-----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, pSMfMCBa6NZVo35k8lN2UMwxmcOd7MDo1ZI4ggcnvngjIzosuISai2U+IzalvdxB Tr9ne8EUeu418vBZKBdNFQ== 0000086104-94-000009.txt : 19940809 0000086104-94-000009.hdr.sgml : 19940809 ACCESSION NUMBER: 0000086104-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFECO CORP CENTRAL INDEX KEY: 0000086104 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 910742146 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06563 FILM NUMBER: 94542138 BUSINESS ADDRESS: STREET 1: SAFECO PLZ CITY: SEATTLE STATE: WA ZIP: 98185 BUSINESS PHONE: 2065455000 MAIL ADDRESS: STREET 1: SAFECO PLAZA CITY: SEATTLE STATE: WA ZIP: 98185 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL AMERICA CORP DATE OF NAME CHANGE: 19680529 10-Q 1 69410Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1994 [ ] 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 1-6563 SAFECO CORPORATION ------------------- (Exact name of registrant as specified in its charter) Washington 91-0742146 ---------- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) SAFECO Plaza, Seattle, Washington 98185 ---------------------------------------- (Address of principal executive offices) Registrant's Telephone Number, Including Area Code (206) 545-5000 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 62,982,453 shares of no par value common stock were outstanding at June 30, 1994. 2 SAFECO CORPORATION - --------------------------------------------------------------- TABLE OF CONTENTS & SIGNATURES Part I - Financial Information* Page --------- Item 1: Consolidated Balance Sheet, June 30, 1994 and December 31, 1993 3 Statement of Consolidated Income and Retained Earnings for the Quarters and Six Months Ended June 30, 1994 and 1993 5 Statement of Consolidated Cash Flows for the Six Months Ended June 30, 1994 and 1993 6 Item 2: Management's Discussion and Analysis 8 Part II - Other Information Item 4: Submission of Matters to a Vote of Security Holders 14 Item 6(b): Exhibits and Reports on Form 8-K Form 8-K was not required to be filed for any event during the quater ended June 30, 1994. * The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q. In the opinion of management, they include all adjustments (none of which were other than normal and recurring adjustments) which are necessary for a fair presentation of results for the interim periods. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K for the year ended December 31, 1993 which has previously been filed with the Commission. SIGNATURES 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. SAFECO CORPORATION ------------------ (Registrant) BOH A. DICKEY --------------- Boh A. Dickey Executive Vice President and Dated August 8, 1994 Chief Financial Officer ROD A. PIERSON --------------- Rod A. Pierson Senior Vice President, Secretary, Controller Dated August 8, 1994 and Chief Accounting Officer -2- 3 SAFECO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands) - --------------------------------------------------------------------
June 30 December 31 1994 1993 ASSETS ------------ ------------ Investments: Fixed Maturities Available-for-Sale, at Market Value (Amortized Cost: $9,181,189) (a) $9,389,052 $ - Fixed Maturities Held-to-Maturity, at Amortized Cost (Market value: 1994-$1,875,527; 1993-$11,965,731) 1,915,254 10,720,976 Marketable Equity Securities, at Market Value (Cost: 1994-$556,072; 1993-$513,138) 893,462 910,252 Mortgage Loans 412,939 402,138 Real Estate (At cost less accumulated depreciation) 473,382 447,797 Policy Loans 51,195 50,488 Short-Term Investments 91,943 109,047 ------------ ------------ Total Investments 13,227,227 12,640,698 Cash 39,410 67,833 Accrued Investment Income 216,187 210,289 Finance Receivables 575,715 547,759 Premiums and Other Service Fees Receivable 415,547 400,873 Other Notes and Accounts Receivable 74,605 75,977 Reinsurance Recoverables 203,694 126,240 Land, Buildings and Equipment for Company Use (At cost less accumulated depreciation) 153,351 149,618 Deferred Policy Acquisition Costs 376,965 367,303 Other Assets 258,966 220,701 ------------ ------------ TOTAL $15,541,667 $14,807,291 ============ ============ (continued) -3- 4 SAFECO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands Except Share Amounts) (continued) - -------------------------------------------------------------------- June 30 December 31 1994 1993 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Losses and Adjustment Expense $2,206,175 $2,128,372 Unearned Premiums 850,619 819,385 Life Policy Liabilities 153,720 151,488 Funds Held Under Deposit Contracts 7,553,123 7,229,439 