates and a decrease in claims frequency. Despite this improvement in claims frequency, claims severity has increased in the first quarter of 2003. The three-month direct pure loss ratio, which does not include loss adjustment expenses, for commercial business was 42 percent through March 31, 2003, compared to 46 percent for the first three months of 2002. The three-month personal lines direct pure loss ratio was 63 percent, compared to 65 percent for the same period of 2002. The expense ratio deteriorated to 28.2 percent in the first quarter of 2003, compared to 27.5 percent in the first quarter of 2002. This deterioration was primarily the result of the increase in amortization of our deferred acquisition costs asset. Pre-tax catastrophe losses, net of reinsurance, were $500,000 for the first quarter of 2003, which added less than one point to the combined ratio, with an after-tax earnings impact of 3 cents per share. In comparison, pre-tax catastrophe losses, net of reinsurance, were $436,000 for the first quarter of 2002, which added less than one point to the combined ratio, with an after-tax earnings impact of 3 cents per share. With respect to catastrophes that have occurred after March 31, 2003, we have exposure to a hailstorm which passed through Texas in April of this year and to a series of severe storms which hit the Midwest in early May of this year. To date, we have incurred approximately $3,000,000 in losses related to the hailstorm and approximately $4,000,000 with respect to the series of severe storms. We expect additional claims relating to the series of severe storms, which will increase our incurred losses. None of the losses related to the above mentioned storms are included in our first quarter results. 12 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Life Insurance Segment In the first quarter of 2003, our life insurance segment recorded a pre-tax loss of $227,000, compared to pre-tax income of $4,249,000 for the first quarter of 2002. The deterioration was primarily attributable to investment write-downs of $3,504,000 in the first quarter of 2003, compared to none in the first quarter of 2002. Net premiums earned in the first quarter of 2003 were $7,491,000, compared to $6,847,000 in the first quarter of 2002. Net investment income increased by $2,108,000, or 11.4 percent, in the first quarter of 2003. These improvements in our life insurance segment's first quarter results were offset by investment write-downs, an increase in losses of $452,000, or 10.7 percent, and an increase in interest credited on policyholder accounts of $1,350,000, or 10.8 percent. Investment Results We recorded consolidated pre-tax net investment income of $26,063,000 for the first three months of 2003, compared with $24,902,000 for the same period in 2002. During the first three months of 2003, our invested assets grew from $1,722,036,000 to $1,736,641,000. Pre-tax net realized investment losses totaled $2,773,000, versus pre-tax net realized investment gains of $544,000 for the first three months of 2002. We wrote down two securities in the first quarter of 2003, resulting in pre-tax charges of $3,504,000. The composition of our investment portfolio at March 31, 2003 is presented in the following table in accordance with accounting principles generally accepted in the United States:
- ------------------------------------------------------------------------------------------------------------- Property & Casualty Insurance Segment Life Insurance Segment Total - ------------------------------------------------------------------------------------------------------------- Percent of Percent of Percent of (Dollars in Thousands) Total Total Total - ------------------------------------------------------------------------------------------------------------- Fixed maturities/(1)/ $ 417,396 79.4% $ 1,171,530 96.7% $ 1,588,926 91.4% Equity securities 90,902 17.3 3,720 0.3 94,622 5.4 Mortgage loans 5,719 1.1 17,742 1.5 23,461 1.4 Policy loans -- -- 8,125 0.7 8,125 0.5 Other long-term investments 9,831 1.9 -- -- 9,831 0.6 Short-term investments 1,575 0.3 10,101 0.8 11,676 0.7 - ------------------------------------------------------------------------------------------------------------- Total $ 525,423 100.0% $ 1,211,218 100.0% $ 1,736,641 100.0% ============================================================================================================= /(1)/ Available for sale and trading fixed maturities are carried at fair value, while held to maturity fixed maturities are carried at amortized cost.
13 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION At March 31, 2003, our consolidated total assets were $2,214,200,000, compared to $2,159,475,000 at December 31, 2002. Invested assets, primarily fixed income securities, increased only $14,605,000, or 1 percent, from December 31, 2002. This small increase was primarily a result of poor market conditions. Because of the current unsettled investment environment, we have held most of the funds generated by our operating and investment activities in cash and cash equivalents rather than investing them. The slight increase in invested assets is attributable to changes in the market prices of our securities classified as available-for-sale, which are reported at fair value. The unrealized appreciation from these investments is reported net of tax as a separate component of stockholders' equity. Unrealized appreciation arising during the first quarter of 2003 increased invested assets by $15,767,000 and was offset slightly by the fact that we are not investing funds at a rate sufficient to match the sale, call and maturity of investments during the first quarter of 2003. At March 31, 2003, $1,409,301,000, or 89 percent, of our fixed income security portfolio was classified as available-for-sale, compared to $1,398,636,000, or 88 percent, at December 31, 2002. Our trading securities consist primarily of convertible redeemable preferred securities, which are recorded at fair value, with any changes in fair value recognized in earnings. We classify our remaining fixed maturities as held-to-maturity and report them at amortized cost. Our property and casualty insurance segment's deferred policy acquisition costs asset increased $2,952,000, or 8 percent, to $39,522,000 at March 31, 2003, from the deferred policy acquisition costs asset at December 31, 2002. The growth was attributable primarily to the increase in net premiums written. One component of our life insurance 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. The unrealized investment component of our life insurance segment's deferred acquisition costs calculation contributed a decrease of $35,583,000 in the reported deferred acquisition costs asset, compared to the $29,579,000 decrease contributed at December 31, 2002. 