UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File No. 2-39621
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
UNITED-LAFAYETTE 401(k) PROFIT SHARING PLAN
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive office:
United Fire & Casualty Company
118 Second Avenue SE
Cedar Rapids, IA 52407
The United-Lafayette 401(k) Profit Sharing Plan ("Plan") is subject to the
Employee Retirement Income Security Act of 1974 ("ERISA"). Therefore, in lieu of
the requirements of Items 1-3 of Form 11-K, the financial statements of net
assets available for the benefits of the Plan as of December 31, 2002 and 2001,
and the changes in net assets available for benefits for the year ended
December 31, 2002, have been prepared in accordance with the financial reporting
requirements of ERISA.
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
UNITED-LAFAYETTE 401(k) PROFIT SHARING PLAN
By: The United-Lafayette 401(k) Profit Sharing Plan Retirement Committee
July 14, 2003 /s/ John A. Rife
--------------------------
John A. Rife
Chief Executive Officer
UNITED-LAFAYETTE 401(k) PROFIT SHARING PLAN
TABLE OF CONTENTS
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PAGE
REPORT OF INDEPENDENT AUDITORS 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits,
December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Benefits,
for the Year Ended December 31, 2002 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULE:
Form 5500, Schedule H, Part IV, Line 4i - Schedule of Assets (Held at End of Year) 9
EXHIBITS 10
REPORT OF INDEPENDENT AUDITORS
The Trustees and Participants of
United-Lafayette 401(k) Profit Sharing Plan
We have audited the accompanying statement of net assets available for benefits
of United-Lafayette 401(k) Profit Sharing Plan as of December 31, 2002, and the
related statement of changes in net assets available for benefits for the year
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of United-Lafayette
401(k) Profit Sharing Plan as of and for the year ended December 31, 2001, were
audited by other auditors whose report, dated October 9, 2002, expressed a
limited scope opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan at
December 31, 2002, and the changes in its net assets available for benefits for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental schedule of
assets (held at end of year) as of December 31, 2002, is presented for purposes
of additional analysis and is not a required part of the financial statements,
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Ernst & Young LLP
July 14, 2003
Chicago, Illinois
1
UNITED-LAFAYETTE 401(k) PROFIT SHARING PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
-------------------------------------------------------------------------------
2002 2001
-------------- ------------
ASSETS
Investments:
Participant-directed investments, at fair value $14,313,789 $14,163,221
Participant-directed investments, at contract value - 201,369
Participant loans 123,998 94,075
-------------- -----------
Total investments 14,437,787 14,458,665
Non-interest bearing cash 68,895 121,984
-------------- -----------
Total assets 14,506,682 14,580,649
LIABILITIES 162 14,088
-------------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $14,506,520 $14,566,561
============== ===========
See accompanying notes to financial statements
2
UNITED-LAFAYETTE 401(k) PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
ADDITIONS:
Interest and dividends $ 305,707
Contributions:
Participant 2,136,902
Rollover 243,084
-------------
Total contributions 2,379,986
-------------
Total additions 2,685,693
DEDUCTIONS:
Withdrawals 1,151,341
Net depreciation on fair value of investments 1,593,518
Administrative expenses 875
-------------
Total deductions 2,745,734
-------------
NET DECREASE IN NET ASSETS AVAILABLE FOR BENEFITS (60,041)
NET ASSETS AVAILABLE FOR BENEFITS
AT BEGINNING OF YEAR 14,566,561
-------------
NET ASSETS AVAILABLE FOR BENEFITS
AT END OF YEAR $ 14,506,520
=============
See accompanying notes to financial statements
3
UNITED-LAFAYETTE 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS,
DECEMBER 31, 2002
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1. DESCRIPTION OF PLAN
The following description of the United-Lafayette 401(k) Profit Sharing
Plan (the "Plan") provides only general information. Participants should
refer to the Plan agreement for a more complete description of the Plan's
provisions.
General - The Plan is a defined contribution plan covering all employees
of United Fire & Casualty Company and its following subsidiaries: United
Life Insurance Company; Lafayette Insurance Company; Insurance Brokers
and Managers, Inc.; United Fire Group Foundation; Addison Insurance
Company; Texas General Indemnity Company, American Indemnity Company,
United Fire & Indemnity Company, United Fire Lloyds, and American
Indemnity Financial Corporation (collectively the "Companies"), who have
at least one hour of service and have attained age 21 or older. The Plan
is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA").
