Item 1. Business (GEICO Corporation and Subsidiaries).
GEICO Corporation (the "Corporation") was organized as a Delaware corporation in 1978. In 1979 the Corporation became the parent of Government Employees Insurance Company ("GEICO" or the "Company"), its principal subsidiary, and is also the parent corporation of various additional subsidiaries which are in the business of providing insurance and financial services (collectively, the "GEICO Companies").
GEICO was founded in 1936 and has been continuously engaged in the insurance business. GEICO is a multiple line property and casualty insurer, the principal business of which is writing private passenger automobile insurance primarily for preferred-risk government employees and military personnel. To a lesser extent, it also writes homeowners insurance, personal umbrella liability, and boat owners and fire insurance for all qualified applicants. GEICO General Insurance Company ("GEICO General") is a subsidiary of GEICO which, in 1987, began writing private passenger automobile insurance for preferred-risk drivers not associated with the government or the military. GEICO Indemnity Company ("GI"), a subsidiary of the Corporation, writes standard-risk private passenger automobile and motorcycle insurance. GEICO Casualty Company (the name of which was changed from Criterion Casualty Company effective January 6, 1994), a subsidiary of GI, writes nonstandard-risk private passenger automobile insurance. The insurance companies market their policies primarily through direct response methods. Currently, GEICO, GEICO General, GI and GEICO Casualty have an A. M. Best rating of A++ (Superior) and a Standard & Poor's claims paying ability rating of AAA (Superior).
Criterion Life Insurance Company ("Criterion Life") was formed by GEICO in 1991 to offer structured settlement single premium annuities to claimants of its property/casualty company affiliates. On December 31, 1991 Criterion Life assumed all the structured settlement annuity business in force from Garden State Life Insurance Company, which was also wholly-owned by GEICO until it was sold in June 1992. Criterion Life has an A. M. Best rating of A++ (Superior).
Other active subsidiaries of the Corporation and the Company involved in the sale of insurance and insurance related products include: International Insurance Underwriters, Inc., which provides various insurance services to military personnel as they are transferred overseas or back to the United States; The Top Five Club, Inc., which offers travel-related benefits to military personnel in the top five military enlisted pay grades; GEICO Financial Services, GmbH, which sells automobile policies to American military personnel through offices in Germany and through agents in England, Germany, Italy, Portugal and Turkey; Insurance Counselors, Inc. and Insurance Counselors of Texas, Inc., formed primarily to facilitate the marketing of insurance products; and Safe Driver Motor Club, Inc., which offers motor club services to customers of subsidiaries of the Corporation and sponsors of motor clubs.
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The Corporation offers additional financial services through its subsidiary, Government Employees Financial Corporation ("GEFCO") which, directly or through one or more of its own subsidiaries, is in the business of consumer and business lending and loan servicing. The Corporation is in the process of winding down the business of GEFCO.
Other subsidiaries of the Corporation include Plaza Resources Company, which is engaged in various investment ventures; and several other companies which serve various corporate purposes including real estate/property companies, Maryland Ventures, Inc., and GEICO Facilities Corporation.
Resolute Reinsurance Company, a subsidiary of Resolute Group, Inc., in turn a subsidiary of the Corporation, wrote property and casualty reinsurance in the domestic and international markets until late 1987 when it suspended writing new and renewal reinsurance. Resolute is in the process of running off its claims obligations. Effective December 31, 1993 the Corporation sold Merastar Insurance Company and Southern Heritage Insurance Company, two small property casualty insurance companies which had been purchased in 1991.
Seasonal variations in the business of the Corporation historically are not material. However, extraordinary weather conditions or other factors may have an impact on the frequency or severity of automobile or homeowners claims. Weather related catastrophes severely affected the Corporation's financial results in 1992 due to Hurricane Andrew and had a lesser impact in 1993 and 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" at Item 7 for more information concerning the effect of, and the Corporation's response to, such catastrophes.
Additional information concerning the insurance regulatory environment, the settlement of the insurance subsidiaries' California Proposition 103 premium refund obligation in 1993, proposed modification or repeal of the McCarran-Ferguson Act, proposals to integrate the medical portion of automobile insurance into the general health care insurance system, and similar initiatives elsewhere intended to affect insurance premium rates generally without addressing the underlying factors upon which those rates are based, is presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations" at Item 7 and such information is incorporated herein by reference.
