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 March 31, 2005
| ¨ | 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 ¨.
127,476,794 shares of common stock of Safeco Corporation, no par value, were outstanding at April 29, 2005.
Safeco Corporation and Subsidiaries
| Item |
Description |
Page | ||
| Part I | Financial Information |
|||
| 1 | Financial Statements |
|||
|
Consolidated Statements of Income |
3 | |||
|
Consolidated Balance Sheets |
4 | |||
|
Consolidated Statements of Cash Flows |
5 | |||
|
Consolidated Statements of Shareholders’ Equity |
7 | |||
|
Consolidated Statements of Comprehensive Income |
7 | |||
| 8 | ||||
| 2 |
Management’s Discussion and Analysis of Financial Condition and |
16 | ||
| 4 | 34 | |||
| Part II | Other Information |
|||
| 1 | 35 | |||
| 6 | 35 | |||
| Signatures | 36 | |||
2
Safeco Corporation and Subsidiaries
Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
| THREE MONTHS ENDED MARCH 31 |
2005 |
2004 | ||||
| (Unaudited) | ||||||
| REVENUES |
||||||
| Net Earned Premiums |
$ | 1,428.4 | $ | 1,340.5 | ||
| Net Investment Income |
118.6 | 115.0 | ||||
| Net Realized Investment Gains |
33.5 | 42.8 | ||||
| Total Revenues |
1,580.5 | 1,498.3 | ||||
| EXPENSES |
||||||
| Losses and Loss Adjustment Expenses |
866.6 | 826.0 | ||||
| Amortization of Deferred Policy Acquisition Costs |
243.5 | 226.9 | ||||
| Other Underwriting and Operating Expenses |
151.2 | 154.1 | ||||
| Interest Expense |
21.4 | 30.5 | ||||
| Restructuring Charges |
0.2 | 1.3 | ||||
| Total Expenses |
1,282.9 | 1,238.8 | ||||
| Income from Continuing Operations before Income Taxes |
297.6 | 259.5 | ||||
| Provision for Income Taxes |
85.6 | 73.9 | ||||
| Income from Continuing Operations |
212.0 | 185.6 | ||||
| Income from Discontinued Operations (Net of Taxes of $26.9 in 2004) |
— | 50.6 | ||||
| Net Income |
$ | 212.0 | $ | 236.2 | ||
| INCOME PER SHARE OF COMMON STOCK – DILUTED |
||||||
| Income from Continuing Operations |
$ | 1.65 | $ | 1.33 | ||
| Income from Discontinued Operations, Net of Taxes |
— | 0.36 | ||||
| Net Income Per Share of Common Stock – Diluted |
$ | 1.65 | $ | 1.69 | ||
| INCOME PER SHARE OF COMMON STOCK – BASIC |
||||||
| Income from Continuing Operations |
$ | 1.67 | $ | 1.34 | ||
| Income from Discontinued Operations, Net of Taxes |
— | 0.36 | ||||
| Net Income Per Share of Common Stock – Basic |
$ | 1.67 | $ | 1.70 | ||
| Dividends Declared Per Share |
$ | 0.220 | $ | 0.185 | ||
| Average Number of Shares Outstanding During the Period: |
||||||
| Diluted |
128.2 | 140.0 | ||||
| Basic |
127.1 | 138.9 | ||||
See Condensed Notes to Consolidated Financial Statements.
3
Safeco Corporation and Subsidiaries
Consolidated Balance Sheets
(In Millions)
| MARCH 31 2005 |
DECEMBER 31 2004 | |||||
| (Unaudited) | ||||||
| ASSETS |
||||||
| Investments |
||||||
| Available-for-Sale Securities: |
||||||
| Fixed Maturities, at Fair Value (Cost or amortized cost: $8,986.8; $8,958.0) |
$ | 9,181.2 | $ | 9,294.3 | ||
| Marketable Equity Securities, at Fair Value (Cost: $705.9; $640.3) |
1,111.0 | 1,101.4 | ||||
| Other Invested Assets |
8.3 | 8.5 | ||||
| Total Investments |
10,300.5 | 10,404.2 | ||||
| Cash and Cash Equivalents |
354.8 | 251.9 | ||||
| Accrued Investment Income |
116.6 | 129.7 | ||||
| Premiums and Service Fees Receivable |
1,125.5 | 1,146.5 | ||||
| Current Income Taxes Recoverable |
41.0 | 54.7 | ||||
| Deferred Income Tax Asset |
301.1 | 292.6 | ||||
| Reinsurance Recoverables |
353.6 | 355.4 | ||||
| Deferred Policy Acquisition Costs |
377.2 | 382.2 | ||||
| Land, Buildings and Equipment for Company Use (At cost less accumulated depreciation: $324.3; $312.9) |
371.5 | 380.9 | ||||
| Other Assets |
256.7 | 256.1 | ||||
| Securities Lending Collateral |
888.3 | 931.9 | ||||
| Total Assets |
$ | 14,486.8 | $ | 14,586.1 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||
| Loss and Loss Adjustment Expense Reserves |
$ | 5,222.2 | $ | 5,209.3 | ||
| Unearned Premiums |
2,218.5 | 2,192.0 | ||||
| Debt |
1,332.9 | 1,332.9 | ||||
| Other Liabilities |
835.3 | 999.1 | ||||
| Securities Lending Payable |
888.3 | 931.9 | ||||
| Total Liabilities |
10,497.2 | 10,665.2 | ||||
| Commitments and Contingencies |
— | — | ||||
| Preferred Stock, No Par value; |
||||||
| Shares Authorized: 10 |
||||||
| Shares Issued and Outstanding: None |
||||||
| Common Stock, No Par Value |
— | — | ||||
| Shares Authorized: 300 |
||||||
| Shares Reserved for Stock Awards: 8.6; 9.1 |
||||||
| Shares Issued and Outstanding: 127.4; 127.0 |
655.1 | 641.8 | ||||
| Retained Earnings |
2,947.8 | 2,763.8 | ||||
| Accumulated Other Comprehensive Income, Net of Taxes |
386.7 | 515.3 | ||||
| Total Shareholders’ Equity |
3,989.6 | 3,920.9 | ||||
| Total Liabilities and Shareholders’ Equity |
$ | 14,486.8 | $ | 14,586.1 | ||
See Condensed Notes to Consolidated Financial Statements.
