<PAGE> 1
UNITED STATES
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 June 30, 1998
-----------------------------------------
( ) Transition report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Transition period from to
--------------------- -------------------
State Auto Financial Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1324304
- ---------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
518 East Broad Street, Columbus, Ohio 43215-3976
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(614) 464-5000
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
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 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.
(X) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common shares, without par value 38,762,508
- -------------------------------- -------------------------
(CLASS) (OUTSTANDING ON 08/11/98)
<PAGE> 2
<TABLE>
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(unaudited)
<CAPTION>
June 30 December 31
ASSETS 1998 1997
---- ----
<S> <C> <C>
Fixed maturities:
Held for investment, at amortized cost
(fair value $71,993 and $81,571, respectively) $ 69,889 $ 79,300
Available for sale, at fair value
(amortized cost $351,641 and $307,589, respectively) 362,695 320,299
Equity securities, at fair value
(cost $6,904 and $4,286, respectively) 8,162 4,580
-------- --------
Total investments 440,746 404,179
Cash and cash equivalents 23,039 23,918
Deferred policy acquisition costs 19,369 17,689
Accrued investment income and other assets 17,972 16,327
Net prepaid pension expense 13,239 12,133
Reinsurance recoverable 12,809 9,871
Prepaid reinsurance premiums 3,956 3,627
Due from affiliates -- 2,179
Current federal income taxes 663 --
Property and equipment, net 3,725 3,228
-------- --------
Total assets $535,518 $493,151
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Losses and loss expenses payable $182,947 $162,446
Unearned premiums 109,160 99,445
Current federal income taxes -- 15
Deferred federal income taxes 2,310 3,049
Due to affiliates 411 --
Other liabilities 2,691 2,717
-------- --------
Total liabilities 297,519 267,672
-------- --------
STOCKHOLDERS' EQUITY
Common stock, without par value. Authorized 100,000,000 and 30,000,000
shares, respectively; 36,759,508 and 36,683,798 shares issued and
outstanding, respectively, at stated value of $2.50 per share 91,899 91,709
Additional paid-in capital 3,447 2,894
Accumulated comprehensive income 8,317 8,830
Retained earnings 134,336 122,046
-------- --------
Stockholders' equity 237,999 225,479
-------- --------
Total liabilities and stockholders' equity $535,518 $493,151
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
<TABLE>
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended June 30, 1998 and 1997
(dollars in thousands, except per share amounts)
(unaudited)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Earned premiums (net of ceded earned premiums of
$3,234 and $3,076, respectively) $71,607 $63,766
Net investment income 6,580 6,265
Management services income 2,351 2,266
Net realized gains on investments 252 83
------- -------
Total revenues 80,790 72,380
------- -------
Losses and loss expenses (net of ceded losses and loss
expenses of $2,238 and $2,413, respectively) 55,684 41,657
Acquisition and operating expenses 20,575 19,027
Other expense, net 777 419
------- -------
Total expenses 77,036 61,103
------- -------
Earnings before federal income taxes 3,754 11,277
Federal income tax expense:
Current 973 3,017
Deferred (321) 142
------- -------
Total federal income taxes 652 3,159
------- -------
Net earnings $ 3,102 $ 8,118
======= =======
Net earnings per share:
- basic $ 0.08 $ 0.22
======= =======
- diluted $ 0.08 $ 0.22
======= =======
Dividends paid per common share $ 0.023 $ 0.020
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
<TABLE>
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Six Months Ended June 30, 1998 and 1997
(dollars in thousands, except per share amounts)
(unaudited)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Earned premiums (net of ceded earned premiums of
$6,231 and $5,824, respectively) $142,540 $126,017
Net investment income 13,108 12,501
Management services income 4,682 4,473
Net realized gains on investments 542 321
-------- --------
Total revenues 160,872 143,312
-------- --------
Losses and loss expenses (net of ceded losses and loss
expenses of $3,655 and $3,448, respectively) 100,816 83,597
Acquisition and operating expenses 41,396 37,202
Other expense, net 1,429 890
-------- --------
Total expenses 143,641 121,689
-------- --------
Earnings before federal income taxes 17,231 21,623
Federal income tax expense:
Current 4,829 5,504
Deferred (463) 469
-------- --------
Total federal income taxes 4,366 5,973
-------- --------
Net earnings $ 12,865 $ 15,650
======== ========
Net earnings per share:
- basic $ 0.35 $ 0.43
======== ========
- diluted $ 0.34 $ 0.42
======== ========
