-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AZutkKaR6sPT90aSx+mHP1NWpZyfw9dBw3KnRP98eLnmC1X3NEPmANRd1A2DVWr8 NlMgFyxRAhagrIIMcIIZSw== 0000891020-96-000439.txt : 19960629 0000891020-96-000439.hdr.sgml : 19960629 ACCESSION NUMBER: 0000891020-96-000439 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NASD 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: 96561828 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 FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1996. / / 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 I.D. No.) SAFECO PLAZA, SEATTLE, WASHINGTON 98185 --------------------------------------- (Address of principal executive offices) (206) 545-5000 -------------- (Registrant's telephone number, including area code) 126,033,341 shares of no par common stock were outstanding at March 31, 1996 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 / /. 2 SAFECO CORPORATION TABLE OF CONTENTS AND SIGNATURES
Part I - Financial Information* Page ---- Item 1. Financial Statements: Consolidated Balance Sheet, March 31, 1996 and December 31, 1995 3 Statement of Consolidated Income and Retained Earnings for the Three Months Ended March 31, 1996 and 1995 5 Statement of Consolidated Cash Flows for the Three Months Ended March 31, 1996 and 1995 6 Item 2. Management's Discussion and Analysis 8 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 13
* 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, 1995 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 May 13, 1996 Chief Financial Officer ROD A. PIERSON ------------------ Rod A. Pierson Senior Vice President, Secretary, Controller Dated May 13, 1996 and Chief Accounting Officer -2- 3 SAFECO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands)
March 31 December 31 ASSETS 1996 1995 ------ ---- ---- Investments: Fixed Maturities Available-for-Sale, at Market Value (Amortized cost: 1996 - $10,760,943; 1995 - $10,853, 590) $11,344,407 $11,928,144 Fixed Maturities Held-to-Maturity, at Amortized Cost (Market value: 1996 - $2,325,185; 1995 - $2,388,514) 2,188,065 2,044,517 Marketable Equity Securities, at Market Value (Cost: 1996 - $619,780; 1995 - $598,130) 1,168,444 1,119,408 Mortgage Loans 425,807 416,489 Real Estate (At cost less accumulated depreciation) 508,417 498,958 Policy Loans 57,147 55,925 Short-Term Investments 48,193 68,808 ----------- ----------- Total Investments 15,740,480 16,132,249 Cash 50,930 65,477 Accrued Investment Income 237,957 234,253 Finance Receivables 761,417 741,177 Premiums and Other Service Fees Receivable 449,334 444,618 Other Notes and Accounts Receivable 57,359 42,139 Reinsurance Recoverables 157,955 137,284 Deferred Policy Acquisition Costs 378,091 356,359 Land, Buildings and Equipment for Company Use (At cost less accumulated depreciation) 173,323 170,016 Other Assets 164,686 167,872 Separate Account Assets 323,355 276,399 ----------- ----------- TOTAL $18,494,887 $18,767,843 =========== ===========
(continued) -3- 4 SAFECO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands Except Share Amounts) (continued)
March 31 December 31 LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995* ------------------------------------ ---- ----- Losses and Adjustment Expense $ 2,161,209 $ 2,207,230 Unearned Premiums 909,024 910,762 Life Policy Liabilities 149,805 154,090 Funds Held Under Deposit Contracts 8,972,833 8,756,384 Notes and Mortgages Payable: Credit Company Borrowings ($681,850 maturing within one year) 728,350 614,270 7.875% Notes Due 2005 200,000 200,000 Other Notes and Mortgages ($28,099 maturing within one year) 215,870 253,275 Other Liabilities 675,400 895,853 Federal and Canadian Income Taxes: Current 41,136 18,000 Deferred (Includes tax on unrealized appreciation of investment securities: 1996 - $389,850; 1995 - $543,556) 344,000 498,934 Separate Account Liabilities 323,355 276,399 ----------- ----------- Total Liabilities 14,720,982 14,785,197 ----------- ----------- 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: 1996 - 3,472,117; 1995 - 3,699,983 Shares Issued and Outstanding: 1996 - 126,033,341; 1995 - 125,978,742 221,916 217,447 Retained Earnings 2,827,580 2,755,537 Unrealized Appreciation of Investment Securities, Net of Tax 728,041 1,013,494 Unrealized Loss from Foreign Currency Translation, Net of Tax (3,632) (3,832) ----------- ----------- Total Stockholders' Equity 3,773,905 3,982,646 ----------- ----------- TOTAL $18,494,887 $18,767,843 =========== ===========
*Certain amounts have been reclassified to conform to the 1996 presentation. -4- 5 SAFECO CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS (In Thousands Except Per Share Amounts)
