SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-18298
UNITRIN, INC. 401(K) SAVINGS PLAN
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A. (Full Title of Plan)
Unitrin, Inc.
One East Wacker Drive
Chicago, IL 60601
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B. (Name and Address of Issuer of Securities Held Pursuant to Plan)
Required Information
Pursuant to the section of the General Instructions to Form 11-K entitled
"Required Information," this Annual Report on Form 11-K for the fiscal year
ended December 31, 2002, consists of the audited financial statements of the
Unitrin, Inc. 401(k) Savings Plan for the year ended December 31, 2002, and the
related schedule thereto. The Unitrin, Inc. 401(k) Savings Plan is subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
in accordance with Item 4 of the section of the General Instructions to Form
11-K entitled "Required Information," the financial statements and schedule
furnished herewith have been prepared in accordance with the financial reporting
requirements of ERISA, in lieu of the requirements of Items 1-3 of that section
of the General Instructions. Schedules I, II and III are not submitted because
they are either not applicable, the required information is included in the
financial statements or notes thereto, or they are not required under ERISA.
Pages
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Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits as of December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Plan Benefits for the Year Ended December 31, 2002 3
Notes to the Financial Statements 4-8
Schedule of Assets (Held at End of Year) as of December 31, 2002 9
Independent Auditors' Report
To the Plan Administrative Committee
Unitrin, Inc. 401(k) Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Unitrin, Inc. 401(k) Savings Plan (the "Plan") as of December
31, 2002 and 2001, and the related statement of changes in net assets available
for plan benefits for the year ended December 31, 2002. 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 of America. 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, such financial statements present fairly, in all material
respects, the net assets available for plan benefits of the Plan as of December
31, 2002 and 2001, and the changes in net assets available for plan benefits for
the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
Our audits were conducted 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 the
purpose of additional analysis and is not a required part of the basic 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, as amended. This supplemental schedule
is the responsibility of the Plan's management. Such schedule has been subjected
to the auditing procedures applied in our audit of the basic 2002 financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic 2002 financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Chicago, Illinois
June 13, 2003
Unitrin, Inc. 401(k) Savings Plan
Statements of Net Assets Available for Plan Benefits
As of December 31, 2002 and 2001
(Dollars in Thousands)
2002 2001
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Assets
Investments (See Note 3) $163,091 $168,354
Employer Contribuions Receivable 276 249
Participant Contribuions Receivable 1,058 1,029
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Total Assets 164,425 169,632
Other Liabilities 194 -
-------- --------
Net Assets Available for Plan
Benefits $164,231 $169,632
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The Notes to the Financial Statements are an integral part of these financial
statements.
2
Unitrin, Inc. 401(k) Savings Plan
Statement of Changes in Net Assets Available for Plan Benefits
For the Year Ended December 31, 2002
(Dollars in Thousands)
Additions to Net Assets Attributed to:
Employer Contributions $ 4,166
Participant Contributions 16,355
Transfers in from Other Benefit Plan (See Note 6) 8,168
Interest from Participant Loans 635
Dividends from Common Stock 650
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Total Additions to Net Assets 29,974
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Deductions From Net Assets Attributed to:
Net Depreciation in Fair Value of Investments 21,550
Benefits Provided to Participants 13,507
Investment Expenses 318
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Total Deductions from Net Assets 35,375
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Change in Net Assets Available
for Plan Benefits (5,401)
Net Assets Available for Plan
Benefits, Beginning of the Year 169,632
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Net Assets Available for
Plan Benefits, End of the Year $ 164,231
=========
The Notes to the Financial Statements are an integral part of these financial
statements.
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UNITRIN, INC. 401(k) SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Basis of Presentation
The financial statements of the Unitrin, Inc. 401(k) Savings Plan (the "Plan")
included herein have been prepared on an accrual basis under accounting
principles generally accepted in the United States of America ("U.S. GAAP").
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and changes therein and disclosure of contingent assets
and liabilities. Actual results could differ from those estimates. 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, it is reasonably possible that changes in values
of investment securities will occur in the near term and that such changes could
materially affect the amounts reported in the financial statements.
Significant Accounting Policies
Investments, except for loans to participants, are stated at fair value. Loans
to participants are stated at unpaid principal balances. Shares of mutual funds
are valued at the net asset value of the shares held by the Plan. Fair values of
common stock trusts are estimated using quoted market prices of the underlying
common stock.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on an accrual basis. Dividend income is recorded on the
ex-dividend date.
Benefits provided to participants are recorded when incurred. Account balances
of participants who have elected to withdraw from the Plan, but had not been
paid were not material at December 31, 2001.
Note 2 - Plan Description
The Plan is a defined contribution plan, which is available to employees of
Unitrin, Inc. ("Unitrin" or the "Company") and certain of its subsidiaries
(collectively, the "Companies") and is subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Employees of the
Companies generally become eligible to participate in the Plan on the first day
of the month following the employee's first full month of employment.