Dividends paid per common share $ 0.045 $ 0.040
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
<TABLE>
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1998 and 1997
(in thousands)
(unaudited)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,865 $ 15,650
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization, net 321 385
Net realized gains on investments (542) (321)
Changes in operating assets and liabilities:
Deferred policy acquisition costs (571) (1,264)
Accrued investment income and other assets (1,645) (2,482)
Net prepaid pension expense (366) (634)
Other liabilities and due to/from affiliate, net 2,564 (5,972)
Reinsurance recoverable and prepaid reinsurance premiums (1,166) (1,177)
Losses and loss expenses payable 6,133 1,205
Unearned premiums 2,075 4,202
Federal income taxes (1,141) (802)
-------- --------
18,527 8,790
Cash provided from the change in the reinsurance pool
participation percentage 18,059 --
-------- --------
Net cash provided by operating activities 36,586 8,790
-------- --------
Cash flows from investing activities:
Purchase of fixed maturities - available for sale (96,479) (49,042)
Purchase of equity securities (2,922) --
Maturities, calls and principal reductions of fixed maturities -
held to maturity 9,330 3,338
Maturities, calls and principal reductions of fixed maturities -
available for sale 10,858 8,068
Sale of fixed maturities - available for sale 41,864 26,120
Sale of equity securities 269 --
Net additions of property and equipment (553) (14)
-------- --------
Net cash used in investing activities (37,633) (11,530)
-------- --------
Cash flows from financing activities:
Net proceeds from sale of common stock 743 692
Payment of dividends (575) (494)
-------- --------
Net cash provided by financing activities 168 198
-------- --------
Net decrease in cash and cash equivalents (879) (2,542)
Cash and cash equivalents at beginning of period 23,918 12,868
-------- --------
Cash and cash equivalents at end of period $ 23,039 $ 10,326
======== ========
Supplemental disclosures:
Federal income taxes paid $ 5,450 $ 6,775
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(unaudited)
1. BASIS OF PRESENTATION
The financial statements for the interim periods included herein have been
prepared by the Company without audit; however, such information reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto for the year ended December 31,
1997 included in the Company's 1997 Form 10-K filed with the Securities and
Exchange Commission.
The results of operations for the interim periods presented are not necessarily
indicative of the operating results that may be expected for the full fiscal
year ending December 31, 1998.
2. STOCK SPLIT
On March 6, 1998, the Board of Directors of the Company authorized a two-for-one
stock split to be distributed July 8, 1998, to shareholders of record on June
18, 1998. The split was contingent upon shareholder approval of a proposal to
increase the number of authorized common shares, without par value, from 30
million to 100 million. At the Company's annual meeting of shareholders on May
28, 1998, the shareholders approved the increase of authorized common shares.
Common shares issued and outstanding, weighted average shares and per share data
have been restated to reflect the two-for-one stock split for periods presented
in the accompanying condensed consolidated financial statements.
3. NET EARNINGS PER COMMON SHARE
The following table sets forth the compilation of basic and diluted net earnings
per common share:
Three months ended
June 30
1998 1997
---- ----
(in thousands, except
per share amounts)
Numerator:
Net earnings for basic and diluted
earnings per common share $ 3,102 $ 8,118
------- -------
Denominator:
Weighted average shares for basic net
earnings per common share 36,722 36,348
Effect of dilutive stock options 1,089 808
Adjusted weighted average shares for
diluted net earnings per common share 37,811 37,156
------- -------
Basic net earnings per common share $ 0.08 $ 0.22
------- -------
Diluted net earnings per common share $ 0.08 $ 0.22
------- -------
<PAGE> 7
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - continued
June 30, 1998
(unaudited)
Six months ended
June 30
1998 1997
---- ----
(in thousands, except
per share amounts)
Numerator:
Net earnings for basic and diluted earnings
per common share $12,865 $15,650
------- -------
Denominator:
Weighted average shares for basic net
earnings per common share 36,706 36,319
Effect of dilutive stock options 1,072 810
Adjusted weighted average shares for
diluted net earnings per common share 37,778 37,129
------- -------
Basic net earnings per common share $ 0.35 $ 0.43
------- -------
Diluted net earnings per common share $ 0.34 $ 0.42
------- -------
4. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS No. 130 had no impact on the Company's net earnings or shareholders'
equity. SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of SFAS No. 130.
