-----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, UrHh6ga8nrafRh5oUPNBiW0d4wlx6CpqN+srggdKs+WGtix55aV2dQtPvGCJLTbT 3wHvDgeOP1zm2azJDmpKdA== 0001047469-97-004339.txt : 19971113 0001047469-97-004339.hdr.sgml : 19971113 ACCESSION NUMBER: 0001047469-97-004339 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NASD 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: SEC FILE NUMBER: 002-39621 FILM NUMBER: 97716085 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 for the quarterly period ended September 30, 1997 Transition Report Pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 for the transition period from _____ to ______ 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 November 5, 1997, 10,727,322 shares of common stock were outstanding. UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES TABLE OF CONTENTS PART I: FINANCIAL INFORMATION Report of Independent Public Accountants 1 Consolidated Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996 2 Unaudited Consolidated Statements of Operations - Three-Month Periods Ended September 30, 1997 and 1996 3 Unaudited Consolidated Statements of Operations - Nine-Month Periods Ended September 30, 1997 and 1996 4 Unaudited Consolidated Statements of Cash Flows - Nine-Month Periods Ended September 30, 1997 and 1996 5 Notes to Unaudited Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Signatures 11 Exhibit 11. Computation of Net Income Per Common Share 12 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 September 30, 1997, and the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 1997 and 1996, and the consolidated statements of cash flows for the nine-month periods ended September 30, 1997 and 1996. 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 generally accepted auditing standards, 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 for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of United Fire & Casualty Company and Subsidiaries as of December 31, 1996, and, in our report dated February 20, 1997, we expressed an unqualified opinion on that statement. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Arthur Andersen LLP Chicago, Illinois November 5, 1997 1 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------- (Dollars in Thousands) - --------------------------------------------------------------------------------------------------- ASSETS 1997 1996 UNAUDITED Audited - --------------------------------------------------------------------------------------------------- INVESTMENTS Fixed maturities Held-to-maturity, at amortized cost (market value $723,145 in 1997 and $668,541 in 1996) $ 695,121 $ 651,138 Available-for-sale, at market (cost $96,088 in 1997 and $69,317 in 1996) 96,479 67,902 Equity securities (cost $25,720 in 1997 and $25,898 in 1996) 115,891 91,314 Mortgage loans 2,892 2,959 Policy loans 8,207 7,591 Other long-term investments, at market (cost $8,250 in 1997 and $8,395 in 1996) 11,179 9,970 Short-term investments 15,731 29,330 - --------------------------------------------------------------------------------------------------- $ 945,500 $ 860,204 Cash and Cash Equivalents 3,862 14,389 Accrued Investment Income 13,306 12,195 Accounts Receivable 48,878 43,433 Deferred Policy Acquisition Costs 59,775 56,083 Property and Equipment 13,611 12,630 Reinsurance Receivables 14,701 12,490 Prepaid Reinsurance Premiums 4,535 4,229 Intangibles 1,145 1,335 Income Taxes Receivable 1,455 709 Other Assets 6,480 7,138 - --------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,113,248 $1,024,835 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Future policy benefits and losses, claims and settlement expenses Property and casualty insurance $ 231,932 $ 221,207 Life insurance 461,265 431,582 Unearned premiums 114,002 105,008 Accrued expenses and other liabilities 17,801 19,721 Employee benefit obligations 8,202 6,764 Deferred income taxes 22,888 12,694 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 856,090 $ 796,976 - --------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock $ 35,758 $ 35,759 Additional paid-in capital 9,331 9,342 Retained earnings 151,004 139,933 Net unrealized appreciation, net of applicable income taxes of $32,426 in 1997 and $22,750 in 1996 61,065 42,825 - --------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $ 257,158 $ 227,859 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,113,248 $1,024,835 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
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 OPERATIONS THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Data and Number of Shares) - --------------------------------------------------------------------------------------------------- 1997 1996 - --------------------------------------------------------------------------------------------------- Revenues Net premiums earned $ 61,971 $ 60,722 Investment income, net 15,238 14,530 Realized investment gains and other income 283 569 Commission and policy fee income 485 495 - --------------------------------------------------------------------------------------------------- 77,977 76,316 - --------------------------------------------------------------------------------------------------- Benefits, Losses and Expenses Losses and settlement expenses 43,949 47,778 Increase in liability for future policy benefits 1,785 1,718 Amortization of deferred policy acquisition costs 11,780 14,345 Other underwriting expenses 10,583 6,991 Interest on policyholders' accounts 5,931 5,239 - --------------------------------------------------------------------------------------------------- 74,028 76,071 - --------------------------------------------------------------------------------------------------- Income before income taxes 3,949 245 Federal income taxes 358 (1,054) - --------------------------------------------------------------------------------------------------- Net income $ 3,591 $ 1,299 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Net Income per common share $ 0.33 $ 0.12 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 10,727,322 10,740,639 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Cash dividends declared per common share $ 0.16 $ 0.15 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
