SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001
OR
[ ] 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: 333-56336
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
State Auto Insurance Companies Capital Accumulation Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
State Auto Financial Corporation
518 East Broad Street
Columbus, Ohio 43215-3976
REQUIRED INFORMATION
The following financial statements and supplemental schedules for the State
Auto Insurance Companies Capital Accumulation Plan are being filed herewith:
Financial Statements and Supplemental Schedule:
- -----------------------------------------------
December 31, 2001 and 2000 and the year ended December 31, 2001
- ---------------------------------------------------------------
Report of Independent Auditors
Financial Statements:
Statements of Assets Available for Benefits
Statement of Changes in Assets Available for Benefits
Notes to Financial Statements
Supplemental Schedule:
Schedule of Assets (Held at End of Year)
The following exhibit is being filed herewith:
Exhibit No. Description
- ----------- -----------
1 Consent of Ernst & Young LLP Included herein
Report of Independent Auditors
To the Plan Advisory Committee
State Auto Insurance Companies Capital Accumulation Plan
We have audited the accompanying statements of assets available for benefits of
the State Auto Insurance Companies Capital Accumulation Plan as of December 31,
2001 and 2000, and the related statement of changes in assets available for
benefits for the year ended December 31, 2001. 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 audits.
We conducted our audits 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 that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for benefits of the Plan as of
December 31, 2001 and 2000, and the changes in assets available for benefits for
the year ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying schedule of assets (held at end of
year) as of December 31, 2001 is presented for the purpose 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. The supplemental schedule has been subjected to the
auditing procedures applied in our audits of the financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
July 10, 2002,
except for Note 4, as to which the date is
August 16, 2002
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS
December 31,
-----------------------------------------
2001 2000
----------------- -----------------
Assets
Investments:
Shares of registered investment companies $ 86,175,336 $ 85,845,331
Interest-bearing cash 12,002,060 10,608,295
Common /collective trusts 12,982,969 6,477,913
Affiliated stock 430,230 -
Loans to participants 2,657,113 2,034,182
----------------- -----------------
Total investments 114,247,708 104,965,721
Contribution receivables:
Employee 56,451 -
Employer 25,578 -
----------------- -----------------
Total receivables 82,029 -
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Assets available for benefits $ 114,329,737 $ 104,965,721
================= =================
See accompanying notes.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
STATEMENT OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2001
Additions:
Net depreciation in fair value of investments $ (12,958,905)
Interest and dividends 2,726,734
-----------------
(10,232,171)
Contributions:
Employer 1,955,998
Employee 5,413,837
Transfer of fund assets from plan merger 17,190,878
-----------------
24,560,713
Total additions 14,328,542
Deductions:
Benefit payments 4,942,196
Participant loan fees 22,330
-----------------
4,964,526
Net increase 9,364,016
Assets available for benefits:
Beginning of year 104,965,721
-----------------
End of year $ 114,329,737
=================
See accompanying notes.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001
1. DESCRIPTION OF THE PLAN
ORGANIZATION
The State Auto Insurance Companies Capital Accumulation Plan (the Plan), a
defined-contribution plan, was adopted effective June 1, 1982, by State
Automobile Mutual Insurance Company and its affiliates (the Company) for the
purpose of providing a savings plan for the benefit of its employees.
The following description of the Plan provides only general information.
Participants should refer to the Summary Plan Description for a complete
description of the Plan.
GENERAL
An employee of the company is eligible to participate in the Plan as of the
first pay period subsequent to thirty days after the employee's hire date,
provided the employee is or will attain age 21 during the calendar year
following the employee's hire date.
The Plan was amended and restated effective January 1, 1997 including subsequent
amendments through October 1, 2001 to meet the requirements of the Small
Business Job Protection Act and subsequent legislation, regulation and rulings.
On June 1, 2001, the Company merged with Meridian Insurance Group, Inc. On
August 13, 2001, the Board of Directors of the Company voted to merge the
Meridian Insurance Group, Inc. 401(k) Plan (Meridian Plan) with the Plan.
Participant accounts were transferred from the Meridian Plan to the Plan on
October 1, 2001.