The insurance industry is highly competitive. GEICO currently competes most directly with other companies, including mutual companies, that concentrate on preferred risk private passenger automobile insurance and, to a lesser extent, for standard and nonstandard risks. Because personal lines property and casualty insurance is so stringently regulated by each state in which the Companies do business, it is difficult for companies to differentiate their products. Additionally, some companies exacerbate price competition by selling their products at inadequate rates for a period of time, because long delays in reporting and settling certain claims result in underestimating ultimate loss costs, or the products are sold in anticipation of profits from their investment portfolios. Consequently, GEICO's business is very sensitive both to the price of the product and the perceived level of customer service it provides. Competition for preferred risks, which is substantial, tends to focus on issues of price and service, while price is a more significant factor to other risks. The GEICO Companies place great emphasis on customer
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satisfaction and write their auto business predominantly with six-month policies, allowing them to manage rate changes more effectively. GEICO also believes its reputation is a material asset and protects its name and other service marks through appropriate registrations.
Although most insurance companies are stock companies like GEICO, in 1993 mutual companies wrote approximately one-third of all property and liability insurance in the United States. Mutual companies may have a competitive advantage in that certain earnings inure to the benefit of policyholders rather than to shareholders; in certain circumstances, however, stock companies do pay dividends to their policyholders.
As of December 31, 1994 the Corporation and its subsidiaries had 7,453 full-time employees and 698 part-time employees. A number of benefits are provided or made available for most full-time employees including profit sharing, pension and employee stock ownership plans and various insurance programs.
PRINCIPAL BUSINESS SEGMENTS
Property and casualty insurance is the Corporation's dominant business segment, although other insurance and financial service products are offered.
The information concerning the Corporation's personal lines property and casualty insurance business and its other business segments required by the remainder of this Item 1, which is contained in its 1994 Annual Report to Shareholders under the caption "Business Segments" on pages 14 through 16 and Note O of the "Notes to Consolidated Financial Statements" contained on Page 43, is incorporated herein by reference.
Item 2.

Item 2. Properties.
GEICO, the principal subsidiary of the Corporation, owns its GEICO Plaza headquarters building in Chevy Chase, Maryland, its Regional Office buildings in Woodbury, New York, Macon, Georgia, Dallas, Texas, and Stafford County near Fredericksburg, Virginia, certain of its claims drive- in facilities and certain additional properties. GEICO also leases its Regional Offices in San Diego, California and office space and drive-in claims facilities in various cities in the United States. These facilities will accommodate foreseeable space requirements.
GEICO also maintains and continually upgrades sophisticated electronic data processing equipment and software and telecommunications facilities to enable it to process applications and claims efficiently.
Item 3.

Item 3. Legal Proceedings.
There are no material legal proceedings to which the Corporation is a party or of which the property of the Corporation is the subject.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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Executive Officers of the Registrant.
Information regarding executive officers of the Corporation is set forth below. Each officer holds such office until the next annual election of officers, which is held at the first meeting of the Board of Directors after the annual meeting of shareholders, which is scheduled to be held on May 10, 1995, and until his/her successor is elected or appointed. To the best knowledge of the Corporation, there are no family relationships among any of such officers or among any of such officers and any directors nor is there any arrangement or understanding between any such officer and any other person pursuant to which any such officer was elected.
Marion E. Byrd, 58, has been a director and Senior Vice President of GEICO since May 1989. He was a Vice President of GEICO from January 1980 to May 1989. He also is, or has served as, a director and/or an officer of several subsidiaries of the Corporation and GEICO.
Charles R. Davies, 54, was elected Vice President and General Counsel of the Corporation and GEICO and a director of GEICO in November 1992. He served as Vice President and Deputy General Counsel of both the Corporation and GEICO from March 1987 to November 1992 and Assistant Vice President and Deputy General Counsel from March 1982 to March 1987. Mr. Davies also is, or has served as, a director and/or an officer of several subsidiaries of the Corporation and GEICO.
