-----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, DVomNHG81lpLEfmVov98pR9LlaC7Jn1wKs9ffXYTGYRfJEv9ggcSQhYlOeNTx4NZ feN/jVc+FNh3ldXF19fbgQ== 0001047469-98-020212.txt : 19980515 0001047469-98-020212.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-020212 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: 98620828 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 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, 1998 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 May 5, 1998, 10,706,247 shares of common stock were outstanding. UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES TABLE OF CONTENTS PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Report of Independent Public Accountants 1 Consolidated Balance Sheets as of March 31, 1998 2 (unaudited) and December 31, 1997 Unaudited Consolidated Statements of Operations - Three-Month Periods Ended March 31, 1998 and 1997 3 Unaudited Consolidated Statements of Cash Flows - Three-Month Periods Ended March 31, 1998 and 1997 4 Notes to Unaudited Consolidated Financial Statements 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II: OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11 SIGNATURES 11
PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 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, 1998, and the related consolidated statements of operations for the three-month periods ended March 31, 1998 and 1997, and the consolidated statements of cash flows for the three-month periods ended March 31, 1998 and 1997. 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, 1997, and, in our report dated February 19, 1998, 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, 1997, 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 May 5, 1998 1 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------- (Dollars in Thousands) - -------------------------------------------------------------------------------------------------------- ASSETS 1998 1997 UNAUDITED Audited - -------------------------------------------------------------------------------------------------------- INVESTMENTS Fixed maturities Held-to-maturity, at amortized cost (market value $687,249 in 1998 and $709,867 in 1997) $ 654,674 $ 677,360 Available-for-sale, at market (cost $198,394 in 1998 and $145,019 in 1997) 199,997 146,932 Equity securities (cost $25,951 in 1998 and $26,296 in 1997) 128,796 128,698 Mortgage loans 2,839 2,862 Policy loans 8,368 8,405 Other long-term investments, at market (cost $10,018 in 1998 and $9,000 in 1997) 14,017 12,448 Short-term investments 13,841 19,195 - -------------------------------------------------------------------------------------------------------- $1,022,532 $ 995,900 CASH AND CASH EQUIVALENTS 8,989 2,378 ACCRUED INVESTMENT INCOME 14,177 14,159 ACCOUNTS RECEIVABLE 46,283 44,060 DEFERRED POLICY ACQUISITION COSTS 64,347 60,215 PROPERTY AND EQUIPMENT 13,859 14,443 REINSURANCE RECEIVABLES 14,730 14,430 PREPAID REINSURANCE PREMIUMS 3,934 4,064 INTANGIBLES 1,019 1,082 OTHER ASSETS 4,852 7,191 - -------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,194,722 $1,157,922 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Future policy benefits and losses, claims and settlement expenses Property and casualty insurance $ 240,503 $ 231,768 Life insurance 508,373 482,437 Unearned premiums 110,523 108,296 Accrued expenses and other liabilities 11,704 18,373 Employee benefit obligations 9,150 8,665 Income taxes payable 1,337 3,307 Deferred income taxes 29,093 27,868 - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 910,683 $ 880,714 - -------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock $ 35,697 $ 35,758 Additional paid-in capital 8,623 9,331 Retained earnings 169,074 161,906 Net unrealized appreciation, net of applicable income taxes of $37,753 in 1998 and $37,549 in 1997 70,694 70,213 Less: treasury stock 49 - - -------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $ 284,039 $ 277,208 - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,194,722 $1,157,922 - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- 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 MARCH 31, 1998 AND 1997
- -------------------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Data and Number of Shares) - -------------------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------------------- Revenues Net premiums earned $ 59,336 $ 59,256 Investment income, net 16,226 15,037 Realized investment gains and other 4,203 696 Commission and policy fee income 464 441 - -------------------------------------------------------------------------------------------- 80,229 75,430 - -------------------------------------------------------------------------------------------- Benefits, Losses and Expenses Losses and settlement expenses 41,106 36,965 Increase in liability for future policy 1,373 1,263 Amortization of deferred policy 10,929 11,723 Other underwriting expenses 8,756 9,807 Interest on policyholders' accounts 6,187 5,499 - -------------------------------------------------------------------------------------------- 68,351 65,257 - -------------------------------------------------------------------------------------------- Income before income taxes 11,878 10,173 Federal income taxes 2,996 2,770 - -------------------------------------------------------------------------------------------- Net Income $ 8,882 $ 7,403 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Earnings per common share $ 0.83 $ 0.69 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- Weighted average common shares outstanding 10,720,430 10,727,712 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- 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 CASH FLOWS THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