Notes and Mortgages Payable: Credit Company Borrowings ($397,250 maturing within one year) 476,100 427,930 10.75% Notes Due September 1995 200,000 200,000 Other Notes and Mortgages ($46,335 maturing within one year) 308,441 290,505 Other Liabilities 653,056 629,891 Federal and Canadian Income Taxes: Current 26,567 37,963 Deferred (Includes tax on unrealized appreciation of investment securities: 1994-$190,839; 1993-$138,990) (a) 157,609 117,927 ------------ ------------ Total Liabilities 12,585,410 12,032,900 ------------ ------------ Preferred Stock, No Par Value: Shares Authorized: 10,000,000 Shares Issued and Outstanding: None - - Common Stock, No Par Value: Shares Authorized: 150,000,000 Shares Reserved for Options: 1994-2,083,323; 1993-2,182,828 Shares Issued and Outstanding: 1994-62,982,453; 1993-62,931,562 210,050 207,480 Retained Earnings 2,392,445 2,307,322 Unrealized Appreciation of Investment Securities, Net of Tax (a) 358,448 262,157 Unrealized Loss from Foreign Currency Translation, Net of Tax (4,686) (2,568) ------------ ------------ Total Stockholders' Equity 2,956,257 2,774,391 ------------ ------------ TOTAL $15,541,667 $14,807,291 ============ ============ (a) See Management's Discussion and Analysis - "Other - Footnote" section.
-4- 5 SAFECO CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS (In Thousands Except Per Share Amounts) - -----------------------------------------------------------------------------
Six Months Ended Three Months Ended June 30 June 30 ----------------------- ----------------------- 1994 1993 1994 1993 ----------- ----------- ----------- ----------- REVENUES: Insurance: Property and Casualty Earned Premiums $987,989 $930,220 $510,581 $470,870 Life & Health Premiums & Other Revenues 141,533 157,326 69,929 77,681 ----------- ----------- ----------- ----------- Total 1,129,522 1,087,546 580,510 548,551 Real Estate 53,289 41,027 21,491 17,742 Finance 24,789 24,989 12,751 12,880 Asset Management 7,443 6,199 3,948 3,104 Net Investment Income 486,624 471,922 244,302 238,065 Realized Investment Gain 20,741 80,602 1,581 54,647 ----------- ----------- ----------- ----------- Total 1,722,408 1,712,285 864,583 874,989 ----------- ----------- ----------- ----------- EXPENSES: Losses, Adjustment Expense and Policy Benefits 1,075,523 1,014,525 513,613 479,784 Commissions 190,237 178,428 98,333 91,430 Personnel Costs 110,387 112,022 58,628 60,162 Interest 33,131 29,315 16,905 14,643 Dividends to Policyholders 10,870 9,390 5,269 5,365 Other 130,882 113,565 61,763 54,255 Amortization of Prior Deferred Policy Acquisition Costs 192,519 178,592 97,062 90,204 Deferral of Policy Acquisition Costs (202,766) (191,380) (105,047) (98,036) ----------- ----------- ----------- ----------- Total 1,540,783 1,444,457 746,526 697,807 ----------- ----------- ----------- ----------- Income before Income Taxes 181,625 267,828 118,057 177,182 ----------- ----------- ----------- ----------- Provision (Benefit) for Federal and Canadian Income Taxes: Current 46,577 83,029 34,003 59,794 Deferred (11,027) (17,056) (5,995) (11,963) ----------- ----------- ----------- ----------- Total 35,550 65,973 28,008 47,831 ----------- ----------- ----------- ----------- Income before Cumulative Effect of Accounting Changes 146,075 201,855 90,049 129,351 Cumulative Effect of Accounting Changes: Postretirement Benefits - (15,676) - - Income Taxes - 18,553 - - ----------- ----------- ----------- ----------- Net Income 146,075 204,732 90,049 129,351 Retained Earnings, Beginning of Period 2,307,322 1,993,350 2,334,120 2,040,880 Dividends Declared (59,197) (54,064) (30,861) (28,295) Common Stock Reacquired (1,755) (2,438) (863) (356) ----------- ----------- ----------- ----------- Retained Earnings, End of Period $2,392,445 $2,141,580 $2,392,445 $2,141,580 =========== =========== =========== =========== Net Income Per Share of Common Stock: Income before Cumulative Effect of Accounting Changes $2.32 $3.21 $1.43 $2.06 Cumulative Effect of Accounting Changes: Postretirement Benefits - (0.25) - - Income Taxes - 0.30 - - ----------- ----------- ----------- ----------- Net Income $2.32 $3.26 $1.43 $2.06 =========== =========== =========== =========== Average Number of Shares Outstanding During the Period (In Thousands) 62,962 62,847 62,974 62,862 =========== =========== =========== =========== Cash Dividends Paid to Common Stockholders $0.90 $0.82 $0.45 $0.41 =========== =========== =========== =========== Income per share of common stock is based on the average number of common shares outstanding. Stock options do not have a significant dilutive effect on income per share.
