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 Quarterly Period Ended June 30, 2004
| ¨ | 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
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
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
YES x. NO ¨.
139,143,594 shares of common stock of Safeco Corporation, no par value, were outstanding at July 30, 2004.
Safeco Corporation and Subsidiaries
2
Safeco Corporation and Subsidiaries
Consolidated Statements of Income
| THREE MONTHS ENDED JUNE 30 |
SIX MONTHS ENDED JUNE 30 | ||||||||||||
| 2004 |
2003 |
2004 |
2003 | ||||||||||
| (In Millions, Except Per Share Amounts) | (Unaudited) | (Unaudited) | |||||||||||
| REVENUES |
|||||||||||||
| Property & Casualty Earned Premiums |
$ | 1,351.4 | $ | 1,201.8 | $ | 2,691.9 | $ | 2,364.9 | |||||
| Net Investment Income |
119.1 | 119.8 | 234.1 | 239.4 | |||||||||
| Net Realized Investment Gains |
84.9 | 15.7 | 127.7 | 23.9 | |||||||||
| Other |
0.4 | 2.7 | 0.4 | 5.3 | |||||||||
| Total |
1,555.8 | 1,340.0 | 3,054.1 | 2,633.5 | |||||||||
| EXPENSES |
|||||||||||||
| Losses and Loss Adjustment Expenses |
776.3 | 846.7 | 1,602.3 | 1,635.8 | |||||||||
| Other Underwriting and Operating Expenses |
158.8 | 164.1 | 312.9 | 322.5 | |||||||||
| Amortization of Deferred Policy Acquisition Costs |
222.5 | 210.0 | 449.4 | 414.6 | |||||||||
| Interest Expense |
31.5 | 30.9 | 62.0 | 65.7 | |||||||||
| Restructuring Charges |
0.1 | — | 1.4 | — | |||||||||
| Total |
1,189.2 | 1,251.7 | 2,428.0 | 2,438.6 | |||||||||
| Income from Continuing Operations before Income Taxes |
366.6 | 88.3 | 626.1 | 194.9 | |||||||||
| Provision for Income Taxes |
117.7 | 21.2 | 191.6 | 48.3 | |||||||||
| Income from Continuing Operations |
248.9 | 67.1 | 434.5 | 146.6 | |||||||||
| Income (Loss) from Discontinued Operations (Net of Taxes of $(13.7) and $13.2 in 2004 and $22.8 and $29.1 in 2003) |
(1.4 | ) | 44.8 | 49.2 | 55.3 | ||||||||
| Net Income |
$ | 247.5 | $ | 111.9 | $ | 483.7 | $ | 201.9 | |||||
| INCOME PER SHARE OF COMMON STOCK – DILUTED |
|||||||||||||
| Income from Continuing Operations |
$ | 1.78 | $ | 0.49 | $ | 3.10 | $ | 1.05 | |||||
| Income (Loss) from Discontinued Operations |
(0.01 | ) | 0.32 | 0.35 | 0.40 | ||||||||
| Net Income |
$ | 1.77 | $ | 0.81 | $ | 3.45 | $ | 1.45 | |||||
| INCOME PER SHARE OF COMMON STOCK – BASIC |
|||||||||||||
| Income from Continuing Operations |
$ | 1.79 | $ | 0.49 | $ | 3.12 | $ | 1.06 | |||||
| Income (Loss) from Discontinued Operations |
(0.01 | ) | 0.32 | 0.36 | 0.40 | ||||||||
| Net Income |
$ | 1.78 | $ | 0.81 | $ | 3.48 | $ | 1.46 | |||||
| Dividends Declared |
$ | 0.185 | $ | 0.185 | $ | 0.370 | $ | 0.370 | |||||
| Average Number of Shares Outstanding During the Period: |
|||||||||||||
| Diluted |
140.1 | 139.0 | 140.1 | 138.8 | |||||||||
| Basic |
139.1 | 138.4 | 139.0 | 138.3 | |||||||||
See Condensed Notes to Consolidated Financial Statements.