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 OPERATIONS NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Data and Number of Shares) - --------------------------------------------------------------------------------------------------- 1997 1996 - --------------------------------------------------------------------------------------------------- Revenues Net premiums earned $ 181,630 $ 172,524 Investment income, net 45,412 42,628 Realized investment gains and other income 1,031 5,417 Commission and policy fee income 1,443 1,440 - --------------------------------------------------------------------------------------------------- 229,516 222,009 - --------------------------------------------------------------------------------------------------- Benefits, Losses and Expenses Losses and settlement expenses 121,707 123,268 Increase in liability for future policy benefits 4,387 4,312 Amortization of deferred policy acquisition costs 36,795 38,532 Other underwriting expenses 28,363 21,824 Interest on policyholders' accounts 17,584 15,408 - --------------------------------------------------------------------------------------------------- 208,836 203,344 - --------------------------------------------------------------------------------------------------- Income before income taxes 20,680 18,665 Federal income taxes 4,568 3,450 - --------------------------------------------------------------------------------------------------- Net Income $ 16,112 $ 15,215 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Net Income per common share $ 1.50 $ 1.41 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 10,727,479 10,788,080 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Cash dividends declared per common share $ 0.47 $ 0.45 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
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 NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
- --------------------------------------------------------------------------------------------------- (Dollars in Thousands) - --------------------------------------------------------------------------------------------------- 1997 1996 - --------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income $ 16,112 $ 15,215 - --------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities Net bond discount accretion (18) (421) Depreciation and amortization 2,138 1,604 Realized investment gains (1,031) (3,360) Changes in: Accrued investment income (1,111) (599) Accounts receivable (5,445) (9,202) Deferred policy acquisition costs (3,692) (5,196) Reinsurance receivables (2,211) (5,351) Prepaid reinsurance premiums (306) (479) Income taxes receivable (746) (1,974) Other assets 658 (107) Future policy benefits and losses, claims and settlement expenses 15,285 26,817 Unearned premiums 8,994 13,077 Accrued expenses and other liabilities (310) 7,562 Employee benefit obligations 1,438 719 Deferred income taxes 518 (1,762) - --------------------------------------------------------------------------------------------------- Total adjustments $ 14,161 $ 21,328 - --------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 30,273 $ 36,543 - --------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Proceeds from sale of available-for-sale investments $ 19,638 $ 21,978 Proceeds from call and maturity of held-to-maturity investments 45,775 60,840 Proceeds from call and maturity of available-for-sale investments 3,717 5,454 Proceeds from sale of other investments 40,458 18,929 Purchase of investments held-to-maturity (90,547) (111,896) Purchase of investments available-for-sale (48,108) (21,447) Purchase of other investments (27,264) (10,575) Proceeds from sale of property and equipment - 501 Purchase of property and equipment (2,929) (1,490) - --------------------------------------------------------------------------------------------------- Net cash used in investing activities $ (59,260) $ (37,706) - --------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Policyholders' account balances Deposits to investment and universal life type contracts $ 91,496 $ 64,386 Withdrawals from investment and universal life type contracts (66,373) (50,356) Purchase and retirement of common stock (12) (2,713) Payment of cash dividends (6,651) (6,473) - --------------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 18,460 $ 4,844 - --------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents $ (10,527) $ 3,681 Cash and Cash Equivalents at Beginning of Year 14,389 6,998 - --------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 3,862 $ 10,679 - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