Employees of the Companies generally become eligible to receive the Unitrin
matching contribution following the employee's first full year of employment.
4
Note 2 - Plan Description (continued)
Subject to Internal Revenue Code (the "Code") limitations, participants are
allowed to defer and contribute between 1% and 60% of their compensation to the
Plan. Depending upon a participant's job classification and employer, Unitrin
either provides (i) a monthly matching contribution of 50% of the first 6% of
compensation contributed by the participant or (ii) an annual matching
contribution of 100% of the first $100 contributed by the participant and 50% of
the next $400 contributed by the participant. For participants hired after
January 1, 1997, Company contributions were 100% vested after 5 years of
employment at December 31, 2001. Effective January 1, 2002, for participants who
complete one hour of service on or after January 1, 2002, Company contributions
will be 100% vested after 3 years of employment.
The Plan provides for 100% vesting of Company contributions in the event of a
Change of Control as defined in the Plan. Subject to certain limitations,
participants are permitted to invest in certain investment funds sponsored by
the Capital Amvescap group of companies, Janus, PIMCO Funds, The Dreyfus
Corporation ("Dreyfus"), Fidelity Investments, the Unitrin Common Stock Trust,
the Curtiss-Wright Corporation Common Stock Trust and in the White Mountains
Stock Trust. An individual account is maintained by Amvescap Retirement, Inc.
(formerly known as Invesco Retirement, Inc.), the Plan's recordkeeper, for each
participant and updated to reflect the participant's contributions, actual
investment income, and withdrawals. Each participant may suspend, resume, or
change the rate of contribution and withdraw all or a portion of the
participant's vested account balance at any time, subject to certain
restrictions. In addition, participants may borrow from their accounts, subject
to certain limitations, at prevailing interest rates as determined by the Plan
administrator.
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 ERISA. Should the Plan be terminated at some future
date, all participants become 100% vested in benefits earned as of the Plan
termination date.
Effective January 1, 2001, the Plan document was restated to reflect the
accumulation of all amendments made between August 1, 1999 and December 31,
2001. On December 30, 2002, the Plan was amended to reflect the provisions of
the Economic Growth and Tax Relief Reconciliation Act of 2001 applicable to the
Plan. Additionally, on December 30, 2002, the Plan was amended to provide for
the immediate eligibility of all former employees of Kemper Insurance Companies
("KIC") who were employed by KIC as of December 31, 2002 and subsequently hired
by the Company. The amendment further provided for recognition of, for vesting
and eligibility purposes, a KIC employee's past service with KIC. A more
detailed description of the Plan provisions is found in the formal Plan document
and in summary materials distributed to Plan participants.
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Note 3 - Investments
All investments are directed by participants and held by the Plan's Trustee,
Amvescap National Trust Co. Investments that represent 5 percent or more of the
Plan's net assets at December 31, 2002 and 2001 were:
(Dollars in Thousands)
December 31,
-----------------
Investment 2002 2001
--------------------------------- ------- -------
Invesco Total Return $ 9,685 $10,322
IRT 500 Index 9,411 10,980
IRT Stable Value 57,310 50,708
AIM Premier Equity 13,546 20,228
Dreyfus Appreciation Fund, Inc. 19,153 22,403
Unitrin Common Stock Trust 11,817 14,287
Invesco Dynamics Fund N/A 9,157
PIMCO Total Return Institutional 11,540 N/A
During 2002, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year, and other fund or investment
company distributions) appreciated or depreciated in value as follows:
(Dollars in Thousands) Appreciation
Investment (Depreciation)
--------------------------------------------- --------------
Invesco Dynamics Fund $ (3,043)
Invesco Total Return (1,461)
IRT 500 Index (2,658)
IRT Stable Value 2,824
AIM Premier Equity (6,500)
Berger Small Cap Value (1,393)
PIMCO Total Return Institutional 881
Janus Overseas Fund (1,348)
Fidelity Advisor Growth Fund (1,157)
Dreyfus Appreciation Fund, Inc. (4,023)
Invesco Cash Reserve 15
Unitrin Common Stock Trust (4,033)
White Mountains Stock Trust (13)
Curtiss-Wright Corporation Stock Trust 359
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Net Depreciation in Fair Value of Investments $(21,550)
========
Additional information concerning the above listed investments is contained in
the prospectuses and financial statements of the funds.
6
Note 4 - Federal Income Tax Status
The Plan is exempt from income taxes under Section 401(a) of the Code. In
October 2002, the Plan obtained a favorable determination letter from the
Internal Revenue Service (the "IRS"). Subsequent to the receipt of the
determination letter, the Plan was amended (See Note 2). The Company believes
that the Plan is currently designed and operated in compliance with the
applicable requirements of the Code and the Plan and related trust continue to
be exempt from income taxes. Accordingly, no provision for income taxes has been
included in the accompanying financial statements.
