UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2002
Commission File Number 1-6563
SAFECO CORPORATION
State of Incorporation:
Washington
I.R.S. Employer I.D. No.: 91-0742146
Address of Principal Executive Offices: SAFECO Plaza, Seattle, Washington 98185
Telephone: 206-545-5000
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value: 127,791,131 shares were outstanding at July 31, 2002
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 [ ].
SAFECO Corporation and Subsidiaries
CONTENTS
| Item | Description | Page | |||||
Part I |
Financial Information |
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1
|
Financial Statements |
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Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
|
2 |
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Consolidated Statements of Income (Loss)
for the three months and six months ended June 30, 2002 and 2001
|
4 |
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Consolidated Statements of Shareholders’ Equity
for the six months ended June 30, 2002 and 2001
|
5 |
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Consolidated Statements of Comprehensive Income (Loss)
for the three months and six months ended June 30, 2002 and 2001
|
5 |
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Consolidated Statements of Cash Flows
for the six months ended June 30, 2002 and 2001
|
6 |
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Condensed Notes to Consolidated Financial Statements
|
8 |
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2
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
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Part II |
Other Information |
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1
|
Legal Proceedings
|
31 |
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4
|
Submission of Matters to a Vote of Security Holders
|
32 |
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6
|
Exhibits and Reports on Form 8-K
|
32 |
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Signatures
|
33 |
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SAFECO Corporation and Subsidiaries
Consolidated Balance Sheets
| June 30 2002 | December 31 2001 | ||||||||
| (In Millions) | (Unaudited) | ||||||||
ASSETS |
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Investments |
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Fixed
Maturities, at Fair Value (Cost or amortized cost: $21,746.3; $20,677.1) |
$ | 22,669.0 | $ | 21,444.1 | |||||
Marketable
Equity Securities, at Fair Value (Cost: $821.1; $940.5) |
1,228.3 | 1,596.4 | |||||||
Mortgage Loans |
918.2 | 924.2 | |||||||
Other Investment Assets |
190.3 | 236.9 | |||||||
Short-Term Investments |
287.7 | 672.9 | |||||||
Total Investments |
25,293.5 | 24,874.5 | |||||||
Cash |
126.1 | 269.3 | |||||||
Accrued Investment Income |
333.2 | 323.8 | |||||||
Premiums and Service Fees Receivable |
1,051.1 | 973.0 | |||||||
Other Notes and Accounts Receivable |
217.5 | 163.4 | |||||||
Deferred Income Tax Recoverable |
348.2 | 319.0 | |||||||
Reinsurance Recoverables |
544.4 | 523.2 | |||||||
Deferred Policy Acquisition Costs |
644.2 | 626.8 | |||||||
Land,
Buildings and Equipment for Company Use (At cost less accumulated depreciation) |
534.4 | 552.0 | |||||||
Intangibles
and Goodwill (Note 6) (Accumulated amortization: $93.7; $85.9) |
142.4 | 149.4 | |||||||
Other Assets |
120.3 | 110.0 | |||||||
Securities Lending Collateral (Note 1) |
2,120.4 | 1,636.2 | |||||||
Separate Account Assets |
1,059.1 | 1,208.1 | |||||||
Total Assets |
$ | 32,534.8 | $ | 31,728.7 | |||||
See condensed notes to consolidated financial statements.
2
SAFECO Corporation and Subsidiaries
Consolidated Balance Sheets
| June 30 2002 | December 31 2001 | ||||||||
| (In Millions) | (Unaudited) | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Losses and Loss Adjustment Expenses |
$ | 5,177.0 | $ | 5,118.4 | |||||
Life Policy Liabilities |
332.2 | 327.1 | |||||||
Unearned Premiums |
1,835.6 | 1,782.2 | |||||||
Funds Held Under Deposit Contracts |
15,173.4 | 14,624.2 | |||||||
Debt (Note 3) |
1,073.0 | 1,096.6 | |||||||
Other Liabilities |
1,179.3 | 1,423.0 | |||||||
Current Income Taxes |
46.7 | 34.9 | |||||||
Securities Lending Payable (Note 1) |
2,120.4 | 1,636.2 | |||||||
Separate Account Liabilities |
1,059.1 | 1,208.1 | |||||||
Total Liabilities |
27,996.7 | 27,250.7 | |||||||
Commitments and Contingencies |
— | — | |||||||
Corporation-Obligated, Mandatorily Redeemable Capital Securities of Subsidiary Trust
Holding Solely Junior Subordinated Debentures of the Corporation (Capital Securities) |
843.6 | 843.4 | |||||||
Preferred Stock, No Par Value
|
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| Shares
Authorized: 10 Shares Issued and Outstanding: None |
— | — | |||||||
Common Stock, No Par Value |
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| Shares
Authorized: 300 Shares Reserved for Options: 7.2; 6.4 Shares Issued and Outstanding: 127.8; 127.7 |
846.4 | 841.9 | |||||||
Retained Earnings |
1,994.7 | 1,875.9 | |||||||
Accumulated Other Comprehensive Income, Net of Taxes |
853.4 | 916.8 | |||||||
Total Shareholders’ Equity |
3,694.5 | 3,634.6 | |||||||
Total Liabilities and Shareholders’ Equity |
$ | 32,534.8 | $ | 31,728.7 | |||||
See condensed notes to consolidated financial statements.