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. In the opinion of the management of United Fire & Casualty Company and Subsidiaries (the "Company"), 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 the Company's annual report on Form 10-K for the year ended December 31, 1996. The review report of Arthur Andersen LLP accompanies the unaudited consolidated financial statements included in Item 1 of Part I. NOTE 2. The Company maintains its records in conformity with the accounting practices prescribed or permitted by the Insurance Department of the State of Iowa. To the extent that certain of these practices differ from generally accepted accounting principles ("GAAP"), adjustments have been made in order to present the accompanying financial statements on the basis of GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Certain amounts included in the financial statements for the previous year have been reclassified to conform with the financial statement presentation at September 30, 1997. NOTE 3. 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. Income taxes paid, net of refunds for the nine month periods ended September 30, 1997 and 1996 were $5,589,000 and $8,200,000, respectively. There were no significant payments of interest through September 30, 1997 and 1996, other than interest credited to policyholders' accounts. NOTE 4. Included in realized gains and other income for the nine-month period ended September 30, 1996, is $2,057,000 of interest in connection with the settlement of a Federal income tax Revenue Agent Review for previous tax years. 6 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. A reconciliation of the amortized cost to fair values of investments in held-to-maturity and available-for-sale fixed maturities, marketable equity securities and other long-term investments as of September 30, 1997 is as follows.
- ---------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) - ---------------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 1997 Gross Gross Amortized Unrealized Unrealized Fair TYPE OF INVESTMENT Cost Appreciation Depreciation Value - ---------------------------------------------------------------------------------------------------------------------------- HELD-TO-MATURITY Fixed Maturities Bonds United States Government, government agencies and authorities Collateralized mortgage obligations $ 24,467 $ 115 $ 227 $ 24,355 Mortgage-backed securities 20,189 1,919 2 22,106 All others 3,374 311 14 3,671 States, municipalities and political subdivisions 235,556 11,928 200 247,284 Foreign 6,831 304 - 7,135 Public utilities 89,395 1,257 86 90,566 Corporate bonds Collateralized mortgage obligations 97,890 4,122 391 101,621 All other corporate bonds 217,419 9,496 508 226,407 - ---------------------------------------------------------------------------------------------------------------------------- Total held-to-maturity $695,121 $29,452 $ 1,428 $723,145 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE Fixed Maturities Bonds United States Government, government agencies and authorities Collateralized mortgage obligations $ 3,477 $ 3 $ 89 $ 3,391 Mortgage-backed securities 56 5 - 61 All others 8,638 111 2 8,747 States, municipalities & political subdivisions 7,165 2 4 7,163 Public utilities 206 2 1 207 Corporate bonds Collateralized mortgage obligations 59,370 1,251 900 59,721 All other corporate bonds 17,176 61 48 17,189 - ---------------------------------------------------------------------------------------------------------------------------- Total available-for-sale fixed maturities $ 96,088 $ 1,435 $ 1,044 $ 96,479 - ---------------------------------------------------------------------------------------------------------------------------- Equity securities Common stocks Public utilities $ 3,525 $ 5,481 $ - $ 9,006 Banks, trust and insurance companies 11,717 60,375 - 72,092 All other common stocks 9,628 24,351 195 33,784 Nonredeemable preferred stocks 850 163 4 1,009 - ---------------------------------------------------------------------------------------------------------------------------- Total equity securities $ 25,720 $90,370 $ 199 $115,891 - ---------------------------------------------------------------------------------------------------------------------------- Total available-for-sale $121,808 $91,805 $ 1,243 $212,370 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Other long-term investments $ 8,250 $ 2,935 $ 6 $ 11,179 - ---------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------
7 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The amortized cost and fair value of held-to-maturity and available-for-sale fixed maturities at September 30, 1997 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
- ---------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) - ---------------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 1997 Held-to-maturity Available-for-sale - ---------------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value - ---------------------------------------------------------------------------------------------------------------------------- Due in one year or less $ 9,158 $ 9,288 $ 131 $ 132 Due after one year through five years 116,455 121,915 582 595 Due after five years through ten years 172,674 180,140 14,811 14,871 Due after ten years 254,288 263,720 17,661 17,708 Mortgage-backed securities 20,189 22,106 56 61 Collateralized mortgage obligations 122,357 125,976 62,847 63,112 - ---------------------------------------------------------------------------------------------------------------------------- $695,121 $723,145 $ 96,088 $ 96,479 - ---------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------