-5- 6 SAFECO CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (In Thousands) - ------------------------------------------------------------------------
Six Months Ended June 30 ----------------------- 1994 1993 * ----------- ----------- OPERATING ACTIVITIES: Insurance Premiums Received $1,128,990 $1,073,511 Dividends and Interest Received 478,537 451,960 Other Operating Receipts 84,973 64,485 Insurance Claims and Policy Benefits Paid (865,349) (801,045) Underwriting, Acquisition and Insurance Operating Costs Paid (422,093) (392,042) Interest Paid (33,630) (28,588) Other Operating Costs Paid (48,185) (34,814) Income Taxes Paid (51,370) (60,455) ----------- ----------- Net Cash Provided by Operating Activities 271,873 273,012 ----------- ----------- INVESTING ACTIVITIES: Purchase of: Fixed Maturities Available-for-Sale (1,057,096) - Fixed Maturities Held-to-Maturity (209,424) (1,459,938) Equities (61,354) (63,820) Other Investments (95,073) (76,702) Maturities of Fixed Maturities Available-for-Sale 471,240 - Maturities of Fixed Maturities Held-to-Maturity 36,434 465,370 Sale of: Fixed Maturities Available-for-Sale 412,746 - Fixed Maturities Held-to-Maturity - 505,770 Equities 33,587 86,184 Other Investments 75,537 40,295 Net Decrease in Short-Term Investments 17,028 62,343 Finance Receivables Originated or Acquired (142,139) (127,045) Principal Payments Received on Finance Receivables 104,917 94,141 Other (22,036) (18,882) ----------- ----------- Net Cash Used in Investing Activities (435,633) (492,284) ----------- ----------- FINANCING ACTIVITIES: Funds Received Under Deposit Contracts 427,531 542,420 Return of Funds Held Under Deposit Contracts (307,567) (254,355) Proceeds from Notes and Mortgage Borrowings 37,964 23,950 Repayment of Notes and Mortgage Borrowings (78,664) (26,632) Net Proceeds from (Repayment of) Short-Term Borrowings 112,056 (23,868) Common Stock Reaquired (1,863) (2,571) Dividends Paid to Stockholders (56,658) (51,525) Other 2,538 2,253 ----------- ----------- Net Cash Provided by Financing Activities 135,337 209,672 ----------- ----------- Net Decrease in Cash (28,423) (9,600) Cash at Beginning of Period 67,833 73,122 ----------- ----------- Cash at End of Period $39,410 $63,522 =========== =========== (continued) -6- 7 SAFECO CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (continued) (In Thousands) - ------------------------------------------------------------------------ Six Months Ended June 30 ----------------------- 1994 1993 * ----------- ----------- Net Income $146,075 $204,732 ----------- ----------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Realized Investment Gain (20,741) (80,602) Depreciation and Amortization 18,978 15,293 Amortization of Fixed Maturity Investments (10,200) (12,184) Deferred Income Tax Benefit (11,027) (17,056) Interest Expense on Deposit Contracts 195,070 200,067 Cumulative Effect of Accounting Changes - (2,877) Other Adjustments 5,479 3,450 Changes in: Losses and Adjustment Expense Liabilities 77,803 4,035 Unearned Premiums 31,234 36,778 Life Policy Liabilities 2,232 1,293 Accrued Income Taxes (11,396) 23,608 Accrued Interest on Accrual Bonds (20,742) (32,073) Accrued Investment Income (5,898) (3,712) Deferred Policy Acquisition Costs (9,662) (12,788) Other Assets and Liabilities (115,332) (54,952) ----------- ---------- Total Adjustments 125,798 68,280 ----------- ---------- Net Cash Provided by Operating Activities $271,873 $273,012 =========== ========== * Certain reclassifications have been made to the 1993 amounts to conform to current year classifications.