Contributions - Each year, participants may elect to contribute up to an
annual dollar limitation, of their eligible compensation to the Plan
through salary reduction. The Plan provides for payments by the
participating employers to the Plan in such amounts as the Board of
Directors of each of the Companies shall direct. No payments by
participating employers have been made since the inception of the Plan.
Participant Accounts - Individual accounts are maintained for each Plan
participant. Each participant's account is credited with the
participant's contribution and allocations of (a) the Companies'
discretionary contributions and (b) Plan earnings, and charged with an
allocation of Plan losses. Allocations are based on participant earnings
(losses) or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
Participants direct the investment of employer and participant
contributions into various investment options offered by the Plan.
Participants may change their investment options daily. The Plan
currently offers fifteen mutual funds, a common collective trust, United
Fire & Casualty Company common stock and a self-directed account in which
participants have access to a money market account, nine mutual funds and
common stocks offered by The Charles Schwab Trust Company. United Fire &
Casualty Company common stock can be purchased twice a month with new
contributions or by transferring a portion of existing Plan balances.
Vesting - Participants are immediately vested in their voluntary
contributions plus actual earnings (losses) thereon. Vesting in the
remainder of his/her account is based on years of continuous service with
full vesting after two years. A participant with less than two years of
credited service is 0% vested except in the event of the participant's
death or disability while employed by the Companies, at which time the
participant becomes 100% vested. After two years of credited service,
participants are 100% vested.
Forfeitures - Upon termination, the nonvested portion of a participant's
account balance is forfeited. Forfeitures are to be used to first reduce
the Plan's ordinary and necessary administrative expenses for the Plan
year and then reduce the employer contributions for the Plan year. There
were no forfeited invested balances included in the Plan's net assets
available for benefits at December 31, 2002 and 2001.
Participant Loans - Participants may borrow from their accounts a minimum
of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of
their vested account balance. Loan terms range from 1-5 years, except for
the purpose of acquiring the person's personal residence for which the
term is commensurate with local prevailing terms, as determined by the
Companies. The loans are secured by the balance in the participant's
account and bear interest at a rate determined at the time of each loan
by the Plan administrator. Principal and interest is paid ratably through
semi-monthly payroll deductions.
Payment of Benefits - Upon termination of service, a participant may
elect to receive either a direct rollover or a lump-sum amount equal to
the value of their vested accounts; installment payments over a fixed
period of time not to exceed the participant's life expectancy or the
joint life expectancy of the participant and the participant's designated
beneficiary; or payments from a joint and survivor annuity purchased by
the Plan. Prior to separation from service, participants may elect a
hardship distribution in accordance with Plan policy.
Administrative Expenses - The Plan's administrative expenses are paid by
either the Plan or the Companies, as provided by the Plan document. The
Companies paid principally all administrative expenses for 2002.
4
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting - The financial statements of the Plan are prepared on
the accrual basis of accounting in accordance with accounting principles
generally accepted in the United States.
Valuation of Participant-Directed Investments at Fair Value and Participant
Loans - Investments in mutual and pooled funds are stated at fair value
based upon quoted market prices reported on recognized securities exchanges
on the last business day of the year, which represents the net asset values
of shares held by the Plan at year-end. The fair value of the participation
units owned in the common trust fund is based on quoted redemption values
on the last business day of the plan year. Purchases and sales of
securities are recorded on a trade-date basis. Investments in money market
funds and participant loans are stated at cost, which approximates fair
value. Interest income is recorded on the accrual basis of accounting.
Valuation of Participant-Directed Investments at Contract Value - The
Plan's investment in a pooled separate account with Hartford Life Insurance
Company ("Hartford") consisted of stable value pooled investment contract
funds. The account was fully benefit responsive and was valued at contract
value. The account had been established for the purpose of maintaining
contributions and allocating investments. The account's interest was the
sum of all contributions, investment gains and interest, less any
withdrawals, fees and investment losses. The accumulation unit value was
determined by dividing the value of investments less administrative
expenses by the total number of accumulation units. The average annual
yield for these investments was 5.88% during 2001.
In June 2001, the Plan notified Hartford of its intent to discontinue the
contract. The discontinuance became effective 15 days after notification.
On and after the discontinuance date, no further contributions were made to
the fund or further withdrawals made from the fund. In June 2002, Hartford
processed a withdrawal of discontinuance and distributed such amounts in
accordance with the terms of the contract.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of net assets available for benefits and changes therein during the
reporting period. Actual results could differ from those estimates.