NOTE 6. In February, 1997, the Financial Accounting Standards Board ("FASB") issued two Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and No. 129, "Disclosure of Information about Capital Structure." These statements are effective for both interim and annual periods ending after December 15, 1997. In management's opinion, the adoption of these statements will not have a material impact on the Consolidated Financial Statements. In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" governing the reporting and display of comprehensive income and its components which includes items previously recorded directly in equity, such as unrealized gains or losses on securities available-for-sale and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requiring that public businesses report financial and descriptive information about its reportable operating segments. Both Statements are effective for interim and annual periods beginning after December 15, 1997. The impact of adopting SFAS No. 130 will require an additional disclosure in the Consolidated Financial Statements and the impact of adopting SFAS No. 131 is not expected to be material to the Consolidated Financial Statements or Notes to Consolidated Financial Statements. 8 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASSETS Net unrealized appreciation of available-for-sale securities and other long-term investments net of applicable income taxes grew 43% to $61,065,000 through the third quarter of 1997. Twelve percent of fixed maturity securities and 100% of common and preferred stocks are classified as available-for-sale. The majority of fixed maturities are classified as held-to-maturity, and the Company has not classified any investments as trading securities. In July, 1997, the Company hired a Chief Investment Officer to manage its investment portfolio. A majority of the fixed maturity purchases in the third quarter were classified as available-for-sale. Readily marketable common and preferred stocks comprise the Company's equity security portfolio. Other long-term investments consist primarily of holdings in limited partnership funds which invest in banks. Short-term investments, comprised of money market accounts, overnight repurchase agreements and fixed maturities are utilized to meet anticipated short-term cash requirements. In addition, the Company also maintains a $6 million line of credit with a local bank. Short-term investments decreased $13,599,000 between December 31, 1996 and September 30, 1997, due primarily to purchases of fixed maturity securities. Accounts receivable are balances owed by property and casualty insurance agents and brokers for premiums written less commissions. In 1997, this asset increased by $5,445,000 or 13%. Premium growth and use of a deferred payment plan have contributed to this increase. The Company's deferred policy acquisition costs ("DAC") are expenses such as commissions, premium taxes and other costs associated with procuring insurance policies. The asset is established at the beginning of the policy period and is then amortized over the lives of the respective policy terms to achieve a matching of expenses to revenue. Premium growth has created a corresponding increase in deferred policy acquisition costs. Reinsurance receivables are losses, expenses and reserves that are due the Company from reinsurers. This asset will fluctuate due to the timing of payments between the Company and the reinsurers. Management does not anticipate collection problems with regard to any of its reinsurance receivables. LIABILITIES The property and casualty segment's gross liability before reinsurance for losses and settlement expenses increased $10,725,000 or 5% between 1997 and 1996. Gross reserves remaining on the 1994 Northridge earthquake were $4,097,000 as of September 30, 1997, compared to $4,599,000 at December 31, 1996. The Company is not aware of any significant contingent liabilities as far as environmental issues are concerned. Because of the type of business the Company writes, i.e. property and liability coverage, there exists the potential for exposure for environmental pollution and asbestos claims. The Company's underwriters are aware of these exposures and use riders or endorsements to limit exposure. 9 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MATERIAL CHANGES IN RESULTS OF OPERATIONS PROPERTY AND CASUALTY OPERATIONS The property and casualty segment had a statutory combined ratio (i.e., losses incurred to premiums earned, plus expenses incurred to premiums written) of 102% compared to 107% through the first nine months of 1996. For the three months ended September 30, 1997, the combined ratio was 107% compared to 116% for the third quarter of 1996. The improved underwriting experience is the result of an increase in premiums, coupled with a small increase in the Company's property and casualty losses and expenses incurred. The Addison Insurance Company, a wholly owned subsidiary, under new management since September, 1996, has made a considerable improvement in its results, reporting a 105% combined ratio at September 30, 1997, compared to 139% at September 30, 1996. Premium growth of 6% or $9,490,000 was primarily due to an increase