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 $22,876,000 for the three months ended March 31, 2003, compared to $9,925,000 for the three months ended March 31, 2002. The increase in cash provided by operating activities was primarily due to growth in premiums. We also have significant cash flows from sales of investments and scheduled and unscheduled investment security maturities, redemptions and prepayments. These cash flows totaled $67,381,000 through March 31, 2003 and $50,683,000 through March 31, 2002. If our operating and investment cash flows had not been sufficient to support our operations, we have short-term investments that we could utilize for this purpose. At March 31, 2003, our consolidated invested assets included $11,676,000 of short-term investments, which consist primarily of investments in commercial paper. We may also borrow up to $20,000,000 on a bank line of credit. Under the terms of our credit agreement, interest on outstanding notes is payable at the lender's prevailing prime rate, minus one percent. We did not utilize our line of credit during 2002 or in the first quarter of 2003. Financing activities provided cash of $15,864,000 through the first three months of 2003, compared to $15,631,000 through the first three months of 2002. Cash provided by financing activities included annuity and universal life deposits, less withdrawals, of $18,841,000 through March 31, 2003, compared to $17,419,000 for the same period of 2002. Stockholders' equity increased from $290,433,000 at December 31, 2002 to $305,335,000 at March 31, 2003, an increase of 5 percent. The primary increases to stockholders equity were net income of $11,621,000 and unrealized appreciation (net of tax) of $6,345,000. Decreases to stockholders' equity included stockholder dividends and preferred stock accretions of $3,067,000. At March 31, 2003, book value was $30.42 per common share, compared to $28.94 per common share at December 31, 2002. 14 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Definitions of Non-GAAP information and reconciliation to comparable GAAP measures We believe that investor understanding of our financial performance is enhanced by disclosure of certain Non-GAAP financial measures. Statutory data is prepared in accordance with statutory accounting rules as defined by the National Association of Insurance Commissioners' Accounting Practices and Procedures Manual and therefore is not reconciled to accounting principles generally accepted in the United States. Net operating income: The difference between net income (after providing for the dividend on the convertible preferred stock) and net operating income is the inclusion of after-tax realized investment gains (losses). We utilize net operating income to evaluate underlying performance and to provide information commonly used by investors to evaluate insurance companies. This measure also is described as net income before after-tax realized investment gains (losses). - -------------------------------------------------------------------------------- Net Income After-tax Net (after pref. realized Operating NI/NOI divd.) gains (losses) Income per share - -------------------------------------------------------------------------------- 2003 $ 10,436,000 $ (1,802,000) $ 12,238,000 $ 1.04/$1.22 2002 $ 11,092,000 $ 354,000 $ 10,738,000 $ 1.11/$1.07 - -------------------------------------------------------------------------------- Catastrophe losses: Catastrophes are by their nature unpredictable, the frequency and severity of catastrophic losses experienced in any year will impact our results of operations and financial position. In evaluating the underwriting performance of our property and casualty insurance segment, we do so both including and excluding catastrophe losses. Written premium: Under statutory accounting rules as defined by the National Association of Insurance Commissioners' Accounting Practices and Procedures Manual, written premiums is the amount recorded for policies issued and recognized on an annualized basis at the effective date of the policy. We analyze the trends in written premiums to help measure our underwriting results. Earned premium, which is calculated and used in both statutory and GAAP accounting, is recognized ratably over the policy term. The difference between written and earned premium is unearned premium. 15 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES 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. We write covered call options from time to time on common stocks that we own. Generally, we write the calls 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. Some market analysts consider the practice of writing covered calls to be a conservative equity strategy. 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, 2002. ITEM 4. CONTROLS AND PROCEDURES In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis, we have formalized our disclosure controls and procedures. Our principal executive officer and principal financial officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-14(c) and 15d-14(c), as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to material information about us (and our consolidated subsidiaries) required to be included in our periodic Securities and Exchange Commission filings. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. 16 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES PART II - OTHER INFORMATION 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) 3.2 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) 3.3 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 May 12, 2003. 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 May 12, 2003. 99.3 Certification of John A. Rife, Pursuant To 13A-14 or 15D-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002, dated May 12, 2003. 99.4 Certification of Kent G. Baker, Pursuant To 13A-14 or 15D-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002, dated May 12, 2003. (b) No reports on Form 8-K were filed during the period covered by this report. 17 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) May 12, 2003 (Date) By: /s/ John A. Rife ---------------------------- John A. Rife President, Chief Executive Officer By: /s/ K.G. Baker ---------------------------- K.G. Baker Vice President, Chief Financial Officer and Principal Accounting Officer 18 EX-99.1 3 dex991.txt CERTIFICATION OF JOHN A. RIFE, PURSUANT TO 18 U.S.C. SECTION 1350 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of United Fire & Casualty Company (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John A. Rife, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John A. Rife - ----------------------- John A. Rife Chief Executive Officer May 12, 2003 19 EX-99.2 4 dex992.txt CERTIFICATION OF KENT G. BAKER, PURSUANT TO 18 U.S.C. SECTION 1350 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of United Fire & Casualty Company (the "Company") on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kent G. Baker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Kent G. Baker - ----------------------- Kent G. Baker Chief Financial Officer May 12, 2003 20 EX-99.3 5 dex993.txt CERTIFICATION OF JOHN A. RIFE, PURSUANT TO 13A-14 OR 15D-14 Exhibit 99.3 CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John A. Rife, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Fire & Casualty Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 12, 2003 /s/ John A. Rife - ----------------------- John A. Rife Chief Executive Officer 21 EX-99.4 6 dex994.txt CERTIFICATION OF KENT G. BAKER, PURSUANT TO 13A-14 OR 15D-14 Exhibit 99.4 CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kent G. Baker, certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Fire & Casualty Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 12, 2003 /s/ Kent G. Baker - ----------------------- Kent G. Baker Chief Financial Officer 22 -----END PRIVACY-ENHANCED MESSAGE-----