4
Safeco Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Millions)
| THREE MONTHS ENDED MARCH 31 |
2005 |
2004 |
||||||
| (Unaudited) | ||||||||
| OPERATING ACTIVITIES |
||||||||
| Insurance Premiums Received |
$ | 1,476.0 | $ | 1,336.0 | ||||
| Dividends and Interest Received |
142.1 | 138.7 | ||||||
| Insurance Claims Paid |
(851.7 | ) | (807.0 | ) | ||||
| Underwriting, Acquisition, Insurance and Other Operating Costs Paid |
(550.7 | ) | (552.6 | ) | ||||
| Interest Paid |
(42.2 | ) | (63.4 | ) | ||||
| Income Taxes Received (Paid) |
(10.8 | ) | 19.8 | |||||
| Net Cash Provided by Operating Activities |
162.7 | 71.5 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Purchases of: |
||||||||
| Fixed Maturities Available-for-Sale |
(490.7 | ) | (405.8 | ) | ||||
| Marketable Equity Securities Available-for-Sale |
(139.1 | ) | (110.3 | ) | ||||
| Maturities and Calls of Fixed Maturities Available-for-Sale |
324.3 | 195.8 | ||||||
| Sales of: |
||||||||
| Fixed Maturities Available-for-Sale |
164.4 | 180.0 | ||||||
| Marketable Equity Securities Available-for-Sale |
101.9 | 135.4 | ||||||
| Other, Net |
(2.0 | ) | 11.0 | |||||
| Net Cash Provided by (Used In) Investing Activities |
(41.2 | ) | 6.1 | |||||
| FINANCING ACTIVITIES |
||||||||
| Dividends Paid to Shareholders |
(28.0 | ) | (25.7 | ) | ||||
| Stock Options Exercised |
9.4 | 15.1 | ||||||
| Net Cash Used in Financing Activities |
(18.6 | ) | (10.6 | ) | ||||
| Net Increase in Cash and Cash Equivalents |
102.9 | 67.0 | ||||||
| Cash and Cash Equivalents at Beginning of Period |
251.9 | 319.0 | ||||||
| Cash and Cash Equivalents at End of Period |
$ | 354.8 | $ | 386.0 | ||||
See Condensed Notes to Consolidated Financial Statements.
5
Safeco Corporation and Subsidiaries
Consolidated Statements of Cash Flows – Reconciliation of Net Income to Net Cash Provided by Operating Activities
(In Millions)
| THREE MONTHS ENDED MARCH 31 |
2005 |
2004 |
||||||
| (Unaudited) | ||||||||
| Net Income |
$ | 212.0 | $ | 236.2 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
||||||||
| Income from Discontinued Operations, Net of Taxes |
— | (50.6 | ) | |||||
| Net Realized Investment Gains |
(33.5 | ) | (42.8 | ) | ||||
| Amortization of Fixed Maturities |
11.6 | 9.5 | ||||||
| Amortization and Depreciation |
12.8 | 14.8 | ||||||
| Deferred Income Tax Provision |
49.5 | 38.3 | ||||||
| Other, Net |
0.8 | 2.8 | ||||||
| Changes in: |
||||||||
| Accrued Investment Income |
13.1 | 10.0 | ||||||
| Deferred Policy Acquisition Costs |
5.0 | (4.6 | ) | |||||
| Loss and Loss Adjustment Expense Reserves |
12.9 | 24.3 | ||||||
| Unearned Premiums |
26.5 | 31.6 | ||||||
| Current Income Taxes Recoverable |
13.7 | 51.6 | ||||||
| Premiums and Service Fees Receivable |
21.0 | (36.0 | ) | |||||
| Other Assets and Liabilities |
(182.7 | ) | (213.6 | ) | ||||
| Total Adjustments |
(49.3 | ) | (164.7 | ) | ||||
| Net Cash Provided by Operating Activities |
$ | 162.7 | $ | 71.5 | ||||
There were no significant non-cash financing or investing activities for the three months ended March 31, 2005 or 2004.
See Condensed Notes to Consolidated Financial Statements.
6
Safeco Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(In Millions, except share amounts)
| THREE MONTHS ENDED MARCH 31 |
2005 |
2004 |
||||||
| (Unaudited) | ||||||||
| COMMON STOCK |
||||||||
| Balance at Beginning of Period |
$ | 641.8 | $ | 1,197.3 | ||||
| Stock Issued for Options and Rights (including taxes of $0.7; $1.9) |
11.0 | 16.8 | ||||||
| Stock Compensation |
2.3 | 2.8 | ||||||
| Balance at End of Period |
655.1 | 1,216.9 | ||||||
| RETAINED EARNINGS |
||||||||
| Balance at Beginning of Period |
2,763.8 | 2,308.7 | ||||||
| Net Income |
212.0 | 236.2 | ||||||
| Dividends Declared |
(28.0 | ) | (25.7 | ) | ||||