Under Federal income tax statutes, regulations and interpretations, income taxes
on amounts that a participant accumulates in the Plan are deferred and therefore
not included in the participant's taxable income until those amounts are
actually distributed. Except for certain contributions made prior to April 1,
1993, contributions are considered pre-tax deposits and are not subject to
Federal income taxes at the time of contribution. Prior to April 1, 1993,
certain contributions were made on an after-tax basis and are not subject to
income tax when they are distributed to the participant because they have
already been taxed. A participant's account balance, except for after-tax
contributions made prior to April 1, 1993, is taxable income and generally is
taxed at ordinary income tax rates when distributed. However, favorable tax
treatment through special averaging provisions may apply to participants of a
certain age. An additional 10 percent Federal income tax penalty may be imposed
on all taxable income distributed to a participant unless the distribution meets
certain requirements contained within Section 72 of the Code.
Taxable distributions from the Plan generally are subject to a 20% Federal
income tax withholding unless directly rolled over into another eligible
employer plan or Individual Retirement Account. Distributions of Unitrin common
stock, Curtiss-Wright Corporation common stock and White Mountains common stock
generally are not subject to the 20% withholding, and special tax rules may
apply to the calculation of "net unrealized appreciation" on such stock.
If the Code and the Plan's requirements concerning loans to participants are
satisfied, the amount of the loan will not be treated as a taxable distribution.
If, however, the loan requirements are not satisfied and a default occurs, the
loan will be treated as a distribution from the Plan for Federal income tax
purposes, and the tax consequences discussed above for distributions may apply.
Interest paid on the loan is generally not tax deductible.
7
Note 5 - Related Parties
Participants are permitted to invest in certain investment funds sponsored by
the Capital Amvescap group of companies. The Plan's recordkeeper and custodian
are affiliates of the Capital Amvescap group of companies.
One of Unitrin's directors, Mr. Fayez Sarofim, is the Chairman of the Board,
President and majority shareholder of Fayez Sarofim & Co. ("FS&C"), a registered
investment advisory firm. FS&C is a sub-investment adviser of the Dreyfus
Appreciation Fund, Inc.
Plan assets at December 31, 2002 and 2001 included 404,416 shares and 361,506
shares of Unitrin common stock, respectively, at an aggregate fair value of
approximately $11.8 million and $14.3 million, respectively. For the year ended
December 31, 2002, the Plan recorded dividends of approximately $0.7 million
from participants' investments in the Unitrin Common Stock Trust.
Note 6 - Plan Merger
At December 31, 2001, Reserve National Insurance Company, a wholly-owned
subsidiary of the Company, was the sponsor of the Savings Incentive and Profit
Sharing Plan for Employees of Reserve National Insurance Company (the "Reserve
Plan"). Effective April 1, 2002, the Plan was amended to permit the Reserve Plan
to merge into the Plan, and accordingly, the Reserve Plan merged into the Plan.
During 2002, all related assets of the Reserve Plan, with a fair value of
approximately $8.2 million, were transferred to the Plan.
8
Unitrin, Inc. 401(k) Savings Plan
Schedule of Assets (Held at End of Year)
As of December 31, 2002
(Dollars in Thousands)
EIN #: 95-4255452
PLAN #: 003
Identity of Issuer,
Party-in- Borrower, Lessor Current
interest or Similar Party Description of Investment Value
--------- -------------------------------------- ----------------------------------- ----------
* Invesco Dynamics Fund Mutual Fund Shares $ 6,193
* Invesco Total Return Mutual Fund Shares 9,685
* IRT 500 Index Collective Trust 9,411
* IRT Stable Value Collective Trust 57,310
* AIM Premier Equity Mutual Fund Shares 13,546
Berger Small Cap Value Mutual Fund Shares 5,825
PIMCO Total Return Institutional Mutual Fund Shares 11,540
Janus Overseas Fund Mutual Fund Shares 4,049
Fidelity Advisor Growth Opportunities Mutual Fund Shares 4,154
* Dreyfus Appreciation Fund, Inc. Mutual Fund Shares 19,153
* Unitrin Common Stock Trust Common Stock 11,817
Curtiss-Wright Corporation Stock Trust Common Stock 1,269
White Mountain Stock Trust Common Stock 144
* Invesco Cash Reserve Mutual Fund Shares 1
* Participants Participant Loans (5.25% - 10.50% 8,994
Maturing 2002 to 2015)
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$ 163,091
==========
* This party is known to be a party-in-interest to the Plan.
9
Pursuant to the requirements of the Securities Exchange Act of 1934, Unitrin,
Inc., as plan administrator of the Unitrin, Inc. 401(k) Savings Plan, has duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
UNITRIN, INC. 401(k) SAVINGS PLAN
By: Unitrin, Inc.
/s/ Richard Roeske
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Richard Roeske
Vice President
June 25, 2003
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