-7- 8 SAFECO CORPORATION - ------------------- Management's Discussion and Analysis - ----------------------------------------------------------------- SAFECO Corporation - ------------------ Our net income for the first six months of 1994 was $146.1 million or $2.32 per share, compared with $3.26 for 1993. If we exclude realized gain from investments, which is discussed in the next paragraph, our per share income was $2.10 per share, compared with $2.36 per share in 1993. During the first six months of 1994 realized gain from investments was $0.22 per share, compared with $0.85 per share in 1993. The pretax gain from security investments of $20.8 million compares with $74.0 million a year ago. Last year's gains were unusually high as declining interest rates produced calls and redemptions in our bond portfolios. As interest rates have risen in 1994 calls and redemptions have decreased significantly, especially during the second quarter. The following summarized financial information sets forth the contributions of each business segment to our consolidated income. Six Months Ended Three Months Ended June 30 June 30 --------------------------------------- 1994 1993 1994 1993 - ------------------------------------------------------------------- (In Thousands Except Per Share Amounts) Income (Loss) before Realized Gain and Income Taxes: Property and Casualty Insurance: Underwriting Gain (Loss) $(44,582) $(21,632) $ 14,943 $ 16,096 Net Investment Income 140,179 138,972 70,009 69,598 ----------------------------------------- Total Property and Casualty 95,597 117,340 84,952 85,694 Life and Health Insurance 59,778 62,709 29,755 32,266 Real Estate 5,193 4,830 2,400 2,435 Credit 4,479 4,891 1,995 2,759 Asset Management 3,108 2,879 1,365 1,392 Corporate (7,271) (5,423) (3,991) (2,011) ----------------------------------------- Total 160,884 187,226 116,476 122,535 ----------------------------------------- Realized Gain (Loss), before Tax, from: Security Investments 20,792 74,020 1,587 48,065 Real Estate Investments (51) 6,582 (6) 6,582 ----------------------------------------- Total 20,741 80,602 1,581 54,647 ----------------------------------------- Income before Income Taxes 181,625 267,828 118,057 177,182 ----------------------------------------- Provision for Income Taxes on: Income before Realized Gain 28,580 38,754 27,658 29,367 Realized Gain 6,970 27,219 350 18,464 ----------------------------------------- Total 35,550 65,973 28,008 47,831 ----------------------------------------- Income before Cumulative Effect of Accounting Changes 146,075 201,855 90,049 129,351 Cumulative Effect of Accounting Changes: Postretirement Benefits - (15,676) - - Income Taxes - 18,553 - - ----------------------------------------- Net Income $146,075 $204,732 $ 90,049 $129,351 ========================================= Net Income Per Share of Common Stock: Income before Cumulative Effect of Accounting Changes $ 2.32 $ 3.21 $ 1.43 $ 2.06 Cumulative Effect of Accounting Changes: Postretirement Benefits - (.25) - - Income Taxes - .30 - - ----------------------------------------- Net Income $ 2.32 $ 3.26 $ 1.43 $ 2.06 ========================================= -8- 9 SAFECO CORPORATION - ------------------ Management's Discussion and Analysis (Continued) - ------------------------------------------------------------------ Property and Casualty Insurance - ------------------------------- Property and casualty operations for the first six months of 1994 produced pretax income of $95.6 million before realized gain from investments, compared with $117.3 million for the first six months a year ago. After the first quarter's underwriting loss of $59.5 million, caused by the claims from the Los Angeles earthquake, the second quarter produced an underwriting profit of $14.9 million. For the first six months, the loss from underwriting was $44.6 million, compared with $21.6 million a year ago. The combined loss and expense ratio was 104.5 for the first six months, compared with 102.3 last year. Investment income was $140.2 million, up slightly from a year ago. Personal auto, our largest line, continues to perform well. This line produced an underwriting profit of $36.3 million for the first six months, compared with $17.0 million for the first six months last year. Loss costs continue to increase at less than a 5% annual rate. Other personal lines, which provide coverage for earthquake, dwelling fire, inland marine, boats and recreational vehicles, produced