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, 2001
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, 2001, consists of the audited financial statements of the
Unitrin, Inc. 401(k) Savings Plan for the year ended December 31, 2001, 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 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, 2001 and 2000 2
Statement of Changes in Net Assets Available for Plan
Benefits for the Year Ended December 31, 2001 3
Notes to the Financial Statements 4 - 8
Schedule of Assets (Held at End of Year)
as of December 31, 2001 9
Independent Auditors' Report
To the Plan Administrative Committee
Unitrin, Inc. 401(k) Savings Plan:
We have audited the accompanying statement of net assets available for plan
benefits of the Unitrin, Inc. 401(k) Savings Plan (the "Plan") as of December
31, 2001, and the related statement of changes in net assets available for plan
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 audit. Other auditors audited
the statement of net assets available for plan benefits of the Plan as of
December 31, 2000, whose report, dated June 12, 2001, expressed an unqualified
opinion on that statement.
We conducted our audit 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 audit provides 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, 2001, and the changes in net assets available for plan benefits for the year
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic 2001
financial statements taken as a whole. The accompanying supplemental 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 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. 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 2001 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/ Deloitte & Touche LLP
Chicago, Illinois
June 14, 2002
Unitrin, Inc. 401(k) Savings Plan
Statements of Net Assets Available for Plan Benefits
As of December 31, 2001 and 2000
(Dollars in Thousands)
2001 2000
------------ ------------
Assets
Investments (See Note 3) $ 168,354 $ 176,527
Other Assets 1,278 1,479
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Net Assets Available for Plan Benefits $ 169,632 $ 178,006
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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, 2001
(Dollars in Thousands)
Additions to Net Assets Attributed to:
Employer Contributions $ 3,347
Participant Contributions 14,239
Rollover Contributions 399
Interest and Dividends 6,819
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Total Additions to Net Assets 24,804
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Deductions From Net Assets Attributed to:
Net Depreciation in Fair Value of Investments 16,106
Benefits Paid to Participants 16,061
Spin-off of Plan Assets (Note 6) 711
Investment Expenses 300
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Total Deductions from Net Assets 33,178
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Change in Net Assets Available
for Plan Benefits (8,374)
Net Assets Available for Plan
Benefits, Beginning of the Year 178,006
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Net Assets Available for
Plan Benefits, End of the Year $ 169,632
=================
The Notes to the Financial Statements are an integral part of these financial
statements.
3
UNITRIN, INC. 401(k) SAVINGS PLAN
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2001 and 2000
Note 1 - Basis of Presentation
The financial statements 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 Unitrin, Inc. 401(k)
Savings Plan (the "Plan"). Fair values of investments are estimated using quoted
market prices.
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.
Benefit payments to participants are recorded when paid. Account balances of
participants who have elected to withdraw from the Plan, but had not been paid
were not material at December 31, 2001 and 2000.
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.
4
Note 2 - Plan Description (continued)
Subject to Internal Revenue Code (the "Code") limitations, participants are
allowed to defer and contribute between 1% and 15% of their compensation to the
Plan. Effective January 1, 1999 for certain plan participants, Unitrin began to
provide a monthly matching contribution of 50% of the first 6% of compensation
contributed by each participant. For all other plan participants, the Company
provides an annual matching contribution of 100% of the first $100 contributed
by each participant and 50% of the next $400 contributed by each 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, 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 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. A more detailed description of the Plan provisions is found in the formal
Plan document and in summary materials distributed to Plan participants.
5
Note 3 - Investments
All investments are directed by participants and held by the Plan's Trustee,
Institutional Trust Company. Investments are carried at fair value based on the
reported unit or share value of each investment. Investments that represent 5
percent or more of the Plan's net assets at December 31, 2001 and 2000 were:
(Dollars in Thousands)
December 31,
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Investment 2001 2000
----------------------------------- ------------ -------------
Invesco Total Return $ 10,322 $ 10,353
IRT 500 Index 10,980 13,390
IRT Stable Value 50,708 46,450
AIM Value 20,228 25,870
Dreyfus Appreciation Fund, Inc. 22,403 25,383
Unitrin, Inc. 14,287 13,806
Invesco Dynamics Fund 9,157 13,703
During 2001, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated or depreciated in
value as follows:
(Dollars in Thousands) Appreciation
Investment (Depreciation)
-------------------------------------------------- ----------------
Invesco Dynamics Funds $ (4,659)
Invesco Total Return (577)
IRT 500 Index (1,522)
IRT Stable Value -
AIM Value (3,433)
Berger Small Cap Value 201
PIMCO Total Return Fund (39)
Janus Overseas Fund (1,935)
Fidelity Advisor Growth Fund (907)
Dreyfus Appreciation Fund, Inc. (2,978)
Unitrin, Inc. (390)
White Mountains 61
Curtiss Wright Corporation 72
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Net Depreciation in Fair Value of Investments $ (16,106)
================
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
January 1996, 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 and is in process of seeking a
determination letter for the amended plan. On January 17, 2002, a letter seeking
favorable determination was filed with the IRS. 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 qualified 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 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, 2001 and 2000 included 361,506 shares and 339,821
shares of common stock of the Company, respectively, at an aggregate fair value
of approximately $14.3 million and $13.8 million, respectively. For the year
ended December 31, 2001, the Plan recorded dividends of approximately $0.6
million from participants' investments in the Company's common stock.
Note 6 - Spin-off of Plan Assets
Effective April 1, 2000, the Valley Group Employees' 401(k) Savings Plan (the
"Valley Plan") was merged into the Plan. On October 31, 2001 the Plan completed
the spin-off of the assets attributable to the accounts of certain inactive and
former participants in the Valley Plan to a 401(k) plan maintained by White
Mountains Insurance Group, Ltd.
Note 7 - Subsequent Events and Plan Merger
Effective January 1, 2002, the Plan has been amended to change the maximum
deferral limit from 15 percent to 60 percent of compensation.
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.
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, 2001
(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 $ 9,157
* Invesco Total Return Mutual Fund Shares 10,322
* IRT 500 Index Collective Trust 10,980
* IRT Stable Value Collective Trust 50,708
* AIM Value Mutual Fund Shares 20,228
Berger Small Cap Value Mutual Fund Shares 5,024
PIMCO Total Return Fund Mutual Fund Shares 5,239
Janus Overseas Fund Mutual Fund Shares 5,550
Fidelity Advisor Growth Fund Mutual Fund Shares 4,991
* Dreyfus Appreciation Fund, Inc. Mutual Fund Shares 22,403
* Unitrin, Inc. Common Stock 14,287
Curtiss Wright Corporation Common Stock 1,075
White Mountains Ins. Group. Ltd. Common Stock 184
* Invesco Cash Reserve Mutual Fund Shares 1
* Participants Participant Loans (6.0% - 10.5%) 8,198
Other Other 7
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$ 168,354
============
* 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, the Plan
Administrative Committee of the Unitrin, Inc. 401(k) Savings Plan has duly
caused this annual report to be signed on its behalf by Unitrin, Inc., which is
hereunto duly authorized.
UNITRIN, INC. 401(k) SAVINGS PLAN
By: Unitrin, Inc.
/s/ Richard Roeske
-----------------------------------
Richard Roeske
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
10