Three Months Ended March 31 -------------------- 1996 1995* ---- ----- REVENUES: Insurance: Property and Casualty Earned Premiums $ 552,629 $ 526,430 Life and Health Premiums and Other Revenues 65,684 67,401 ---------- ---------- Total 618,313 593,831 Real Estate 18,313 19,901 Finance 18,097 14,892 Asset Management 6,481 4,274 Other 9,098 8,856 Net Investment Income 274,577 259,351 Realized Investment Gain 32,723 5,278 ---------- ---------- Total 977,602 906,383 ---------- ---------- EXPENSES: Losses, Adjustment Expense and Policy Benefits 579,960 589,499 Commissions 97,216 99,618 Personnel Costs 67,074 57,770 Interest 18,112 20,255 Dividends to Policyholders 4,020 4,661 Other 63,185 61,721 Amortization of Deferred Policy Acquisition Costs 103,593 100,509 Deferral of Policy Acquisition Costs (101,092) (103,776) ---------- ---------- Total 832,068 830,257 ---------- ---------- Income before Income Taxes 145,534 76,126 ---------- ---------- Provision (Benefit) for Federal and Canadian Income Taxes: Current 36,167 17,059 Deferred (1,336) (6,143) ---------- ---------- Total 34,831 10,916 ---------- ---------- Net Income 110,703 65,210 Retained Earnings, Beginning of Period 2,755,537 2,495,800 Dividends Declared (33,399) (30,860) Common Stock Reacquired (5,261) (2,006) ---------- ---------- Retained Earnings, End of Period $2,827,580 $2,528,144 ========== ========== Net Income Per Share of Common Stock $ 0.88 $ 0.52 ========== ========== Average Number of Shares Outstanding During the Period (In Thousands) 126,011 125,932 ========== ========== Cash Dividends Paid to Common Stockholders $ 0.265 $ 0.245 ========== ==========
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. *Certain amounts have been reclassified to conform to the 1996 presentation. 1995 share amounts are adjusted to reflect the December 1995 2-for-1 stock split. -5- 6 SAFECO CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (In Thousands)
Three Months Ended March 31 ------------------ 1996 1995 ---- ---- OPERATING ACTIVITIES: Insurance Premiums Received $ 603,124 $ 575,147 Dividends and Interest Received 267,865 260,815 Other Operating Receipts 44,826 43,719 Insurance Claims and Policy Benefits Paid (530,758) (444,573) Underwriting, Acquisition and Insurance Operating Costs Paid (253,703) (243,241) Interest Paid (9,805) (24,085) Other Operating Costs Paid (26,983) (27,703) Income Taxes (Paid) Recovered (13,101) 1,146 --------- --------- Net Cash Provided by Operating Activities 81,465 141,225 --------- --------- INVESTING ACTIVITIES: Purchases of: Fixed Maturities Available-for-Sale (407,347) (465,192) Fixed Maturities Held-to-Maturity (152,249) (45,375) Equities (49,761) (53,217) Other Investments (32,083) (220,645) Maturities of Fixed Maturities Available-for-Sale 194,860 150,559 Maturities of Fixed Maturities Held-to-Maturity 10,483 2,724 Sales of: Fixed Maturities Available-for-Sale 277,070 91,969 Fixed Maturities Held-to-Maturity -- -- Equities 45,508 43,406 Other Investments 13,014 28,133 Net Decrease in Short-Term Investments 20,619 13,124 Finance Receivables Originated or Acquired (77,847) (84,101) Principal Payments Received on Finance Receivables 54,650 53,266 Other (16,347) (13,634) --------- --------- Net Cash Used in Investing Activities (119,430) (498,983) --------- --------- FINANCING ACTIVITIES: Funds Received Under Deposit Contracts 184,994 303,994 Return of Funds Held Under Deposit Contracts (191,088) (179,445) Proceeds from Notes and Mortgage Borrowings -- 198,930 Repayment of Notes and Mortgage Borrowings (49,764) (645) Net Proceeds from Short-Term Borrowings 115,677 48,944 Common Stock Reacquired (5,510) (2,139) Dividends Paid to Stockholders (33,387) (30,848) Other 2,496 2,278 --------- --------- Net Cash Provided by Financing Activities 23,418 341,069 --------- --------- Net Decrease in Cash (14,547) (16,689) Cash at the Beginning of Period 65,477 63,504 --------- --------- Cash at the End of Period $ 50,930 $ 46,815 ========= =========
(continued) -6- 7 SAFECO CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (In Thousands) (continued)
Three Months Ended March 31 ----------------- 1996 1995 ---- ---- Net Income $110,703 $ 65,210 -------- -------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Realized Investment Gain (32,723) (5,278) Depreciation and Amortization 16,344 11,332 Amortization of Fixed Maturity Investments (9,458) (7,661) Deferred Income Tax Benefit (1,336) (6,143) Interest Expense on Deposit Contracts 114,081 108,333 Other Adjustments (337) 2,882 Changes in: Losses and Adjustment Expense (46,021) 28,984 Unearned Premiums (1,738) 1,190 Life Policy Liabilities (4,285) 1,422 Accrued Income Taxes 23,136 17,775 Accrued Interest on Accrual Bonds (9,742) (8,980) Accrued Investment Income (3,704) 3,956 Deferred Policy Acquisition Costs 2,812 (3,902) Other Assets and Liabilities (76,267) (67,895) -------- -------- Total Adjustments (29,238) 76,015 -------- -------- Net Cash Provided by Operating Activities $ 81,465 $141,225 ======== ========
-7- 8 SAFECO CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS SAFECO Corporation Our net income for the first quarter was $110.7 million or $0.88 per share, compared with $0.52 per share for the first quarter of 1995. If we exclude realized gain from investments, our net income was $0.71 per share, compared with $0.49 per share in 1995. The following summarized financial information sets forth the contributions of each business segment to our consolidated income.