The components of comprehensive income, net of related tax, for the three-month
and six-month periods ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net earnings $3,102 $ 8,118 $12,866 $15,650
Unrealized holding (losses) gains, net of tax 86 2,817 (513) (306)
Comprehensive income $3,188 $10,935 $12,353 $15,344
</TABLE>
The components of accumulated other comprehensive income, net of related tax,
included in stockholders' equity at June 30, 1998 and December 31, 1997 include
only unrealized holding gains (losses), net of tax.
5. SUBSEQUENT EVENT
On July 7, 1998, the Company completed the exercise of its option pursuant to
the Option Agreement dated August 20, 1993, with Mutual by acquiring the
outstanding shares of Milbank Insurance Company (Milbank). Milbank had been a
wholly-owned subsidiary of Mutual since July 1, 1993, but as a result of this
transaction, Milbank is now a wholly owned subsidiary of the Company. The
purchase price of Milbank was approximately $81.9 million. The transaction was
effected through an exchange with Mutual of approximately 5.1 million State Auto
Financial common shares without par value for all the issued and outstanding
shares of capital stock of Milbank. This exchange of Milbank shares for the
Company's common shares increased Mutual's ownership of the Company to
approximately 70% of its issued and outstanding shares.
<PAGE> 8
6. NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997, but is not required to be applied to interim
period financial statements in the year of adoption. SFAS No. 131 changes the
way public companies report segment information in annual financial statements
and also requires those companies to report selected segment information in
interim financial reports to shareholders. The Company has not yet determined
the reporting changes required by SFAS No. 131 to segment information.
<PAGE> 9
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
Earnings before federal income taxes decreased $7.5 million to $3.8 million and
$4.4 million to $17.2 million for the three months and six months ended June 30,
1998, respectively, from the same 1997 periods. These decreases are primarily
due to numerous storm-related catastrophe claims in nearly all of the Company's
operating states during the 1998 second quarter . Absent these storm-related
losses, the Company's core business produced results comparable to the first
three months of 1998. Also impacting the Company's operations was an amendment
to the pooling arrangement by the Company's principal insurance subsidiary,
State Auto Property & Casualty Insurance Company (State Auto P&C). From 1995
through 1997, State Auto P&C participated in a pooling arrangement with State
Automobile Mutual Insurance Company (Mutual), a majority shareholder of the
Company, and Milbank Insurance Company (Milbank), a wholly-owned subsidiary of
Mutual, whereby State Auto P&C assumed 35% of the pooled business, Mutual 55%
and Milbank 10%. Effective January 1, 1998, the pooling arrangement was amended
to include the insurance operations of Midwest Security Insurance Company
(Midwest), a wholly-owned subsidiary of Mutual. Concurrent with the addition of
Midwest to the pool, the pooling participation percentages were amended to
allocate 37% to State Auto P&C, 52% to Mutual, 10% to Milbank and 1% to Midwest.
In connection with the January 1, 1998 pooling changes, State Auto P&C received
approximately $18.1 million to cover its increased share of the pooled
liabilities.