an underwriting profit of $9.0 million for the second quarter. These lines, which were adversely affected by the Los Angeles earthquake, produced a loss of $69.2 million during the first quarter. In the Balance Sheet, the asset Reinsurance Recoverables is higher at June 30, 1994 due to the amounts recoverable by SAFECO from its reinsursers related to the Northridge earthquake. Following the earthquake, SAFECO experienced a substantial increase in the amount of earthquake coverage written in California. California requires insurers to offer earthquake coverage in connection with homeowners and other residential policies. After careful review, effective July 1, SAFECO suspended its writing of new homeowners, dwelling fire and condominium policies in California. Existing policies are being renewed and earthquake coverage is being offered to policyholders who previously declined the coverage. Federal legislation is necessary to create a permanent, long-term solution for the losses that arise from natural disasters such as earthquakes. We support the National Disaster Protection Act, currently before Congress, as the best means to encourage mitigation efforts to reduce such losses and to provide a mechanism to pay such losses. Homeowners produced an underwriting loss of $15.0 million for the first six months, compared with a loss of $45.8 million for the first six months of 1993. The improvement in 1994 results is partially due to lower catastrophe losses which were $20.7 million after reinsurance, for the first six months, compared with $38.2 million a year ago. In addition, results for this line are benefiting from rate increases and continuing efforts to improve homeowners insurance to value. Commercial lines produced an underwriting loss of $11.0 million for the first six months, operating at a combined ratio of 104.3. A year ago, the loss was $10.3 million and the combined ratio was 104.5. The combined ratios for both years compare very favorably with the industry and are a result of our focus on specific states and efforts to reduce expense and maintain rate adequacy in the face of stiff price competition. -9- 11 SAFECO CORPORATION - ------------------ Management's Discussion and Analysis (Continued) - ---------------------------------------------------------------- SAFECO Credit's summarized financial information is as follows (in thousands): June 30 December 31 1994 1993 -------------------------- Finance Receivables $575,715 $547,759 Other Assets 104,739 114,283 ------------------------- Total Assets $680,454 $662,042 ========================= Credit Company Borrowings $476,100 $427,930 Other Liabilities 118,178 150,380 ------------------------- Total Liabilities $594,278 $578,310 ========================= Six Months Ended June 30 ------------------------- 1994 1993 ------------------------- Revenues $26,828 $26,679 Expenses 22,349 21,788 ------------------------- Income before Income Taxes 4,479 4,891 Provision for Federal Income Taxes 1,461 1,589 ------------------------- Income before Cumulative Effect of Accounting Changes 3,018 3,302 Cumulative Effect of Accounting Changes - 403 ------------------------- Net Income $3,018 $2,899 ========================= Asset Management - ---------------- The pretax income from our investment management activities for the first six months of 1994 was $3.1 million, compared with $2.9 million for the same period last year. Assets under management are approximately $2.3 billion, a 4% increase from June 30, 1993. Investment Portfolios - --------------------- The market value of our consolidated bond portfolio was $168 million in excess of amortized cost at June 30, 1994, down from $571 million at March 31, 1994 and $1.2 billion at December 31,1993. These declines reflect the weakness in the bond market during 1994 as a result of higher interest rates. However, these higher rates will benefit our investment income in the future. The market value of our equity securities was $337 million in excess of cost at June 30, 1994. -11- 12 SAFECO CORPORATION - ------------------ Management's Discussion and Analysis (Continued) - ------------------------------------------------------------------ Other -- Footnotes - ------------------ The following additional footnote disclosures are being made due to the adoption of two new accounting standards in the first quarter of 1994. Employee Benefit Plans ---------------------- SAFECO adopted Financial Accounting Standards Board Statement 