-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TC+8x4Fy0MhGhYotWMiDlEHltsnnH0x+xljzI95UuV6H90DcWAL7KMplP1+tRw9C mcI68anpINJAtayRsuhjjA== 0000277795-95-000010.txt : 19950516 0000277795-95-000010.hdr.sgml : 19950516 ACCESSION NUMBER: 0000277795-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEICO CORP CENTRAL INDEX KEY: 0000277795 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 521135801 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08012 FILM NUMBER: 95538684 BUSINESS ADDRESS: STREET 1: GEICO PLZ CITY: WASHINGTON STATE: DC ZIP: 20076 BUSINESS PHONE: 3019862027 10-Q 1 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Three Months Ended March 31, 1995 Commission File No 1-8012 GEICO CORPORATION Delaware 52-1135801 (Jurisdiction of Incorporation) (IRS Employer Identification No.) One GEICO Plaza, Washington, D.C. 20076 Registrant's Telephone No: (301) 986-3000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of April 30, 1995 Common Stock, $1.00 par value 67,889,574 Page 1 of 9 pages
FORM 10-Q - QUARTERLY REPORT PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GEICO CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS March 31, December 31, Investments: 1995 1994 Fixed maturities available for sale, at market (amortized cost $3,426,237,878 and $3,363,422,770) $ 3,420,827,497 $ 3,270,125,446 Equity securities available for sale, at market (cost $551,927,100 and $556,960,522) 865,279,478 782,708,006 Short-term investments 174,264,759 50,032,937 Total Investments 4,460,371,734 4,102,866,389 Cash 15,248,673 27,579,312 Loans receivable, net 54,904,293 59,448,297 Accrued investment income 55,755,515 67,254,744 Premiums receivable 248,928,414 238,652,876 Reinsurance receivables 127,244,649 127,189,085 Prepaid reinsurance premiums 8,956,779 10,361,216 Amounts receivable from sales of securities 6,335,415 2,022,214 Deferred policy acquisition costs 71,709,807 72,358,845 Federal income taxes 22,051,016 98,974,942 Property and equipment, at cost less accumulated depreciation of $119,039,044 and $113,612,108 141,205,030 141,741,242 Other assets 60,609,708 49,656,013 TOTAL ASSETS $ 5,273,321,033 $ 4,998,105,175 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Property and casualty loss reserves $ 1,752,734,635 $ 1,704,717,841 Loss adjustment expense reserves 313,288,718 307,606,072 Unearned premiums 774,723,388 747,342,502 Life benefit reserves and policyholders' funds 104,345,313 101,297,929 Debt: Corporate and other 404,011,002 340,378,156 Finance company 43,500,000 51,000,000 Amounts payable on purchase of securities 20,453,098 8,407,963 Other liabilities 285,715,122 291,414,052 Total Liabilities 3,698,771,276 3,552,164,515 SHAREHOLDERS' EQUITY Common Stock - $1 par value, 150,000,000 shares authorized, 71,596,409 and 71,565,359 issued, 67,989,159 and 68,291,463 outstanding 71,596,409 71,565,359 Paid-in surplus 170,984,667 169,083,940 Unrealized appreciation of investments 205,112,786 91,166,775 Retained earnings 1,373,975,561 1,330,021,435 Treasury Stock, at cost (3,607,250 and 3,273,896 shares of Common Stock) (183,460,481) (167,114,614) Unearned Employee Stock Ownership Plan shares (63,659,185) (48,782,235) Total Shareholders' Equity 1,574,549,757 1,445,940,660 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,273,321,033 $ 4,998,105,175
See Notes to Consolidated Financial Statements Page 2 of 9 pages
GEICO CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, 1995 1994 REVENUE Premiums $659,004,005 $587,540,733 Investment income, net of expenses of $2,538,556 and $2,349,688 55,298,808 48,421,495 Realized gains on investments 5,609,808 6,598,240 Interest on loans receivable 2,401,585 2,648,612 Other revenue 3,864,359 3,631,902 Total Revenue 726,178,565 648,840,982 BENEFITS AND EXPENSES Losses and loss adjustment expenses 531,001,384 493,492,533 Life benefits and interest on policyholders' funds 2,000,111 2,473,662 Policy acquisition expenses 51,430,475 49,994,636 Other operating expenses 57,059,150 55,849,383 Interest expense: Corporate and other 6,567,903 6,797,454 Finance company 770,129 659,409 Total Benefits and Expenses 648,829,152 609,267,077 Net income before income taxes 77,349,413 39,573,905 Federal income tax expense 15,109,134 3,413,633 Net income before cumulative effect of change in accounting principle 62,240,279 36,160,272 Cumulative effect of change in accounting principle for postemployment benefits, net of tax - (1,051,329) Net Income $ 62,240,279 $ 35,108,943 Earnings Per Share Net income before cumulative effect of change in accounting principle $ .91 $ .51 Cumulative effect of change in accounting principle - (.01) Net Income $ .91 $ .50 Dividends Per Share $ .27 $ .25 See Notes to Consolidated Financial Statements
Page 3 of 9 pages