3
SAFECO Corporation and Subsidiaries
Consolidated Statements of Income (Loss)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||
| June 30 | June 30 | ||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||||
| (In Millions Except Per Share Amounts) | (Unaudited) | (Unaudited) | |||||||||||||||||||
REVENUES |
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Insurance |
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Property & Casualty Earned Premiums |
$ | 1,122.0 | $ | 1,120.4 | $ | 2,221.5 | $ | 2,236.9 | |||||||||||||
Life & Investments Premiums and Other Revenues |
166.1 | 155.1 | 331.2 | 320.8 | |||||||||||||||||
Total |
1,288.1 | 1,275.5 | 2,552.7 | 2,557.7 | |||||||||||||||||
Other |
2.0 | 3.5 | 4.7 | 5.4 | |||||||||||||||||
Net Investment Income |
412.8 | 407.9 | 827.5 | 823.3 | |||||||||||||||||
Net Realized Investment Gains |
95.4 | 28.8 | 126.0 | 62.2 | |||||||||||||||||
Total |
1,798.3 | 1,715.7 | 3,510.9 | 3,448.6 | |||||||||||||||||
EXPENSES |
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Losses, Loss Adjustment Expenses and Policy Benefits |
1,181.4 | 1,289.3 | 2,341.0 | 2,512.4 | |||||||||||||||||
Commissions |
217.4 | 208.7 | 420.3 | 406.6 | |||||||||||||||||
Personnel Costs |
117.0 | 125.6 | 239.7 | 252.9 | |||||||||||||||||
Interest |
16.4 | 15.3 | 32.4 | 32.3 | |||||||||||||||||
Intangibles and Goodwill Amortization (Note 6) |
4.2 | 2.1 | 8.1 | 19.2 | |||||||||||||||||
Other |
113.0 | 114.2 | 224.0 | 225.6 | |||||||||||||||||
Amortization of Deferred Policy Acquisition Costs |
212.4 | 201.5 | 421.9 | 407.7 | |||||||||||||||||
Deferral of Policy Acquisition Costs |
(229.2 | ) | (215.1 | ) | (442.4 | ) | (428.5 | ) | |||||||||||||
Restructuring Charges (Note 5) |
5.5 | — | 12.1 | — | |||||||||||||||||
Write-off of Goodwill (Note 6) |
— | — | — | 1,201.0 | |||||||||||||||||
Total |
1,638.1 | 1,741.6 | 3,257.1 | 4,629.2 | |||||||||||||||||
Income (Loss) from Continuing Operations before Income Taxes |
160.2 | (25.9 | ) | 253.8 | (1,180.6 | ) | |||||||||||||||
Provision (Benefit) for Income Taxes |
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Current |
47.9 | 11.3 | 54.5 | 17.5 | |||||||||||||||||
Deferred |
(4.1 | ) | (33.4 | ) | 8.1 | (322.6 | ) | ||||||||||||||
Total |
43.8 | (22.1 | ) | 62.6 | (305.1 | ) | |||||||||||||||
Income (Loss) from Continuing Operations
before Distributions on Capital Securities |
116.4 | (3.8 | ) | 191.2 | (875.5 | ) | |||||||||||||||
Distributions on Capital Securities, Net of Taxes |
(11.2 | ) | (11.2 | ) | (22.4 | ) | (22.4 | ) | |||||||||||||
Income (Loss) from Continuing Operations |
105.2 | (15.0 | ) | 168.8 | (897.9 | ) | |||||||||||||||
Income
from Discontinued Credit Operations, Net of Taxes (Note 4) |
— | 0.6 | — | 2.8 | |||||||||||||||||
Income (Loss) before Cumulative Effect of Change in Accounting Principle |
105.2 | (14.4 | ) | 168.8 | (895.1 | ) | |||||||||||||||
Cumulative Effect of Change in Accounting Principle — FAS 133, Net of Taxes |
— | — | — | (2.1 | ) | ||||||||||||||||
Net Income (Loss) (Note 6) |
$ | 105.2 | $ | (14.4 | ) | $ | 168.8 | $ | (897.2 | ) | |||||||||||
INCOME (LOSS) PER SHARE OF COMMON STOCK |
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Income (Loss) from Continuing Operations |
$ | 0.82 | $ | (0.11 | ) | $ | 1.32 | $ | (7.02 | ) | |||||||||||
Income
from Discontinued Credit Operations, Net of Taxes (Note 4) |
— | — | — | 0.02 | |||||||||||||||||
Income (Loss) before Cumulative Effect of Change in Accounting Principle |
0.82 | (0.11 | ) | 1.32 | (7.00 | ) | |||||||||||||||
Cumulative Effect of Change in Accounting Principle, Net of Taxes |
— | — | — | (0.02 | ) | ||||||||||||||||
Net Income (Loss) Per Share of Common Stock — Diluted & Basic (Note 6) |
$ | 0.82 | $ | (0.11 | ) | $ | 1.32 | $ | (7.02 | ) | |||||||||||
Dividends Paid to Common Shareholders |
$ | 0.185 | $ | 0.185 | $ | 0.370 | $ | 0.555 | |||||||||||||
Average Number of Shares Outstanding During the Period: (Note 1) |
Diluted | 128.1 | 128.0 | 128.1 | 127.9 | ||||||||||||||||
| Basic | 127.8 | 127.8 | 127.8 | 127.7 | |||||||||||||||||
See condensed notes to consolidated financial statements.
4
SAFECO Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity
| Six Months Ended | ||||||||
| June 30 | ||||||||
| 2002 | 2001 | |||||||
| (In Millions) | (Unaudited) | |||||||
COMMON STOCK |
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Balance at Beginning of Period |
$ | 841.9 | $ | 834.5 | ||||
Stock Issued for Options and Rights |
4.8 | 4.4 | ||||||
Common Stock Reacquired |
(0.7 | ) | (0.5 | ) | ||||
Other |
0.4 | 0.3 | ||||||
Balance at End of Period |
846.4 | &n | ||||||