112, `Employers' Accounting for Postemployment Benefits', effective January 1, 1994. Adoption had no effect on net income. Investments ----------- In May 1993, the Financial Accounting Standards Board issued Statement 115, `Accounting for Certain Investments in Debt and Equity Securities', which expands the use of fair value accounting for debt and equity securities. As of January 1, 1994, SAFECO adopted the provisions of this statement for investments held as of, or acquired after that date. Statement 115 requires that debt and equity securities be classified as trading, available-for-sale or held-to- maturity. Debt securities that SAFECO has the positive intent and ability to hold to maturity (as narrowly defined by Statement 115) are classified as held-to-maturity and are reported at amortized cost. Debt securities classified as available-for-sale are carried at market value, with changes in unrealized gains and losses recorded directly to stockholders' equity, net of applicable income taxes and deferred policy acquisition costs valuation allowance. All marketable equity securities continue to be carried at market value, with changes in unrealized gains and losses recorded directly to stockholders' equity, net of applicable income taxes. Under Statement 115, trading securities are to be carried at market value with immediate recognition in income of changes in market value. Since SAFECO does not have any securities held for trading, the adoption of Statement 115 had no effect on net income. As required by Statement 115, no restatement of prior period amounts has been made. -12- 13 SAFECO CORPORATION - ------------------ Management's Discussion and Analysis (Continued) - ------------------------------------------------------------------- The following reconciliation of Stockholders' Equity from December 31, 1993 to June 30, 1994 shows the effect of adoption of Statement 115 as of January 1, 1994 and the change in net unrealized holding gains (losses) for the first six months of 1994. (In Thousands) Stockholders' Equity, December 31, 1993 $2,774,391 Net effect of adoption of Statement 115(1) 640,477 ----------- Stockholders' Equity, January 1, 1994 3,414,868 Net income 146,075 Dividends declared (59,197) Net decreases in unrealized appreciation of investment securities, net of tax and deferred policy acquisition costs valuation allowance (2) (544,187) Other items affecting Stockholders' Equity (1,302) ---------- Stockholders' Equity, June 30, 1994 $2,956,257 ========== SAFECO had no sales during the first six months of 1994 of debt securities classified as held-to-maturity. The decline in the unrealized appreciation of investment securities was due to weakness in both the bond and stock markets as a result of higher interest rates. See note (2) below for the components of the decrease. (1)The net effect of adopting Statement 115 is comprised as follows: Aggregate market value in excess of amortized cost of debt securities classified as available-for-sale, at January 1, 1994 $1,013,117 Deferred policy acquisition costs valuation allowance (27,768) Deferred income taxes, at 35% (344,872) ---------- Net effect of adoption of Statement 115 $640,477 ========== (2)The decrease in net unrealized appreciation of investment securities is comprised as follows: Decrease in unrealized appreciation of debt securities, available-for-sale $(805,254) Decrease in unrealized appreciation of marketable equity securities (59,724) Decrease in deferred policy acquisition costs valuation allowance 27,768 Decrease in deferred income taxes 293,023 -------- Net decrease in unrealized appreciation of investment securities, net of tax and deferred policy acquisition costs valuation allowance. $(544,187) ========= -13- 14 SAFECO CORPORATION - --------------------- Part II - Other Information - --------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of SAFECO Corporation was held May 4, 1994. SAFECO Shareholders elected six nominees to the Board of Directors by the votes shown below. All terms expire in 1997 except for Mr. Dickey whose term expires in 1996. There were no broker non-votes with respect to any of the nominees. Votes Votes For Withheld ----------- --------- Robert S. Cline 54,841,683 695,133 Boh A. Dickey 54,842,714 694,102 Joshua Green III 54,838,981 697,835 William G. Reed, Jr. 54,904,352 632,464 Judith M. Runstad 54,788,953 747,863 George H. Weyerhaeuser 54,902,337 634,479 -14- -----END PRIVACY-ENHANCED MESSAGE-----