UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________
FORM 11-K
________________________________________________________________________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 2003
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
1
REQUIRED INFORMATION
The following financial statements and supplemental schedules for the
State Auto Insurance Companies Capital Accumulation Plan are being filed
herewith:
Financial Statements for the years ended December 31, 2003 and 2002,
and Supplemental Schedule for the year ended December 31, 2003
Report of Independent Registered Public Accounting Firm
Audited 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 exhibits are being filed herewith:
Exhibit No. Description
----------- -----------
1 Consent of Independent Registered Public Accounting Firm Included herein
2
Report of Independent Registered Public Accounting Firm
Plan Administrative 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,
2003 and 2002, and the related statement of changes in assets available for
benefits for the years 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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, 2003 and 2002, and the changes in assets available for benefits for
the years then ended, in conformity with U.S. generally accepted accounting
principles.
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, 2003 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
Columbus, Ohio
June 24, 2004
3
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
Statements of Assets Available for Benefits
DECEMBER 31
2003 2002
------------ -----------
Assets
Investments:
Shares of registered investment companies $ 99,720,718 73,368,432
Interest-bearing cash 12,174,623 14,051,438
Common /collective trusts 15,490,394 15,108,988
Affiliated stock 1,087,932 561,189
Loans to participants 2,422,456 2,466,686
------------ -----------
Total investments 130,896,123 105,556,733
Contribution receivables:
Employee - 11,000
Employer - 6,500
------------ -----------
Total receivables - 17,500
------------ -----------
Assets available for benefits $130,896,123 105,574,233
============ ===========
See accompanying notes.
4
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
Statements of Changes in Assets Available for Benefits
YEARS ENDED
DECEMBER 31
2003 2002
------------- -----------
Additions:
Interest and dividends $ 2,631,527 2,014,616
Contributions:
Employee 7,015,948 6,609,902
Employer 2,681,942 2,597,286
------------- -----------
Total contributions 9,697,890 9,207,188
Total additions 12,329,417 11,221,804
Deductions:
Benefit payments 6,858,337 6,228,766
Participant loan fees 16,258 16,031
------------- -----------
Total deductions 6,874,595 6,244,797
Net appreciation (depreciation)
in fair value of investments 19,867,068 (13,732,511)
------------- -----------
Net increase (decrease) 25,321,890 (8,755,504)
Assets available for benefits:
Beginning of year 105,574,233 114,329,737
------------- -----------
End of year $ 130,896,123 105,574,233
============= ===========
See accompanying notes.
5
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
Notes to the Financial Statements
December 31, 2003
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 Plan Document 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 January 1, 2004, to comply with recent
legislation, regulation and rulings. See "Contributions" and "Investment
Options."
CONTRIBUTIONS
Each participant may contribute any percentage of their salary between 1%
and 50% (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 3% to 6% are
matched at a rate of 50 cents for each dollar contributed. Participants can
change their rate of deferral as of any given pay date up to a maximum of four
times per calendar year. Participants may also suspend contributions at any
time. Participants may elect to make supplemental contributions in the form of
after tax salary deferrals. Total participant contributions may not exceed 50%
of salary.
Based on a provision of the Plan that became effective in January 2002, as
of January 1, 2004, all Plan participants who attain age 50 or older during the
calendar year, and are making the maximum Internal Revenue Code (the "Code")
pre-tax contribution, may make additional "Catch-up Contributions" each pay
period in any whole percentage amount of their compensation from 1% to 25%, up
to a dollar limitation on the amount of Catch-up Contribution established by
law.
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 three completed years of service.
Any employee terminating prior to three 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.
Any forfeitures of non-vested employer contributions and related net
earnings or losses reduce future employer contributions.
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.
6
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
Notes to the Financial Statements, Continued
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 vested 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.
INVESTMENT OPTIONS
Under the Plan trust agreement, participants may direct how their plan
contributions are to be invested. The following description of the investment
options provides only general information. Participants should refer to the Plan
document for a complete description of the investments.
Plan contributions may be invested in the following ten funds at December
31, 2003:
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.
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.
Effective January 1, 2004, Plan contributions may be invested in the
following additional six funds:
Fidelity Freedom Income Fund: Consists of Fidelity bond mutual funds and
Fidelity money market mutual funds, and a lesser percentage of Fidelity stock
mutual funds.