THREE MONTHS ENDED MARCH 31 1996 1995 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) - - ----------------------------------------------------------------------------------------------------- Income (Loss) before Realized Gain and Income Taxes: Property and Casualty Insurance: Underwriting Gain (Loss) $ 2,095 $(37,376) Net Investment Income 71,139 72,451 -------- -------- Total Property and Casualty 73,234 35,075 Life and Health Insurance 32,009 31,814 Real Estate 2,853 2,464 Credit 4,057 2,385 Asset Management 2,696 1,653 Corporate (2,038) (2,543) -------- -------- Total 112,811 70,848 -------- -------- Realized Gain (Loss), before Tax, from: Security Investments 32,760 5,146 Real Estate Investments (37) 132 -------- -------- Total 32,723 5,278 -------- -------- Income before Income Taxes 145,534 76,126 -------- -------- Provision for Income Taxes on: Income before Realized Gain 23,614 9,262 Realized Gain 11,217 1,654 -------- -------- Total 34,831 10,916 -------- -------- Net Income $110,703 $ 65,210 ======== ======== Net Income Per Share of Common Stock $ .88 $ .52 ======== ========
Note: Amounts per share are adjusted to reflect the December 1995 2-for-1 stock split. -8- 9 SAFECO CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Property and Casualty Insurance Property and casualty operations for the first quarter of 1996 produced pretax income of $73.2 million before realized gain from investments, compared with $35.1 million a year ago. The company had an underwriting profit of $2.1 million, compared with a loss of $37.4 million for the first quarter last year. First quarter catastrophe claims were $17 million, compared with $46 million for the first quarter of 1995. The prior year amount includes a $25 million increase in the estimated cost of claims from the January, 1994 Northridge earthquake. In the Statement of Consolidated Cash Flows, Net Cash Provided by Operating Activities is lower in the first quarter of 1996 compared with the first quarter of 1995 primarily due to higher claims payments in the first quarter of 1996. These higher claims payments reflect catastrophe losses incurred in 1994 and 1995 and paid in the first quarter of 1996. The combined loss and expense ratio was 99.6 for the quarter, compared with 107.1 a year ago. First quarter investment income was $71.1 million, down 2% compared with the first quarter last year, primarily as a result of the relatively low interest rate environment. Personal auto, our largest line, reported an underwriting profit of $8.1 million for the first quarter, compared with a profit of $2.8 million in the first quarter a year ago. The average cost of claims continues to increase at less than a 5% annual rate. Homeowners had an underwriting loss of $21.8 million for the first quarter, compared with a loss of $17.9 million for the first quarter of 1995. Catastrophe claims for this line were $12 million, compared with $15 million during the first quarter a year ago. We continue to pursue additional premium for this coverage through a combination of higher prices and proper insurance to value. Other personal lines, which provide coverage for earthquake, dwelling fire, inland marine, and boats, produced an underwriting profit of $3.7 million for the quarter. This compares with a $23.2 million loss for the same quarter last year, which included the increase in the estimated cost of the Northridge earthquake. Commercial lines had a very good first quarter reporting an underwriting profit of $5.8 million. By comparison, commercial lines reported a profit of $4.3 million last quarter and a loss of $3.2 million in the first quarter last year. These strong results reflect our target marketing initiatives, a focus on efficient operations and our ability to deliver value-added services to customers. Surety continues to produce excellent results for both commercial and contract bond business. The profit for this line was $6.6 million for the first quarter, compared with a profit of $4.8 million for the same quarter a year ago. Premiums written for the first three months increased 4% over a year ago with personal lines up 5% and commercial lines up 1%. -9- 10 SAFECO CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Life and Health Insurance Our life and health insurance operations produced a pretax profit, before realized gain from investments, of $32.0 million for the first quarter of 1996. This compares with $31.8 million for the same period last year. The annuity and retirement services lines' combined first quarter earnings were $12.9 million, equivalent to the $12.8 million reported for the first quarter of 1995. Annuity and retirement services assets under management now exceed $9 billion. Group insurance earnings declined to $2.8 million for the first quarter, compared with $3.5 million for the same period last year. The group line continues to be pressured by highly competitive market conditions and fluctuating