- -------------------------------------------------------------------------------------------- (Dollars in Thousands) - -------------------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income $ 8,882 $ 7,403 -------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided operating activities Net bond discount accretion (45) (1) Depreciation and amortization 805 712 Realized investment gains (4,203) (696) Changes in: Accrued investment income (18) (455) Accounts receivable (2,223) (2,664) Deferred policy acquisition costs (4,132) (1,742) Reinsurance receivables (300) (525) Prepaid reinsurance premiums 130 (44) Income taxes receivable - 2,353 Other assets 2,339 595 Future policy benefits and losses, claims and settlement expenses 10,341 3,079 Unearned premiums 2,227 2,371 Accrued expenses and other liabilities (4,953) (1,398) Employee benefit obligations 485 365 Income taxes payable (1,970) - Deferred income taxes 968 416 Other, net (194) - - -------------------------------------------------------------------------------------------- Total adjustments $ (743) $ 2,366 -------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 8,139 $ 9,769 -------------------------------------------------------------------------------------------- Cash Flows From Investing Activities Proceeds from sale of available-for-sale investments $ 6,612 $ 617 Proceeds from call and maturity of held-to-maturity 29,577 10,101 Proceeds from call and maturity of available-for-sale 8,540 1,797 Proceeds from sale of other investments 15,218 22,983 Purchase of investments held-to-maturity (6,848) (25,566) Purchase of investments available-for-sale (64,112) (8,491) Purchase of other investments (10,439) (9,695) Proceeds from sale of property and equipment 16 - Purchase of property and equipment (175) (317) -------------------------------------------------------------------------------------------- Net cash used in investing activities $(21,611) $ (8,571) -------------------------------------------------------------------------------------------- Cash Flows From Financing Activities Policyholders' account balances Deposits to investment and universal life type $ 44,028 $ 26,930 Withdrawals from investment and universal life type (19,698) (19,130) Purchase and retirement of common stock (768) - Payment of cash dividends (3,430) (3,218) Purchase of common stock (49) - -------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 20,083 $ 4,582 -------------------------------------------------------------------------------------------- Net Increase in Cash and Cash Equivalents $ 6,611 $ 5,780 Cash and Cash Equivalents at Beginning of Year 2,378 14,389 -------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 8,989 $ 20,169 -------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- 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. 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, 1997. 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 March 31, 1998. 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 three month periods ended March 31, 1998 and 1997 were $4,000,000 and zero, respectively. There were no significant payments of interest through March 31, 1998 and 1997, other than interest credited to policyholders' accounts. 5 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. 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 March 31, 1998 is as follows.
- ------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) - ------------------------------------------------------------------------------------------------------------------------- MARCH 31, 1998 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 $ 26,896 $ 536 $ 33 $ 27,399 Mortgage-backed securities 18,173 1,699 - 19,872 All others 3,391 344 3 3,732 States, municipalities and political subdivisions 225,882 13,761 114 239,529 Foreign 6,724 393 - 7,117 Public utilities 73,506 1,713 48 75,171 Corporate bonds Collateralized mortgage obligations 92,174 4,263 362 96,075 All other corporate bonds 207,928 10,694 268 218,354 - ------------------------------------------------------------------------------------------------------------------------- Total held-to-maturity $654,674 $ 33,403 $ 828 $687,249 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE Fixed Maturities Bonds United States Government, government agencies and authorities Collateralized mortgage obligations $ 47,778 $ 1,666 $ 78 $ 49,366 Mortgage-backed securities 51 5 - 56 All others 7,656 151 - 7,807 States, municipalities & political subdivisions 31,663 578 88 32,153 Foreign 6,144 26 92 6,078 Public utilities 6,220 32 28 6,224 Corporate bonds Collateralized mortgage obligations 13,961 306 768 13,499 All other corporate bonds 84,921 581 688 84,814 - ------------------------------------------------------------------------------------------------------------------------- Total available-for-sale fixed maturities $198,394 $ 3,345 $ 1,742 $199,997 - ------------------------------------------------------------------------------------------------------------------------- Equity securities Common stocks Public utilities $ 3,525 $ 7,892 $ - $ 11,417 Banks, trust and insurance companies 11,660 69,807 - 81,467 All other common stocks 9,921 25,128 146 34,903 Nonredeemable preferred stocks 845 174 10 1,009 - ------------------------------------------------------------------------------------------------------------------------- Total equity securities $ 25,951 $103,001 $ 156 $128,796 - ------------------------------------------------------------------------------------------------------------------------- Total available-for-sale $224,345 $106,346 $ 1,898 $328,793 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Other long-term investments $ 10,018 $ 4,008 $ 9 $ 14,017 - ------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
6 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 March 31, 1998 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) - ----------------------------------------------------------------------------------------------------- MARCH 31, 1998 Held-to-maturity Available-for-sale - ----------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair Cost Value Cost Value - ----------------------------------------------------------------------------------------------------- Due in one year or less $ 7,163 $ 7,237 $ 257 $ 258 Due after one year through five years 132,397 138,728 12,144 11,979 Due after five years through ten 152,468 161,079 56,517 56,393 Due after ten years 225,403 236,859 67,686 68,446 Mortgage-backed securities 18,173 19,872 51 56 Collateralized mortgage obligations 119,070 123,474 61,739 62,865 - ----------------------------------------------------------------------------------------------------- $654,674 $687,249 $198,394 $199,997 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
NOTE 5. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" effective December, 1997. This standard supersedes APB Opinion No. 15 "Earnings Per Share" and simplifies the standards for computing and presenting earning per share ("EPS"). Under the new standard, the presentation of primary EPS has been replaced with a presentation of basic EPS. Basic EPS is computed excluding dilution caused by common stock equivalents such as stock options. The Company does not currently issue stock options or other stock-based awards, and therefore, basic and diluted EPS are equal. In February, 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS No. 129, adopted by the Company effective December 31, 1997, contains disclosure requirements including liquidation preferences of preferred stock, rights and privileges of outstanding equity securities and the redemption amounts for all issues of capital stocks that are redeemable. As the Company does not issue these types of securities, SFAS No. 129 does not have a material effect on the Company's Consolidated Financial Statements. Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income", governing the reporting and presentation of comprehensive income and its components which includes traditional net income and items previously recorded directly in equity, such as the change in unrealized gains or losses on securities available-for-sale. In accordance with the interim reporting guidelines of SFAS No. 130, comprehensive income was $9,363,000 for the quarter ended March 31, 1998 and $8,145,000 for the quarter ended March 31, 1997. 7 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In June, 1997, the FASB issued 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. SFAS No. 131 is effective for annual periods beginning after December 15, 1997 for the initial year of adoption and interim periods thereafter. The impact of adopting SFAS No. 131 will require additional disclosure in the Consolidated Financial Statements and is not expected to have a material effect on the Company's Consolidated Financial Statements or Notes to Consolidated Financial Statements. In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", effective for fiscal years beginning after December 15, 1997. The new statement standardizes the disclosure requirements for these benefit plans and the impact is not expected to have a material effect on the Company's Consolidated Financial Statements or Notes to Consolidated Financial Statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASSETS At the end of the first quarter of 1998, the Company's assets were $1,194,722,000, an increase of $36,800,000 over December 31, 1997. The fixed income portfolio, comprised primarily of long-term, high-quality securities, generated a majority of the growth. During the second half of 1997 and continuing into 1998, the Company's strategy has been to classify all of its fixed income security purchases as available-for-sale. The percentage of this category to the total fixed income security portfolio was 23% at March 31, 1998, compared to 18% at December 31, 1997. The Company expects this trend to continue throughout 1998. The Company did not hold trading securities during 1998 or 1997. Unrealized gains of $1,603,000 were recorded on the Company's available-for-sale fixed income securities through the first quarter of 1998, compared to $1,913,000 for the year ended 1997. There have been no additions to the Company's collateralized