The Plan offers various investment instruments to its participants.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit, and overall market volatility. Due to the level of
risk associated with certain investment securities, is it reasonably
possible that changes in the values of investment securities will occur in
the near term and that such changes could materially affect the amounts
reported in the financial statements.
Withdrawals - Participant withdrawals are recorded upon distribution.
Amounts allocated to accounts of persons who have elected to withdraw from
the Plan but have not yet been paid were $108 and $45,116 at December 31,
2002 and 2001, respectively.
5
3. INVESTMENTS
The Charles Schwab Trust Company is trustee of the Plan and custodian of
the Plan's assets. Hartford Life Insurance Company served as custodian of
the Plan's assets that were held in the pooled separate account.
The Plan's investments that represented five percent or more of the Plan's
net assets available for benefits as of December 31, 2002 and 2001 are as
follows:
Identity of Issuer Description of Investment Shares 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc.* Schwab S&P 500 Investment Shares 55,475 shares at December 31,
2002; $ 751,126 $ 948,128
53,627 shares at December 31,
2001
First Eagle Fund of America Inc. First Eagle Fund of America 37,813 shares at December 31,
2002; 757,007 740,705
34,324 shares at December 31,
2001
Gartmore Morley Financial 202,026 shares at December 31,
Services, Inc. Morley Stable Value Fund 2002; 3,377,142 2,477,465
156,007 shares at December 31,
2001
41,765 shares at December 31,
Selected Funds Selected American Shares 2002; 1,065,429 1,203,073
38,821 shares at December 31,
2001
Strong Government Securities 281,156 shares at December 31,
Strong Investments Inc. Fund 2002; 3,132,078 2,903,897
269,129 shares at December 31,
2001
37,932 shares at December 31,
Weitz Securities, Inc. Weitz Value Portfolio 2002; 1,059,056 1,195,377
34,861 shares at December 31,
2001
40,211 shares at December 31,
Artisan Funds Artisan International Fund 2001 - 738,281
Van Kampen Funds, Inc. Van Kampen Emerging Growth 18,269 shares at December 31,
Fund Class A 2001 - 773,142
One Group Dealer Services, Inc. One Group Mid Cap Growth 40,304 shares at December 31,
Fund Class A 2001 - 848,390
30,862 shares at December 31,
The Janus Funds Janus Olympus Fund 2001 - 859,499
*Indicates a party-in-interest to the Plan.
6
During 2002, the Plan's investments (including investments bought, sold and
held during the year) appreciated (depreciated) in fair value, as follows:
Net Unrealized
Identity of Issuer, Borrower Appreciation
Lessor or Similar Party Description of Investment Fair Value (Depreciation)
------------------------------------------------------------------------------------------------------------------
Artisan Funds Artisan International Fund $ 652,848 $ (177,752)
Century Shares Trust Co. Century Shares Trust 176,028 (45,586)
Cohen & Steers Capital Mgmt. Cohen & Steers Realty 97,309 (2,392)
Columbia Funds Columbia High Yield Fund CL Z 65,576 (1,410)
Dodge & Cox Fund Dodge & Cox Balanced Fund 338,496 (27,233)
First Eagle of America, Inc. First Eagle Fund of America 757,007 (18,050)
Gabelli Asset Management, Inc. Gabelli Westwood Balanced 169,596 (19,559)
Gartmore Morley Financial Services Morley Stable Value Fund 3,377,142 205,368
ING Fund Distributor, Inc. ING Int'l Small Cap Growth 601,901 (183,050)
The Janus Funds Janus Olympus Fund 606,059 (283,022)
One Group Dealers Services, Inc. One Group Mid Cap Growth Fund 714,976 (127,576)
Selected Funds Selected American Shares 1,065,429 (213,788)
Strong Investments Strong Government Securities Fund 3,132,078 94,573
Van Kampen Funds, Inc. Van Kampen Emerging Growth Fund 551,876 (335,115)
Weitz Securities, Inc. Weitz Value Portfolio 1,059,056 (219,152)
Charles Schwab & Co., Inc.* Schwab S & P 500 Investment Shares 751,126 (224,867)
Charles Schwab & Co., Inc.* Schwab Retirement Money Fund 450 -
United Fire & Casualty Company* United Fire & Casualty Company 63,722 (2,541)
Charles Schwab & Co., Inc.* Schwab - Personal Choice Accounts 133,114 (12,366)
----------------------------------------
Total participant-directed investments at fair value $14,313,789 $(1,593,518)
========================================
*Indicates a party-in-interest to the Plan.