life and medical claims. Real Estate SAFECO Properties' pretax income was $2.9 million for the first quarter of 1996, compared with $2.5 million in 1995 as our retail and medical real estate properties continue to produce solid operating results. Construction and leasing for our 1.4 million square-foot, mixed-use development in Redmond, Washington is progressing well as we target a spring 1997 opening date. Additionally, we have begun several value enhancement activities on existing properties and are proceeding with development for two new medical real estate properties. Credit SAFECO Credit Company produced a pretax profit of $4.1 million for the first quarter of 1996, compared with $2.4 million in the first quarter of 1995. Higher loan and lease outstandings, continued very favorable bad debt experience and relatively stable interest rates were contributing elements to these results. Non-affiliate receivables and operating leases reached $825 million at March 31, 1996, an 11% annualized increase from December, 1995. SAFECO Credit's summarized financial information is as follows (in thousands):
MARCH 31 DECEMBER 31 1996 1995 -------- ----------- Finance Receivables $761,417 $741,177 Others Assets 196,829 141,873 -------- -------- Total Assets $958,246 $883,050 ======== ======== Credit Company Borrowings $728,350 $614,270 Other Liabilities 131,220 172,155 -------- -------- Total Liabilities $859,570 $786,425 ======== ======== THREE MONTHS ENDED MARCH 31 1996 1995 -------- -------- Revenues $ 19,848 $ 16,418 Expenses 15,791 14,033 -------- -------- Income before Income Taxes 4,057 2,385 Provision for Income Taxes 1,451 773 -------- -------- Net Income $ 2,606 $ 1,612 ======== ========
-10- 11 SAFECO CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Asset Management The pretax income from our investment management operations for the first three months of 1996 was $2.7 million, compared with $1.6 million last year. The higher earnings were due to increased assets under management as well as gains from a one-time sale of long-term assets. Assets under management are approximately $3.1 billion, a 16% increase over March 31, 1995. Additionally, in the first quarter we added three new funds to our no-load mutual fund product line: the SAFECO International Stock Fund, the SAFECO Small Company Stock Fund, and the SAFECO Balanced Fund. Investment Portfolios The market value of our consolidated bond portfolio was $721 million in excess of amortized cost at March 31, 1996, down from $1.4 billion at December 31, 1995. This decline reflects the weakness in the bond market during the first quarter 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 $549 million in excess of cost at March 31, 1996. The financial markets were at or near all time highs at year end. Our realized gain from investments was $32.7 million for the quarter. Calls and tenders accounted for more than a third of these gains. Portfolio adjustments to improve asset/liability matching and portfolio yield accounted for the balance. Stock Purchase Program In February, 1996, the Board of Directors approved the continuation of the stock purchase program and reauthorized a total accumulation of up to two million shares, about 2% of our issued shares. At April 19, 1996, 115,000 shares have been purchased. -11- 12 SAFECO CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Other-- Footnotes The following additional footnote disclosure relates to new accounting standards. Nature of Operations and Summary of Significant Accounting Policies -- New Accounting Standards In March of 1995, the Financial Accounting Standards Board (FASB) issued Statement 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Statement 121 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying value. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Statement 121 is effective for financial statements for fiscal years beginning after December 15, 1995 and SAFECO adopted it in the first quarter of 1996. Adoption did not affect net income. -12- 13 SAFECO CORPORATION Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 Financial Data Schedule. (This exhibit is included only in the electronic EDGAR filing version of this 10-Q. The Financial Data Schedule is not a separate financial statement but a schedule that summarizes certain standard financial information extracted directly from the financial statements in this filing.) (b) Reports on Form 8-K: No Forms 8-K were filed or required to be filed for any event during the quarter ended March 31, 1996. -13- EX-27 2 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 11,344,407 2,188,065 2,325,185 1,168,444 425,807 508,417 15,740,480 50,930 157,955 378,091 18,494,887 2,161,209 909,024 149,805 8,972,833 1,144,220 0 0 221,916 3,551,989 18,494,887 618,313 274,577 32,723 51,989 579,960 103,593 0 145,534 34,831 110,703 0 0 0 110,703 0.88 0 0 0 0 0 0 0 0
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