Earned premiums, during the quarter ended June 30, 1998, increased $7.8 million
to $71.6 million from the same 1997 period. Of the $7.8 million increase, $6.7
million was due to an increase in earned premiums of State Auto P&C, of which
$5.1 million was due to the impact of the change in the pooling arrangement with
the remaining portion of the increase due to State Auto P&C's share of the
overall growth of the pool. The remaining $1.1 million of the $7.8 million
quarterly increase was due to the earned premium growth of State Auto National
Insurance Company (National), the Company's non-standard insurance company. For
the six months ended June 30, 1998, earned premiums increased $16.5 million to
$142.5 million from the same 1997 period. Of the $16.5 million increase, $14.0
million was due to an increase in earned premiums of State Auto P&C, of which
$10.4 million was due to the impact of the change in the pooling arrangement
with the remaining portion of the increase due to State Auto P&C's share of the
overall growth of the pool. The remaining $2.5 million of the $16.5 million six
month increase was due to the earned premium growth of National. National
remains on track to enter six new states in late 1998.
Net investment income increased $0.3 million to $6.6 million for the three
months ended June 30, 1998 and $0.6 million to $13.1 for the six months ended
June 30, 1998, from the same 1997 periods. Contributing to these increases, was
the transfer to State Auto P&C of approximately $18.1 million in conjunction
with the change in the pooling arrangement and a general increase in investable
assets over the same 1997 periods. Total cost of investable assets at June 30,
1998 was $451.5 million compared to $398.8 million at June 30 , 1997. The
investment yield, based on fixed and equity securities at cost, decreased to
5.9% and 6.0% for the three months and six months ended June 30, 1998,
respectively, from 6.3% for the same 1997 comparable periods. Contributing to
the decrease in the investment yields has been a decline in fixed maturity
interest rates over the 1997 comparable periods as well as a gradual shift in
the composition of the fixed maturity portfolio from taxables to tax-exempt
securities. At June 30, 1998, approximately 67% of the investment portfolio was
comprised of tax-exempt securities whereas at June 30, 1997, tax exempts
comprised 55% of the portfolio.
Management services income increased slightly from the same 1997 period.
<PAGE> 10
Losses and loss expenses, as a percentage of earned premiums, increased to 77.8%
for the three months ended June 30, 1998 from 65.3% for the same 1997 period and
for the six months ended June 30, 1998, increased to 70.7% from 66.3% for the
same 1997 period. As previously discussed, the Company experienced storm-related
catastrophe claims in nearly all operating states during the second quarter
1998. The losses resulting from these second quarter catastrophe claims exceeded
the amount of 1997 second quarter catastrophe claims thereby increasing the GAAP
loss ratio in the current quarter by 17.5 percentage points. For the six months
ended June 30, 1998, the 1998 catastrophe claim related activity exceeded the
amount of 1997 comparable period catastrophe claims increasing the 1998 six
month ratio by approximately 9.0 percentage points. The Company's largest line
of business, automobile, continued to produce a lower statutory loss ratio for
the second quarter and six month 1998 periods compared to the same time periods
one year ago.
Acquisition and operating expenses, as a percentage of earned premiums (the
"Expense Ratio"), decreased to 28.7% for the three months ended June 30, 1998
from 29.8% for the same 1997 period and for the six months ended June 30, 1998,
decreased to 29.0% from 29.5% for the same 1997 period. The decrease in these
percentages is due to a decrease in the Quality Performance Bonus (the "Bonus")
earned by nearly all permanent employees from the same periods in 1997.
Performance is measured quarterly and the Bonus is earned if the State Auto
Insurance Companies' quarterly direct statutory combined ratio is better than
predetermined targets set at the beginning of each fiscal year. A Bonus was paid
in the first and second quarter of the 1997 periods, whereas in 1998, a Bonus
was only paid in the first quarter. Absent the impact of the Bonus, the Expense
Ratios for the three month and six month periods ending June 30, 1998 are
comparable to the same 1997 periods.
Federal income taxes decreased $2.5 million to $0.7 million for the three months
ended June 30, 1998 and $1.6 million to $4.4 million for the six months ended
June 30, 1998 from the same 1997 periods. These decreases are due to lower
taxable income as a result of the storm related catastrophes experienced by the
company during the 1998 second quarter as well as a shift in the investment
portfolio from taxable to tax exempt securities. The effective tax rate
decreased to 17.4% and 25.3% for the three months and six months ending June 30,
1998 from 28.0% and 27.6% for the 1997 periods, respectively. See discussion
above regarding the shift from taxables to tax exempts within the investment
portfolio.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities increased to $36.6 million for the six
months ended June 30, 1998 from $8.8 million for the same 1997 period. This
increase is due primarily to the transfer of $18.1 million to State Auto P&C in
connection with the amended pooling arrangement, as discussed above.