CONTRIBUTIONS
Each participant may contribute any full percentage of their salary between 1%
and 16% (basic contribution). Subject to certain limitations, the Company
matches the first 2% of basic contributions of participant salary at the rate of
75 cents for each dollar contributed; basic contributions of 2% to 6% are
matched at a rate of 50 cents for each dollar contributed. Participants can
change their rate of savings as of any given pay date up to a maximum of four
times per calendar year. Participants may also suspend contributions at any
time.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001
1. DESCRIPTION OF THE PLAN (CONTINUED)
The Plan also permits participants to make supplemental voluntary contributions
to the Plan subject to certain limitations. Supplemental contributions are not
eligible for matching contributions by the Company.
PARTICIPANT'S ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of a) the Company's contributions and b) Plan earnings, and is
charged with applicable participant loan fees. Allocations are based on
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's account. All administrative expenses and trustee fees are paid by
the Company.
INVESTMENT OPTIONS
Under the Fidelity trust agreement, participants may designate how their plan
contributions are to be invested.
Effective March 1, 2001, the Trustee was specifically authorized to maintain the
State Auto Financial Corporation Common Stock Fund as one of the Investment Fund
options.
Plan contributions may be invested in the following ten funds:
FIDELITY PURITAN FUND: Consists of a diversified portfolio of high-yielding
equity securities and bonds.
FIDELITY CONTRAFUND: Consists primarily of seemingly undervalued common
stocks and convertible securities with potential for market growth.
FIDELITY EQUITY INCOME FUND: Consists primarily of stocks which may pay a
higher than average dividend and stocks with potential for market growth.
FIDELITY U.S. GOVERNMENT RESERVES FUND: Consists of short-term instruments
issued by the U.S. Government and/or its agencies and repurchase agreements
secured by U.S. Government obligations.
FIDELITY MANAGED INCOME PORTFOLIO FUND: Consists primarily of high quality
short and long-term investment contracts. Investment contracts have both
variable and fixed rates.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001
1. DESCRIPTION OF THE PLAN (CONTINUED)
FIDELITY AGGRESSIVE GROWTH FUND: Consists primarily of equity securities of
companies with growth potential.
SPARTAN U.S. EQUITY INDEX FUND: Consists of equity securities that
correspond to those listed in the Standard & Poor's 500 Index.
FIDELITY INTERMEDIATE BOND FUND: Consists primarily of intermediate term,
investment grade debt securities of U.S. corporations and U.S. Government
Agencies.
FIDELITY DIVERSIFIED INTERNATIONAL FUND: Consists primarily of foreign
securities.
STATE AUTO FINANCIAL CORPORATION COMMON STOCK FUND: Consists of publicly
traded common stock of the State Auto Financial Corporation, an affiliate
to the Company. The stock is traded on the NASDAQ under the ticker symbol,
STFC.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum of the lesser of $50,000 or 50% of their account balance. Loan terms
range from 1-5 years or up to 10 years for the purchase of a primary residence.
The loans are secured by the balance in the participant's account and bear
interest at a rate commensurate with local prevailing rates as determined
quarterly by the Plan Administrative Committee. Principal and interest is paid
ratably through bi-weekly payroll deductions.
VESTING
Plan participants are immediately fully vested in employee contributions and
related net earnings or losses. Full vesting in employer contributions and
related net earnings and losses occurs upon five completed years of service. Any
employee terminating prior to five completed years of service vests in employer
contributions and related net earnings and losses at percentages set forth by
the Plan document.
In addition, employer contributions and related net earnings or losses are fully
vested upon retirement at age 65, death or total and permanent disability.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001
1. DESCRIPTION OF THE PLAN (CONTINUED)
Any forfeitures of nonvested employer contributions and related net earnings or
losses reduce future employer contributions.
PAYMENT OF BENEFITS
Upon termination of service, participants generally receive a lump-sum amount
equal to the value of their account less outstanding loan balances.
Alternatively, qualifying participants can elect to receive their account value
less outstanding loan balances in installments over a period not to exceed 15
years or over a period not to exceed normal life expectancy.