7
4. PLAN TERMINATION
Although it has not expressed any intention to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions set forth in ERISA. In the
event of any termination of the Plan, or upon complete of partial
discontinuance of contributions, the accounts of each affected participant
become fully vested.
5. TRUSTEE CERTIFICATION
The following is a summary of the 2001 unaudited information regarding the
Plan, as included in the Plan's 2001 financial statements and supplemental
schedules, that was prepared by or derived from information prepared by The
Charles Schwab Trust Company, trustee of the Plan, and Hartford Life
Insurance Company, custodian of the pooled separate account, furnished to
the Plan Administrator. The Plan Administrator has obtained certifications
from the trustee and custodian that the information is complete and
accurate:
2001
----
Statements of net assets available for benefits:
Investments at contract value $ 201,369
Investments at fair value (including cash and cash equivalents) 14,285,205
The above figures include all 2001 investments that exceeded 5 percent or
more of the Plan's net assets (as displayed in Note 3).
6. FEDERAL INCOME TAX STATUS
The Plan obtained its latest determination letter dated March 2, 1995, in
which the Internal Revenue Service stated that the Plan, as then designed,
was in compliance with the applicable requirements of the Internal Revenue
Code. The Plan has been amended since receiving that letter; however, the
Company believes the Plan as designed is in compliance with the applicable
requirements of the Internal Revenue Code. Therefore, no provision for
income tax has been included in the Plan's financial statements.
7. SUBSEQUENT EVENTS
Effective January 1, 2003, the Plan was amended to comply with rules and
regulations contained in the Economic Growth and Tax Relief Reconciliation
Act of 2001. The provisions of the amendment increased eligible annual
compensation in accordance with Internal Revenue Service regulations,
modified restrictions pertaining to employee loans, rollovers,
distributions and benefit requirements, and incorporated and defined
additional terms to the Plan.
8
UNITED-LAFAYETTE 401(k) PROFIT SHARING PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF
YEAR)
DECEMBER 31, 2002
Identity of Issuer, Borrower Current
Lessor or Similar Party Description of Investment Shares Value
-----------------------------------------------------------------------------------------------------------------------
Mutual Funds
------------
Artisan Funds Artisan International Fund 44,141 $ 652,848
Century Shares Trust Co. Century Shares Trust 5,881 176,028
Cohen & Steers Capital Mgmt. Cohen & Steers Realty 2,245 97,309
Columbia Funds Columbia High Yield Fund CL Z 7,835 65,576
Dodge & Cox Fund Dodge & Cox Balanced Fund 5,572 338,496
First Eagle of America, Inc. First Eagle Fund of America 37,813 757,007
Gabelli Asset Management, Inc. Gabelli Westwood Balanced 16,977 169,596
ING Fund Distributor, Inc. ING Int'l Small Cap Growth 30,140 601,901
The Janus Funds Janus Olympus Fund 30,303 606,059
One Group Dealers Services, Inc. One Group Mid Cap Growth Fund 42,558 714,976
Selected Funds Selected American Shares 41,765 1,065,429
Strong Investments Strong Government Securities Fund 281,156 3,132,078
Van Kampen Funds, Inc. Van Kampen Emerging Growth Fund 19,529 551,876
Weitz Securities, Inc. Weitz Value Portfolio 37,932 1,059,056
Charles Schwab & Co., Inc.* Schwab S & P 500 Investment Shares 55,475 751,126
Charles Schwab & Co., Inc.* Schwab Retirement Money Fund 450 450
Common Collective Trust
-----------------------
Gartmore Morley Financial Services Morley Stable Value Fund 202,026 3,377,142
Common Stock
------------
United Fire & Casualty Company* United Fire & Casualty Company 1,905 63,722
Personal Choice Retirement Accounts
-----------------------------------
Charles Schwab & Co., Inc.* Schwab - Personal Choice Accounts 133,114
------------
Total participant-directed investments at fair value 14,313,789
Participant loans (maturing 2003 through 2017 at interest rates ranging from 7% - 14%) 123,998
------------
Total assets held for investment purposes $ 14,437,787
============
*Indicates a party-in-interest to the Plan.
9
Index to Exhibits
Exhibit
Number Description
--------- --------------------------------------------------------------------
23 Consent of Ernst & Young LLP, Independent Auditors
99.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
10