in the Company's direct business for the nine months ended September 30, 1997 compared to September 30, 1996. Much of the increase originated in Louisiana, Mississippi and in several midwestern states. Loss and settlement expenses incurred by the property and casualty segment through September, 1997 decreased $620,000 from 1996. Although claims counts remain close to 1996 figures, severity has increased. In the third quarter, the Company had several large losses in the commercial property, personal auto, commercial auto and workers compensation lines. As an offset to these loss increases, Addison Insurance Company has shown greatly improved results, with a decrease in losses and settlement expenses incurred of $5,046,000 or 44% for the nine months ending September 30, 1997. An increase of $3,313,000 in property and casualty amortization of deferred acquisition costs and underwriting and acquisition expenses was primarily due to an increase in commissions, premium taxes and other policy issue expenses, associated with growth in premiums. LIFE OPERATIONS Amortization of deferred acquisition costs for the first nine months of 1997 increased by $1,218,000 over the same period last year. This increase is the result of increased amortization on deferred annuity policies with a five year interest guarantee. Interest credited increased $2,175,000 over 1996, due to increases in the fund value of the annuity products. INVESTMENT RESULTS Growth in the Company's fixed maturity portfolio contributed to the 7% increase in net investment income. Two factors contributed to the decrease of $4,386,000 in realized investment gains and other income. During the first half of 1996, the Company took advantage of market conditions and sold a few of its available-for-sale fixed income securities. In addition, in 1996, the settlement of a Federal income tax Revenue Agent Review for previous tax years resulted in the receipt of $2,057,000 in interest, which was included in realized investment gains and other income. 10 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits-Exhibit 11 - Computation of Net Income Per Common Share (Page 12). 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) NOVEMBER 5, 1997 - ------------------------------------------------------------------------------ (DATE) /s/ John A. Rife - ------------------------------------------------------------------------------ JOHN A. RIFE PRESIDENT /s/ K.G. Baker - ------------------------------------------------------------------------------ K.G. BAKER VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER 11 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES PART II - OTHER INFORMATION Exhibit 11. Computation of Net Income Per Common Share
- ---------------------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Data and Number of Shares) - ---------------------------------------------------------------------------------------------------------- Weighted Average Three-Month Periods Ended Number of Shares Net Net Income Per September 30, Outstanding Income Common Share - ---------------------------------------------------------------------------------------------------------- 1997 10,727,322 $ 3,591 $ 0.33 1996 10,740,639 1,299 0.12 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Data and Number of Shares) - ---------------------------------------------------------------------------------------------------------- Weighted Average Nine-Month Periods Ended Number of Shares Net Net Income Per September 30, Outstanding Income Common Share - ---------------------------------------------------------------------------------------------------------- 1997 10,727,479 $ 16,112 $ 1.50 1996 10,788,080 15,215 1.41 - ----------------------------------------------------------------------------------------------------------
Computation of weighted average number of common and common equivalent shares:
- ---------------------------------------------------------------------------------------------------------- Three-Month Periods Ended September 30, 1997 1996 - ---------------------------------------------------------------------------------------------------------- Common shares outstanding beginning of the period 10,727,322 10,749,012 Weighted average of the common shares purchased and retired or reissued - (8,373) - ---------------------------------------------------------------------------------------------------------- Weighted average number of common shares 10,727,322 10,740,639 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- Nine-Month Periods Ended September 30, 1997 1996 - ---------------------------------------------------------------------------------------------------------- Common shares outstanding beginning of the period 10,727,712 10,829,461 Weighted average of the common shares purchased and retired or reissued (233) (41,381) - ---------------------------------------------------------------------------------------------------------- Weighted average number of common shares 10,727,479 10,788,080 - ---------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------
12 EX-27 2 EXHIBIT 27
7 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 96,479 695,121 723,145 115,891 2,892 0 945,500 3,862 14,701 59,775 1,113,248 693,197 114,002 0 0 0 0 0 35,758 221,400 1,113,248 181,630 45,412 1,031 1,443 126,094 36,795 45,947 20,680 4,568 16,112 0 0 0 16,112 1.50 1.50 0 0 0 0 0 0 0
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