Participants may semiannually withdraw from their supplemental accumulated
contributions and, subject to certain conditions, participants may withdraw from
their accumulated basic and supplemental contributions based on financial
hardship. After participants have been in the plan for five years, and once
every two years thereafter, participants may withdraw the vested portion of
employer contributions credited to their account.
PLAN TERMINATION
While the Company has not expressed any intent to terminate the Plan or to
discontinue contributions, it is free to do so at any time, subject to the
provisions set forth in the Employee Retirement Income Security Act of 1974.
Should the Plan be terminated at some future time, all participants become 100%
vested in benefits earned as of the termination date.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting records of the Plan are maintained in conformity with accounting
principles generally accepted in the United States.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION
Investments are stated at fair value. The common/collective trust is valued
based on quoted redemption value on the last business day of the Plan year.
Shares of registered investment companies and shares of the State Auto Financial
Corporation Common Stock Fund are valued at quoted market prices that represent
the net asset values of shares held by the Plan at year end. Loans to plan
participants, which must be approved by the Plan Advisory Committee, are valued
at their outstanding balances, which approximate fair value.
INVESTMENT INCOME
Investment income, including appreciation and depreciation in fair value of
investments, is allocated to participant accounts daily based upon the ratio of
each participants account to the total fund balance.
3. INVESTMENTS
The following investments, at fair value, represented 5% or more of assets
available for benefits as of December 31, 2001 and 2000:
December 31
2001 2000
------------ ------------
Investments in shares of registered investment companies:
Fidelity Puritan Fund $ 9,152,913 $ 6,323,115
Fidelity Contrafund 32,237,442 33,985,539
Fidelity Equity Income Fund 25,199,972 23,092,208
Fidelity U.S. Government Reserves Fund 12,002,060 10,608,295
Spartan U.S. Equity Index Fund 7,102,444 6,261,237
Fidelity Aggressive Growth Fund 6,778,088 11,955,375
Investment in common/collective trusts
Fidelity Managed Income Portfolio Fund 12,982,969 6,477,913
During the year ended December 31, 2001, the net depreciation of $12,958,905 in
fair value of investments (including investments bought and sold, as well as
held during the year) was derived from the Plan's investments in shares of
registered investment companies.
54
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001
4. FEDERAL INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated August 16, 2002, stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The plan administrator
believes the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believes that the Plan is qualified and
the related trust is tax exempt.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
EIN # 31-4316080 /Plan # 004
December 31, 2001
Description of Current
Identity of Issue Investment Units Cost Value
- ----------------- ---------------- ---- -----
Shares of Registered Investment Companies:
Fidelity Puritan Fund 517,992 shares $ 9,306,659 $ 9,152,913
Fidelity Contrafund 753,740 shares 33,851,163 32,237,442
Fidelity Equity Income Fund 516,711 shares 23,405,430 25,199,972
Fidelity Intermediate Bond Fund 176,828 shares 1,778,195 1,824,868
Fidelity U.S. Government Reserves Fund 12,002,060 shares 12,002,060 12,002,060
Fidelity Aggressive Growth Fund 356,366 shares 14,038,870 6,778,088
Fidelity Diversified International Fund 203,334 shares 4,513,536 3,879,609
Spartan U.S. Equity Index Fund 174,765 shares 7,334,641 7,102,444
Investment in common/collective trusts:
Fidelity Managed Income Portfolio Fund 12,982,968 shares 12,982,969 12,982,969
Affiliated Stock
* State Auto Financial Corporation Common Stock Fund 26,492 shares 416,371 430,230
Participant Loan Fund Interest rates range from 4.75% to 6.00% - 2,657,113
----------- ------------
$119,629,894 $114,247,708
============ ============
* - Indicated a party-in-interest to the Plan.
SIGNATURES
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
thereunto duly authorized.
STATE AUTO INSURANCE COMPANIES
CAPITAL ACCUMULATION PLAN
Date: October 4, 2002 By /s/ Steven J. Johnston
-------------------------------------
Printed Name: Steven J. Johnston
--------------------------
Title: Sr. Vice President and CFO
---------------------------------
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1 Consent of Ernst & Young LLP Included herein