Additionally, the Company has experienced an increase in its cash flow from
operations due to improvements in its underlying book of business. The impact of
the catastrophe losses experienced by the Company during the second quarter of
1998, will not be reflected through cash flows until the third quarter of 1998.
Pursuant to the pooling arrangement, Mutual is responsible for the payment of
losses and loss expenses for the pooled companies. Quarterly unpaid incurred
pooled balances are reflected in "due to or due from affiliates" in the
accompanying condensed consolidated balance sheets. Settlements of the
intercompany accounts are made in the month following the end of the quarter.
Net cash used in investing activities increased to $37.6 million for the six
months ended June 30, 1998 from $11.5 million for the same 1997 period. This
increase is due to the investing of the cash associated with the transfer of the
$18.1 million as well as cash generated from insurance operations. Net cash
provided by financing activities for the six months ended June 30, 1998 remained
comparable to the same period in 1997. As of June 30, 1998, funds consisting of
cash and cash equivalents available for general operations were $23.0 million
compared to $10.3 million at June 30, 1997. No long-term fixed maturities were
required to be sold to meet obligations during the first six months of 1998.
On July 7, 1998, the Company completed the exercise of its option, pursuant to
the Option Agreement dated August 20, 1993, with Mutual by acquiring the
outstanding shares of Milbank. Milbank had been a wholly-owned subsidiary of
Mutual since July 1, 1993, but as a result of this
<PAGE> 11
transaction, Milbank is now a wholly owned subsidiary of the Company. The
purchase price of Milbank was approximately $81.9 million. The transaction was
effected through an exchange with Mutual of approximately 5.1 million State Auto
Financial common shares for all the issued and outstanding shares of capital
stock of Milbank. This exchange of Milbank shares for the Company's common
shares increased Mutual's ownership of the Company to approximately 70% of its
issued and outstanding shares.
Additionally, the Board declared a two-for-one stock split to be distributed
July 8, 1998, to shareholders of record on June 18, 1998. The split was
contingent upon shareholder approval of a proposal to increase the number of
authorized common shares, without par value, from 30 million to 100 million. At
the Company's annual meeting of shareholders on May 28, 1998, the shareholders
approved the increase of authorized common shares. The impact of this stock
split has been appropriately reflected in the accompanying condensed
consolidated financial statements.
With respect to the Year 2000 Issue, see the discussion regarding this subject
in the Company's December 31, 1997 Management's Discussion and Analysis of
Financial Condition and Results of Operations, included in the December 31, 1997
Form 10-K. During the first half of 1998, State Auto's two primary processing
systems were made Year 2000 compliant and are now in production. The Year 2000
project efforts have resulted in approximately 78% of the lines of critical
systems program code now being compliant. Additionally, State Auto completed
its' first comprehensive Millennium test at an off-site computer facility in
April 1998. Results of the test were positive and problems identified were minor
in nature. Future Millennium testing is scheduled for the second half of 1998.
All critical systems are expected to be completed by December 1998 and we expect
to have full compliance and contingency plans in place by October 1999.
State Auto is in the process of addressing Year 2000 readiness for all external
business partners. A comprehensive list of software and hardware vendors is
maintained. As result of this, a number of products have been upgraded to the
Year 2000 compliant release level and several products are actively being
replaced to solve their Year 2000 related issues. Overall, the Year 2000 project
is on schedule. Project costs are in line with original projections.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Statements contained herein expressing the beliefs of management and the other
statements which are not historical facts contained in this report are forward
looking statements that involve risks and uncertainties. Such statements
include, without limitation, those pertaining to the weather related
catastrophes impacting the Company's losses, and the Year 2000 discussion. These
risks and uncertainties include but are not limited to: legislative, judicial,
and regulatory changes, the impact of competitive products and pricing, product
development, geographic spread of risk, weather and weather-related events,
other types of catastrophic events, fluctuations of securities markets, economic
conditions, technological difficulties and advancements, availability of labor
and materials in storm hit areas, late reported claims and previously
undisclosed damage.