GEICO CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, 1995 1994 Operating Activities: Net income $ 62,240,279 $ 35,108,943 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle for postemployment benefits, net of tax - 1,051,329 Net premiums receivable (10,275,538) (1,154,107) Deferred policy acquisition costs 649,038 1,685,392 Reinsurance receivables and prepaid reinsurance premiums 1,348,873 (7,349,082) Loss, life benefit and loss adjustment expense reserves 54,028,277 55,051,647 Unearned premiums 27,380,886 15,785,754 Federal income taxes 15,042,427 587,802 Realized gains (5,609,808) (6,598,240) Provision for depreciation 6,340,591 5,413,290 Accrual of discount and amortization of premiums on investments 3,594,107 4,801,692 Other 1,498,859 20,916,764 Net cash provided by operating activities 156,237,991 125,301,184 Investing Activities: Purchases of equity securities (69,456,530) (60,462,550) Purchases of fixed maturities (213,129,150) (340,514,702) Increase in payable on security purchases 12,045,135 74,777,402 Sales of fixed maturities 37,003,611 14,203,693 Maturities and redemptions of fixed maturities 109,919,991 181,516,074 Sales of equity securities 79,896,091 41,281,637 Net change in short-term investments (124,231,822) 22,208,504 Change in receivable from security sales (4,313,201) 33,007 Decrease in principal on loans receivable 4,864,844 5,198,580 Proceeds from sale of subsidiary - 9,686,024 Purchase of property and equipment, net (5,804,379) (8,103,760) Other 359,499 164,779 Net cash used by investing activities (172,845,911) (60,011,312) Financing Activities: Repayment of debt (375,000) (731,739) Net change in short-term borrowings 41,500,000 (6,000,000) Exercise of stock options 531,650 278,753 Purchase of Common Stock (Treasury) (20,641,966) (15,121,016) Dividends paid to shareholders (18,411,456) (17,664,057) Other 1,674,053 733,997 Net cash provided (used) by financing activities 4,277,281 (38,504,062) Change in cash (12,330,639) 26,785,810 Cash at beginning of period 27,579,312 18,361,546 Cash at end of period $ 15,248,673 $ 45,147,356 See Notes to Consolidated Financial Statements
Page 4 of 9 pages NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Basis of Presentation The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, the financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows. The information has been prepared from the records of GEICO Corporation (the Corporation) which are subject to audit at year-end by independent public accountants. The results of operations for the three months ended March 31, 1995 are not necessarily indicative of such results for the entire year. Consolidation The consolidated financial statements include the accounts of GEICO Corporation and its subsidiaries. Significant intercompany accounts and transactions have been eliminated. Income Taxes Federal income taxes in the statements of income are based on an estimated annual effective tax rate which reflects exclusion of tax-exempt interest income and the intercorporate dividends received deduction. Postemployment Benefits In the first quarter of 1994 the Corporation adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits." The cumulative effect of adopting this statement at January 1, 1994 was a charge of $1.1 million, net of tax, which was included in the statements of income as a change in accounting principle. Common Stock Repurchases During the first three months of 1995 the Corporation repurchased a net 333,354 shares of its Common Stock for $16.0 million. At March 31, 1995 there were 3,392,750 shares remaining under the current repurchase authorization. Earnings Per Share The computation of earnings per share is based on the weighted average number of common shares assumed outstanding of 68,078,823 and 70,849,517 for the three months ended March 31, 1995 and 1994, respectively. Subsequent Events On April 24, 1995 the Corporation issued $100 million of 7.5% notes due in 2005. In April 1995, Government Employees Financial Corporation sold $38 million of its remaining receivables and other assets and used the proceeds to reduce its short-term debt. Page 5 of 9 pages Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Consolidated premiums were $659,004,005 for the first quarter of 1995, up 12.2 percent from $587,540,733 in 1994, reflecting continued growth in voluntary auto lines and modest rate increases. The number of voluntary automobile policies in force grew 7.8 percent during the twelve month period ending March 31, 1995. Total voluntary policies in force (all lines) grew 4.8% in the same time period as homeowners policies have declined. Policy growth in the standard and nonstandard auto lines was 27.9 percent as efforts have been expanded to offer a rate quote to potential customers who do not meet GEICO/GEICO General preferred-risk underwriting guidelines. These lines currently have a modest premium base, but provide an opportunity for significant growth. New business homeowner insurance sales are less in 1995 than 1994. On April 4, 1995 GEICO announced an agreement with Aetna Fire and Casualty (Aetna) to phase out of GEICO's homeowners business over the next three years. New homeowners customers will be offered Aetna policies beginning at the end of July 1995. The great majority of GEICO's existing homeowners customers will be offered renewal policies in Aetna as their policies begin to expire after January 1, 1996. GEICO will act as the servicing agent for these policies. The agreement with Aetna should have little impact on 1995 