3
Safeco Corporation and Subsidiaries
| JUNE 30 2004 |
DECEMBER 31 2003 | |||||
| (In Millions) | (Unaudited) | |||||
| ASSETS |
||||||
| Investments |
||||||
| Available-for-Sale Securities: |
||||||
| Fixed Maturities, at Fair Value (Cost or amortized cost: $8,344.4; $7,717.2) |
$ | 8,561.2 | $ | 8,159.2 | ||
| Marketable Equity Securities, at Fair Value (Cost: $538.0; $684.8) |
964.6 | 1,166.2 | ||||
| Other Invested Assets |
10.3 | 18.8 | ||||
| Total Investments |
9,536.1 | 9,344.2 | ||||
| Cash and Cash Equivalents |
382.1 | 319.0 | ||||
| Accrued Investment Income |
127.1 | 120.9 | ||||
| Premiums and Service Fees Receivable |
1,122.0 | 1,043.9 | ||||
| Other Notes and Accounts Receivable |
96.3 | 104.8 | ||||
| Current Income Taxes Recoverable |
— | 20.5 | ||||
| Deferred Income Taxes Recoverable |
260.8 | 274.3 | ||||
| Reinsurance Recoverables |
376.8 | 372.0 | ||||
| Deferred Policy Acquisition Costs |
378.4 | 356.8 | ||||
| Land, Buildings and Equipment for Company Use (At cost less accumulated depreciation: $335.5; $311.8) |
410.4 | 433.7 | ||||
| Other Assets |
230.5 | 256.5 | ||||
| Securities Lending Collateral |
1,069.7 | 951.9 | ||||
| Assets of Discontinued Operations |
22,313.1 | 22,548.9 | ||||
| Total Assets |
$ | 36,303.3 | $ | 36,147.4 | ||
See Condensed Notes to Consolidated Financial Statements.
4
Safeco Corporation and Subsidiaries
Consolidated Balance Sheets
| JUNE 30 2004 |
DECEMBER 31 2003 |
|||||||
| (In Millions) | (Unaudited) | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Loss and Loss Adjustment Expense Reserves |
$ | 5,071.9 | $ | 5,044.6 | ||||
| Unearned Premiums |
2,182.9 | 2,053.6 | ||||||
| Debt |
1,951.3 | 1,951.3 | ||||||
| Current Income Taxes Payable |
9.8 | — | ||||||
| Other Liabilities |
1,042.4 | 1,180.0 | ||||||
| Securities Lending Payable |
1,069.7 | 951.9 | ||||||
| Liabilities of Discontinued Operations |
19,923.9 | 19,942.7 | ||||||
| Total Liabilities |
31,251.9 | 31,124.1 | ||||||
| Commitments and Contingencies |
— | — | ||||||
| Preferred Stock, No Par value |
||||||||
| Shares Authorized: 10.0 |
||||||||
| Shares Issued and Outstanding: None |
— | — | ||||||
| Common Stock, No Par Value |
||||||||
| Shares Authorized: 300.0 |
||||||||
| Shares Reserved for Options: 10.4; 11.6 |
||||||||
| Shares Issued and Outstanding: 138.9; 138.6 |
1,207.6 | 1,197.3 | ||||||
| Retained Earnings |
2,740.8 | 2,308.7 | ||||||
| Accumulated Other Comprehensive Income, Net of Taxes |
||||||||
| Unrealized Gains and Losses on Available-for-Sale Securities and Derivative Financial Instruments |
1,146.3 | 1,589.0 | ||||||
| Unrealized Foreign Currency Translation Adjustment |
(12.8 | ) | (8.8 | ) | ||||
| Deferred Policy Acquisition Costs Valuation Allowance |
(24.8 | ) | (57.2 | ) | ||||
| Minimum Pension Liability Adjustment |
(5.7 | ) | (5.7 | ) | ||||
| Total Accumulated Other Comprehensive Income |
1,103.0 | 1,517.3 | ||||||
| Total Shareholders’ Equity |
5,051.4 | 5,023.3 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 36,303.3 | $ | 36,147.4 | ||||
See Condensed Notes to Consolidated Financial Statements.
5
Safeco Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| SIX MONTHS ENDED JUNE 30 |
2004 |
2003 |
||||||
| (In Millions) | (Unaudited) | |||||||
| OPERATING ACTIVITIES |
||||||||
| Insurance Premiums Received |
$ | 2,743.0 | $ | 2,482.3 | ||||
| Dividends and Interest Received |
227.2 | 236.2 | ||||||
| Insurance Claims Paid |
(1,578.6 | ) | (1,692.0 | ) | ||||
| Underwriting, Acquisition, Insurance and Other Operating Costs Paid |
(853.7 | ) | (882.3 | ) | ||||
| Interest Paid |
(61.3 | ) | (58.6 | ) | ||||
| Income Taxes Paid |
(73.9 | ) | (9.6 | ) | ||||
| Discontinued Operations, Net |
413.0 | 426.6 | ||||||
| Net Cash Provided by Operating Activities |
815.7 | 502.6 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Purchases of |
||||||||
| Fixed Maturities Available-for-Sale |
(1,305.9 | ) | (1,027.3 | ) | ||||
| Equity Securities Available-for-Sale |
(255.1 | ) | (71.4 | ) | ||||
| Maturities and Calls of Fixed Maturities Available-for-Sale |
423.2 | 536.6 | ||||||
| Sales of: |
||||||||
| Fixed Maturities Available-for-Sale |
519.1 | 606.7 | ||||||
| Equity Securities Available-for-Sale |
320.8 | 84.1 | ||||||
| Other, Net |
3.7 | 3.5 | ||||||
| Discontinued Operations, Net |
59.2 | (589.0 | ) | |||||
| Net Cash Used in Investing Activities |
(235.0 | ) | (456.8 | ) | ||||