mortgage obligation ("CMO") holdings during the first quarter of 1998. At March 31, 1998, CMO's accounted for 21% of the fixed income portfolio, compared to 22% as of December 31, 1997. Returns are not as attractive as those found in other investment alternatives. In connection with the CMOs that the Company does hold, prepayment risk was minimized by buying most issues priced at a slight discount. While buying at a discount does not prevent prepayment, the yield is not penalized as is the case when a premium is paid. In addition, although the stated maturity is longer than the average life of the issues, the Company concentrated on buying issues with an expected maturity in the seven-to-twelve-year range. Other available-for-sale investments include common and preferred stocks. Other long-term investments are primarily holdings in limited partnership funds investing in banks and insurance companies. Net unrealized appreciation on stocks and other long-term investments increased $994,000, or 1% in 1998 compared to 1997. During the last half of 1997, and continuing into 1998, the Company began writing covered call options to generate additional portfolio income. At March 31, 1998, options were written on 6% of the equity portfolio, compared to 1% at December 31, 1997. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Property and casualty premium writings during the first quarter of 1998 were slightly higher than writings during the last quarter of 1997. For this reason, accounts receivable from property and casualty insurance agents and brokers increased $2,223,000 or 5% through March 31, 1998. When comparing premium writings between the first quarter of 1998 and 1997, current year volume is down. The Company's deferred acquisition costs include expenses such as commissions, premium taxes and other costs associated with underwriting insurance policies. In order to achieve a matching of revenue to expenses, the Company establishes an asset for these expenses and amortizes the asset over the duration of the policy periods. Decreased premium volume in the property and casualty segment has resulted in moderate growth in the asset of $690,000 or 4%. The life segment's DAC asset increased $3,442,000 or 8% over December 31, 1997. Reinsurance receivables include losses, expenses and reserves that are due to the Company from reinsurance brokers. This balance increased by $300,000 or 2% through March, 1998. The Company has not experienced significant collection problems with regard to reinsurance receivables and has no information indicating that any of its current reinsurance balances are uncollectible. Other assets decreased by $2,339,000 or 33%. On February 27, 1998, the Company sold most of the assets of Crabtree Premium Finance Company, a small subsidiary. Under the provisions of the sale, no material gain or loss was recognized. Almost all of the other asset decrease was attributable to this sale. CASH FLOW AND LIQUIDITY Most of the cash that the Company receives is generated from insurance premiums paid by policyholders. The premiums are invested in assets maturing at regular intervals in order to meet the Company's obligations to pay policy benefits, claims and claim adjusting expenses and operating expenses. Net cash provided by the Company's operating activities was $8,139,000 in the first quarter of 1998, compared to $9,769,000 in the first quarter of 1997. Operating cash flows continue to be ample to meet policyholders obligations. Short-term investments, composed of money market accounts and fixed income securities are available for the Company's short-term cash needs. In addition, a $6,000,000 line of credit is maintained with a local bank. No funds were borrowed through the first quarters of 1998 and 1997. LIABILITIES The property and casualty segment's gross liability before reinsurance for losses and settlement expenses increased 4% between March 31, 1998 and December 31,1997. The Company has limited exposure to environmental pollution and asbestos claims. The Company's underwriters are aware of these exposures and use riders or endorsements to limit their exposure. The liability for future policy benefits and interest on policyholders' accounts increased by $25,936,000 or 5% during the first quarter of 1998. This liability is increased immediately by the full premiums paid for the life segment's annuity products and most universal life products. In 1998, the Company received premiums of $26,669,000 in non internal rollovers on annuity products and $3,536,000 on universal life products. These same two product lines had $6,187,000 of interest credited and $11,259,000 in decreases for surrenders, risk charges and deaths during 1998. Fluctuations in the other life product lines account for the remainder of the change. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Accrued expenses and other liabilities decreased $6,669,000 or 36%. This is typical at the end of the first quarter. Expenses that were accrued for at year end 1997, such as contingent commissions and premium taxes are paid during the first quarter of each year. Income taxes payable decreased by $1,970,000 or 60% compared to December 31, 1997. The Company made a federal income tax extension payment of $4,000,000 in the month of March, 1998. MATERIAL CHANGES IN RESULTS OF OPERATIONS PROPERTY AND CASUALTY OPERATIONS The property and casualty segment had a statutory combined ratio (net losses incurred and net loss adjustment expenses incurred to net premiums earned, plus expenses incurred to premiums written) of 102% for the first quarter of 1998, compared to 98% for the same period of 1997. Premium writings are down through the first quarter of 1998 and will probably remain so throughout the rest of this year. Stiff competition within the industry has had the effect of lowering prices and the Company's philosophy is to avoid pursuing business which is inadequately priced. Losses incurred by the property and casualty segment were almost identical for the first quarters of 1998 and 1997, while loss expenses incurred increased $2,639,000 or 39%. Loss expense payments for the past thirty-six months have been rising as a percentage of loss payments for some of the Company's liability lines due to a higher number of claims in litigation. This has the effect of driving up the reserves for loss expenses. The property and casualty segment's underwriting and acquisition expenses have decreased by $630,000 or 8% between the first quarter of 1998 and 1997. The decrease in premium volume has reduced many of the expenses incurred in connection with the writing of insurance policies. LIFE OPERATIONS The life segment's earnings before taxes increased to $3,017,000 or 16% in the first quarter of 1998, compared to the same period in 1997. Growth in the segment's premiums earned and investment income has contributed to the favorable results. Losses incurred increased $1,762,000. Claim activity was up as a result of both a higher number of death clams for larger amounts that experienced in prior years. The life segment is beginning to experience losses on policies where the retention is higher($100,000 per life versus $40,000 to $60,000 per life) as the block of ordinary life policies age. Due to growth in new premium production, the life segment is deferring more acquisition costs than in the first quarter of 1997, which has had the effect of reducing other underwriting expenses. INVESTMENT RESULTS The Company's investment income increased $1,189,000 or 8% between March 31, 1998 and 1997 and net realized gains of $4,203,000 were recognized, primarily on our equity portfolio due principally to the exercise of written covered call options. OTHER Effective September 1, 1998, the Company is moving the operations of Addison Insurance Company (a wholly owned subsidiary) to its home office in Cedar Rapids, from Lombard, Illinois. This move will result in a decrease in operating expenses. 10 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 11 - Computation of Earnings Per Common Share 27 - Financial Data Schedule (b) The Company filed one report on Form 8-K dated April 28, 1998 concerning the moving of Addison Insurance Company (a wholly owned subsidiary of United Fire & Casulaty Company) operations from Lombard, Illinois to the parent Company's home office in Cedar Rapids, Iowa, effective September 1, 1998. 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 5, 1998 - -------------------------------------------------------------------------- (DATE) - -------------------------------------------------------------------------- JOHN A. RIFE PRESIDENT - -------------------------------------------------------------------------- K.G. BAKER VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER 11 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES INDEX TO EXHIBITS
EXHIBIT NUMBER ITEM PAGE - ------ ------ ---- 11 Computation of Earnings Per Common Share 12 27 Financial Data Schedule 13
12 EX-11 2 EXHIBIT 11 Exhibit 11. Computation of Earnings Per Common Share
- ------------------------------------------------------------------------------------------------ (Dollars in Thousands Except Per Share Data and Number of Shares) - ------------------------------------------------------------------------------------------------ Weighted Average Three-Month Periods Ended Number of Shares Net Earnings Per March 31, Outstanding Income Common Share - ------------------------------------------------------------------------------------------------ 1998 10,720,430 $ 8,882 $ 0.83 1997 10,727,712 7,403 0.69 - ------------------------------------------------------------------------------------------------
Computation of weighted average number of common and common equivalent shares:
- -------------------------------------------------------------------------------------------- Three-Month Periods Ended March 31, 1998 1997 - -------------------------------------------------------------------------------------------- Common shares outstanding beginning of the period 10,727,322 10,727,712 Weighted average of the common shares purchased and retired or reissued (6,892) - - -------------------------------------------------------------------------------------------- Weighted average number of common shares 10,720,430 10,727,712 - -------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------
EX-27 3 EXH. 27
7 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 199,997 654,674 687,249 128,796 2,839 0 1,022,532 8,989 14,730 64,347 1,194,722 748,876 110,523 0 0 0 0 0 35,697 248,342 1,194,722 59,336 16,226 4,203 464 42,479 10,929 14,943 11,878 2,996 8,882 0 0 0 8,882 .83 .83 0 0 0 0 0 0 0
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