financial results. Pre-tax net investment income increased 14.2 percent to $55,298,808 for the first quarter of 1995 from $48,421,495 in the first quarter of 1994. The increase is the result of higher yields on fixed income securities and additional funds from operations available for investment. After-tax net investment income for the three months increased 13.7 percent to $47.2 million from $41.5 million. Realized gains on investments were $5,609,808 for the first quarter of 1995 compared to realized gains of $6,598,240 in the first quarter of 1994. Realized gains are primarily from the sale of equity securities. Such gains are a result of financial market conditions and can therefore fluctuate widely from period to period. Interest on loans receivable decreased 9.3 percent to $2,401,585 for the three month period ended March 31, 1995 from the comparable prior year period as Government Employees Financial Corporation (GEFCO), our finance subsidiary, continues to reduce its loans receivable. In April 1995, GEFCO sold $38 million of its remaining receivables and other assets and used the proceeds to reduce its short-term debt. After this sale GEFCO has approximately $19 million of remaining assets. Losses and loss adjustment expenses incurred increased 7.6 percent to $531,001,384 for the three months ended March 31, 1995 over the comparable prior year period. The first quarter of 1994 was adversely impacted by severe winter weather which resulted in a significant increase in automobile claims frequency due to poor driving conditions and a high level of homeowners catastrophe freezing losses. Catastrophe losses for the first quarter of 1995 were approximately $3 million compared to $13 million in the first quarter of 1994. In response to concerns of the insurance industry and various consumer groups, the Florida Hurricane Catastrophe Fund became effective June 1, 1994. In return for an annual premium, 75% of homeowners losses in excess of $26 million (two times Florida homeowner yearly written premiums) are covered subject to a constraint of overall money available to the Fund. The second contract year of the Fund begins June 1, 1995 and terms of coverage may be modified. The Corporation's insurance subsidiaries currently have no other catastrophe reinsurance effective in any other states. Page 6 of 9 pages The Corporation's insurance subsidiaries reinsure excess risks on any single loss. GEICO's principal reinsurer for this coverage is General Reinsurance Corporation which is rated A++ (Superior) by A. M. Best. GEICO has also reinsured a significant portion of its commercial umbrella liability business which was written from 1981 to 1984. The largest anticipated amount recoverable for this coverage is from Constitution Reinsurance Corporation which is rated A+ (Superior) by A. M. Best. The statutory ratios of losses and loss adjustment expenses (LAE) incurred to premiums earned, underwriting expenses to written premiums, and underwriting ratios for the Corporation's property/casualty subsidiaries are shown below. Three Months Ended March 31, 1995 1994 Loss ratio 82.2% 85.4% Expense ratio 13.1% 14.1% Underwriting ratio 95.3% 99.5% The Corporation's reserves for losses and loss adjustment expenses include amounts for environmental and product liability claims on policies written by GEICO from 1981 to 1984 and by Resolute Reinsurance Company from 1982 to 1987. The Corporation believes that the ultimate resolution of its environmental and product liability claims will not have a material impact on the Corporation's financial position and results of operations. Policy acquisition expenses increased only 2.9 percent to $51,430,475 for the first three months of 1995 compared to $49,994,636 in 1994 and reflects a reduction in the general expense ratio in 1995. Other operating expenses increased 2.2 percent to $57,059,150 from $55,849,383. Other operating expenses for the first three months of 1995 and 1994 include $2.3 million and $5.2 million, respectively, of incentive compensation expense related to the significant overperformance of the Corporation's common stock portfolio compared to the S&P 500. Total interest expense for the first three months of 1995 decreased to $7,338,032 from $7,456,863 in 1994. The decline reflects the repayment of mortgage loans in the third quarter of 1994 partially offset by increased interest on short-term borrowings by the Corporation in the first quarter of 1995. Net income before income taxes was $77,349,413 in the first three months of 1995 compared to $39,573,905 for the comparable period in 1994. The increase primarily reflects increased underwriting gain from insurance operations and increased investment income. For the first three months of 1995 income tax expense increased to $15,109,134 from $3,413,633 in 1994 due to the increase in pretax income. Net income before the cumulative effect of changes in accounting principles was $62,240,279 in the first three months of 1995 compared to $36,160,272 in 1994. In the first quarter of 1994 the Corporation adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits." The cumulative effect of adopting this statement