<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------
ASSETS 1997 1996
UNAUDITED Audited
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Unaudited Consolidated Financial Statements
are an integral part of these statements.
2
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per
Share Data and Number of Shares)
- ---------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Unaudited Consolidated Financial Statements
are an integral part of these statements.
3
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per
Share Data and Number of Shares)
- ---------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Unaudited Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Unaudited Consolidated Financial Statements
are an integral part of these statements.
5
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 Gross Gross
Amortized Unrealized Unrealized Fair
TYPE OF INVESTMENT Cost Appreciation Depreciation Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 Held-to-maturity Available-for-sale
- ----------------------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
Exhibit 11. Computation of Net Income Per Common Share
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(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
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Computation of weighted average number of common
and common equivalent shares:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Three-Month Periods Ended September 30, 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 96,479
<DEBT-CARRYING-VALUE> 695,121
<DEBT-MARKET-VALUE> 723,145
<EQUITIES> 115,891
<MORTGAGE> 2,892
<REAL-ESTATE> 0
<TOTAL-INVEST> 945,500
<CASH> 3,862
<RECOVER-REINSURE> 14,701
<DEFERRED-ACQUISITION> 59,775
<TOTAL-ASSETS> 1,113,248
<POLICY-LOSSES> 693,197
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0
0
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181,630
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</TABLE>