Fidelity Freedom 2000 Fund: Consists of Fidelity bond mutual funds and Fidelity
money market mutual funds and a lesser percentage of Fidelity stock mutual
funds.
Fidelity Freedom 2010 Fund: Consists of Fidelity stock mutual funds and Fidelity
bond mutual funds and a lesser percentage in Fidelity money market mutual funds.
The mix of underlying funds will gradually become more conservative over time.
Fidelity Freedom 2020 Fund: Consists of Fidelity stock mutual funds and a lesser
percentage of Fidelity bond mutual funds. The mix of underlying funds will
gradually become more conservative over time.
Fidelity Freedom 2030 Fund: Consists largely of Fidelity stock mutual funds and
a lesser percentage of Fidelity bond mutual funds. The mix of underlying funds
will gradually become more conservative over time.
Fidelity Freedom 2040 Fund: Consists primarily of Fidelity stock mutual funds
and a lesser percentage of Fidelity bond mutual funds. The mix of underlying
funds will gradually become more conservative over time.
ADMINISTRATIVE EXPENSES
All administrative expenses, excluding participant loan fees, and trustee
fees are paid by the Company.
7
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
Notes to the Financial Statements, Continued
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 10
years or, in the case of a retired participant, 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 U.S.
generally accepted accounting principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
VALUATION OF INVESTMENTS AND RELATED INVESTMENT INCOME
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, 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.
8
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
Notes to the Financial Statements, Continued
3. INVESTMENTS
The following investments, at fair value, represented 5% or more of assets
available for benefits as of December 31, 2003 and 2002:
DECEMBER 31
2003 2002
------------ ----------
Investments in shares of registered investment companies:
Fidelity Contrafund $ 37,691,937 28,424,895
Fidelity Equity Income Fund 28,520,842 20,823,057
Fidelity U.S. Government Reserves Fund 12,174,623 14,051,438
Fidelity Puritan Fund 10,980,664 8,527,111
Spartan U.S. Equity Index Fund 7,364,679 5,268,450
Investment in common/collective trusts:
Fidelity Managed Income Portfolio Fund $ 15,490,394 15,108,988
During 2003 and 2002, the Plan's investments (including investments bought and
sold, as well as held during the year) appreciated (depreciated) in value as
follows:
2003 2002
------------ -----------
Shares of registered investment companies $ 19,551,583 (13,732,511)
Affiliated stock 315,485 -
------------ -----------
Total realized and unrealized appreciation (depreciation) $ 19,867,068 (13,732,511)
============ ===========
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 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.
9
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, 2003
Current
Identity of Issue Shares Cost Value
----------------- ---------- ------------- ------------
Shares of Registered Investment Companies:
Fidelity Puritan Fund 594,313 $ 10,427,582 $ 10,980,664
Fidelity Contrafund 763,768 33,763,207 37,691,937
Fidelity Equity Income Fund 573,283 25,705,326 28,520,842
Fidelity Intermediate Bond Fund 293,276 3,084,042 3,126,317
Fidelity U.S. Government Reserves Fund 12,174,623 12,174,623 12,174,623
Fidelity Aggressive Growth Fund 430,202 12,407,453 6,424,412
Fidelity Diversified International Fund 232,664 4,963,359 5,611,867
Spartan U.S. Equity Index Fund 186,873 7,326,809 7,364,679
Investment in common/collective trusts:
Fidelity Managed Income Portfolio Fund 15,490,394 15,490,394 15,490,394
Affiliated Stock
* State Auto Financial Corporation Common Stock Fund 46,612 808,130 1,087,932
Participant Loan Fund (interest rates 3.25% to 10.50%) - - 2,422,456
------------- ------------
Totals $ 126,150,925 $ 130,896,123
============= =============
* Indicated a party-in-interest to the Plan.
10
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: June 24, 2004 By /s/ Steven J. Johnston
-----------------------------------------
Printed Name: Steven J. Johnston
Title: Sr. Vice President and CFO
11
EXHIBIT INDEX
Exhibit No. Description
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1 Consent of Independent Registered Public Accounting Firm Included herein
12