at January 1, 1994 was a charge of $1.1 million, net of tax, which was included in the statements of income as a change in accounting principle. This statement will not have a significant impact on future operating expenses. Net income was $62,240,279 for the three months ended March 31, 1995, an increase of 77.3 percent from the comparable 1994 period. Net income per share for the three months increased 82.0 percent to $.91 from $.50 for the comparable 1994 period and reflects a decrease in the number of shares outstanding. The cumulative effect of the change in accounting principles reduced net income per share by $.01 in 1994. The weighted average number of shares outstanding decreased to 68,078,823 for the three months ended March 31, 1995 compared to 70,849,517 a year ago due to Treasury Stock purchases. Page 7 of 9 pages The unrealized appreciation of investments, which is reflected in shareholders' equity but not in net income, increased $113.9 million to $205.1 million at March 31, 1995 compared to $91.2 million at December 31, 1994 reflecting increases in the market value of both fixed maturities and equity securities during the quarter. The unrealized depreciation related to fixed maturities decreased $57.1 million during the three month period as interest rates have declined resulting in unrealized depreciation of $3.5 million as of March 31, 1995. The unrealized appreciation on equity securities increased $56.8 million to $208.6 million. Capital Structure and Liquidity During the first three months of 1995 the Corporation repurchased a net 333,354 shares of its Common Stock for $16.0 million. Book value per share at March 31, 1995 was $23.16 based upon shareholders' equity of $1,574,549,757 and 67,989,159 outstanding shares of Common Stock compared to $21.17 at December 31, 1994 based upon shareholders' equity of $1,445,940,660 and 68,291,463 outstanding shares. The increase reflects the unrealized appreciation of investments during the quarter partially offset by repurchases of shares at a cost in excess of book value per share and an increase in unearned ESOP shares purchased with $15 million of additional ESOP debt. Cash flow from operations during the first three months of 1995 was $156.2 million compared to $125.3 million for the first three months of 1994. Investing activities in the first three months of 1994 included a net $9.7 million received from the sale of Southern Heritage Insurance Company, which was sold effective December 31, 1993. State Rate Regulation Each of the Corporation's insurance company subsidiaries is subject to regulation and supervision of its insurance businesses in each of the jurisdictions in which it does business. In general, such regulation is for the protection of policyholders rather than shareholders. Legislation has been introduced in recent sessions of Congress proposing modification or repeal of the McCarran-Ferguson Act which reaffirms the proposition that it is the responsibility of state governments to regulate the insurance industry and provides a limited exemption to the "business of insurance" from federal anti-trust laws. Whether any changes to the current statute will be made, and the effect of such changes, if any, cannot be determined. The Congress and certain state legislatures are also considering the effects of the use of sex, age, marital status, rating territories and other traditional rating criteria as a basis for rating classification; certain of such criteria no longer can be used in some states, and have been and are being challenged in the courts of other states. Subsequent Events On April 24, GEICO Corporation issued $100 million of 7.5% Notes due 2005. The Corporation intends to use about half of the net proceeds to repay short-term debt and the remainder would be available for investment in marketable securities and general corporate purposes, including repurchases of shares. On May 9, the Board of Directors increased the authorization for share repurchases to 7 million shares including the 3.2 million shares remaining under the prior authorization. Also on May 9, the Corporation announced that losses from a series of storms in Texas, Oklahoma and Louisiana may exceed $20 million for the quarter ending June 30, 1995. Page 8 of 9 pages GEICO CORPORATION PART II. OTHER INFORMATION Item 5. Other Events (a) None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (1) None. (b) Reports on Form 8-K GEICO Corporation did not file a Report on Form 8-K during the three months ended March 31, 1995. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GEICO Corporation Date: May 15, 1995 By: Thomas M. Wells Group Vice President and Controller (Principal Accounting Officer) Date: May 15, 1995 By: W. Alvon Sparks, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) Page 9 of 9 pages EX-27 2
7 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1995 MAR-31-1995 3420827 0 0 865279 0 0 4460372 15249 127245 71710 5273321 2103483 774723 0 66886 447511 71596 0 0 1502953 5273321 659004 55299 5610 6266 531850 51430 57059 77349 15109 62240 0 0 0 62240 .91 .91 0 0 0 0 0 0 0
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