<PAGE> 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.
<PAGE> 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-
<PAGE> 3
SAFECO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands)
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30 December 31
1994 1993
ASSETS ------------ ------------
<S> <C> <C>
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-
<PAGE> 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
============ ============
<FN>
(a) See Management's Discussion and Analysis -
"Other - Footnote" section.
</TABLE>
-4-
<PAGE> 5
SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME AND RETAINED EARNINGS
(In Thousands Except Per Share Amounts)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
----------------------- -----------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
<FN>
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.
</TABLE>
-5-
<PAGE> 6
SAFECO CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(In Thousands)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
1994 1993 *
----------- -----------
<S> <C> <C>
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-
<PAGE> 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
=========== ==========
<FN>
* Certain reclassifications have been made to the 1993
amounts to conform to current year classifications.
</TABLE>
-7-
<PAGE> 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-
<PAGE> 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-
<PAGE) 10
SAFECO CORPORATION
- ------------------
Management's Discussion and Analysis (Continued)
- ----------------------------------------------------------------
Surety continues to experience excellent results for both contract and
commercial bond business. The profit for this line was $6.7 million for
the first six months, compared with a profit of $10.2 million for the
first six months last year.
Total premiums written for the first six months increased 9% over a
year ago with personal lines up 8%, and commercial lines up 10%. The
growth in commercial lines is mainly attributed to successful efforts
to write larger accounts from larger commercial agents in targeted
markets.
Life and Health Insurance
- -------------------------
Life and health insurance operations produced a pretax profit, before
realized gain from investments, of $59.8 million for the first six
months of 1994. This compares with $62.7 million for the same period in
1993. Income for the second quarter was $29.8 million, which compares
with $30.0 million for first quarter of this year.
The annuity and pension lines combined six months earnings were $19.7
million, reflecting little change from the $19.8 million reported for
the first six months of 1993. Group insurance earnings were $10.5
million for the first six months, compared with $13.3 million for the
first six months of 1993. The decline in earnings from our group
insurance operations is caused by both competitive pressures and market
uncertainties due to the health care debate in Congress.
Real Estate
- -----------
SAFECO Properties' pretax income was $5.2 million for the first six
months of 1994, compared with $4.8 million for 1993.
Credit
- -------
SAFECO Credit Company reported pretax profit of $4.5 million for the
first six months of 1994, compared with $4.9 million in 1993. Rate
competition and increasing borrowing costs continue to pressure the
portfolio margins, but record new business production provided some
offset. Non-affiliate receivables reached $589 million at June 30,
1994, a 10% annualized increase from December, 1993. Delinquency
experience continues excellent with accounts past due 30 days or more
less than 1% at June 30th.
-10-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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)
=========
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<PAGE> 14
SAFECO CORPORATION
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Part II - Other Information
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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
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