<PAGE> 12
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders
The annual meeting of shareholders of State Auto Financial Corporation
was held on Thursday, May 28, 1998. The total shares represented at the meeting
were 33,397,530. This constituted 94.5% of the Company's 36,701,264 shares
outstanding. At the meeting, the shareholders voted on two resolutions; the
first being the election of John R. Lowther, Paul W. Huesman and Robert H. Moone
as Class I Directors, each to hold office until the 2001 annual meeting of
shareholders and until a successor is elected and qualified, with each director
nominee receiving the votes indicated:
NUMBER OF VOTES
---------------
FOR WITHHELD
--- --------
John R. Lowther 33,135,996 261,534
Paul W. Huesman 33,133,596 263,934
Robert H. Moone 33,135,996 261,534
On the basis of this vote, John R. Lowther, Paul W. Huesman and Robert
H. Moone were elected as Class I Directors to serve until the 2001 annual
meeting and until a successor is elected and qualified.
The second resolution pertained to the adoption of an amendment to the
Amended and Restated Articles of Incorporation of the Company to authorize an
additional 70,000,000 common shares, without par value as specified in the Proxy
Statement. The Common Shares were voted as follows with respect to such
resolution:
<TABLE>
<CAPTION>
Withhold Authority to Vote for
For Additional Shares Opposed Additional Shares Additional Shares
--------------------- ------------------------- -----------------
<S> <C> <C>
32,871,094 499,694 26,740
</TABLE>
On the basis of this vote, the resolution adopting the amendment to the
Amended and Restated Articles of Incorporation authorizing an additional
70,000,000 common shares, without par value was adopted by the shareholders.
Item 5. Other Information - None
<PAGE> 13
INDEX TO EXHIBITS
Item 6. a. Exhibits
Exhibit No. Description of Exhibits
----------- -----------------------
27 Financial data schedules
b. Reports on Form 8-K - None
SIGNATURE
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 hereunto duly authorized.
STATE AUTO FINANCIAL CORPORATION
Date: AUGUST 11, 1998 /s/ Steven J. Johnston
--------------- -------------------------------------
Steven J. Johnston
Treasurer and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATE AUTO
FINANCIAL CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE INTERIM PERIOD
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 362,695,000
<DEBT-CARRYING-VALUE> 69,889,000
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,162,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 440,746,000
<CASH> 23,039,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 19,369,000
<TOTAL-ASSETS> 535,518,000
<POLICY-LOSSES> 182,947,000
<UNEARNED-PREMIUMS> 109,160,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 91,899,000
<OTHER-SE> 146,100,000
<TOTAL-LIABILITY-AND-EQUITY> 535,518,000
142,540,000
<INVESTMENT-INCOME> 13,108,000
<INVESTMENT-GAINS> 542,000
<OTHER-INCOME> 4,682,000
<BENEFITS> 100,816,000
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 41,396,000
<INCOME-PRETAX> 17,231,000
<INCOME-TAX> 4,366,000
<INCOME-CONTINUING> 12,865,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,865,000
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATE AUTO
FINANCIAL CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE INTERIM PERIOD
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 308,506,000
<DEBT-CARRYING-VALUE> 86,832,000
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 395,338,000
<CASH> 10,326,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 16,976,000
<TOTAL-ASSETS> 470,637,000
<POLICY-LOSSES> 167,079,000
<UNEARNED-PREMIUMS> 98,086,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 91,028,000
<OTHER-SE> 110,974,000
<TOTAL-LIABILITY-AND-EQUITY> 470,637,000
126,017,000
<INVESTMENT-INCOME> 12,501,000
<INVESTMENT-GAINS> 321,000
<OTHER-INCOME> 4,473,000
<BENEFITS> 83,597,000
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 37,202,000
<INCOME-PRETAX> 21,623,000
<INCOME-TAX> 5,973,000
<INCOME-CONTINUING> 15,650,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,650,000
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.42
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