James M. Hitt, 50, was elected a Vice President of GEICO in August 1986 and has been an officer of GEICO since 1979. He also is or has served as an officer and/or director of various subsidiaries of the Corporation and GEICO.
Donald R. Lyons, 48, was elected a Vice President of GEICO in May 1992 and has been an officer since September 1985. He is also an officer of certain subsidiaries of GEICO.
Robert M. Miller, 52, was elected a Vice President of GEICO in September 1987 and has been an officer since May 1980. He is also an officer of certain subsidiaries of GEICO.
Olza M. Nicely, 51, was elected President and Chief Executive Officer - Insurance Operations of the Corporation in May 1993 and was elected a director of the Corporation in May 1990. He was also elected Chairman of the Board, President and Chief Executive Officer of GEICO in May 1993, having served as President and Chief Executive Officer of GEICO from January 1992 to May 1993 and as President of GEICO from August 1989 to January 1992. He has been a director of GEICO since September 1985. He had served as Executive Vice President of GEICO from June 1987 to August 1989. He has been an officer of GEICO since March 1973. Mr. Nicely also is, or has served as, a director and/or an officer of several subsidiaries of the Corporation and GEICO.
Simone J. Pace, 52, was elected a Senior Vice President of the Corporation and GEICO and a director of GEICO in August 1993. Prior to joining the Corporation, he had been president of Blue Cross/Blue Shield of the National Capital Area from September 1992 to April 1993, Executive Vice President from October 1988 to August 1992 and Senior Vice President from January 1985 to October 1988, having first joined that Company in June 1971.
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David H. Pushman, 46, was elected a Vice President of GEICO in May 1989. He has been an officer of GEICO since June 1986.
David Schindler, 49, was elected a Vice President of GEICO in May 1988 and has been an officer of GEICO since August 1983. He is also, or has served as, an officer of several subsidiaries of GEICO.
Louis A. Simpson, 58, was elected President and Chief Executive Officer - Capital Operations of the Corporation in May 1993, having served as Vice Chairman of the Board of Directors of the Corporation from July 1985 to May 1993. He has been a director of the Corporation since May 1983. Mr. Simpson is, or has served as, Chairman of the Board, a director and/or an officer of several subsidiaries of the Corporation and GEICO. He has been a director of Potomac Electric Power Company since December 1990, of Salomon Inc since May 1993 and of Pacific American Income Shares Inc. since November 1994.
W. Alvon Sparks, Jr., 59, was elected a director of the Corporation in November 1993 and has served as an Executive Vice President and Chief Financial Officer of the Corporation since August 1992. He was a Senior Vice President of the Corporation from September 1982 to August 1992. He was elected Executive Vice President of GEICO in February 1995, having served as a Senior Vice President since September 1982 and a director since May 1982. Mr. Sparks also is, or has served as, Chairman of the Board, a director and/or an officer of several subsidiaries of the Corporation and GEICO.
Richard C. VanEssendelft, 54, was elected a Vice President of GEICO in January 1992, having served as an Assistant Vice President from August 1979 to January 1992. He also is, or has served as, a director and/or an officer of various subsidiaries of the Corporation.
Thomas M. Wells, 44, was elected a Group Vice President and Controller of the Corporation and GEICO in August 1992 and a director of GEICO in November 1992. He served as Vice President and Controller of the Corporation and GEICO from July 1985 to August 1992. Mr. Wells also serves as a director and/or an officer of several subsidiaries of the Corporation and GEICO.
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
In response to this Item the material under the caption "Common Stock" (page 7) and the final paragraph of Note C (page 36) of the "Notes to Consolidated Financial Statements" in the Corporation's 1994 Annual Report to Shareholders are incorporated herein by reference.
Item 6.

Item 6. Selected Financial Data.
In response to this Item the material under the caption "Selected Financial Data" (pages 6 and 7) in the Corporation's 1994 Annual Report to Shareholders is incorporated herein by reference.
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Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
In response to this Item the material under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" (pages 17 through 26 and page 45) in the Corporation's 1994 Annual Report to Shareholders is incorporated herein by reference.
Item 8.

Item 8. Financial Statements and Supplementary Data.
In response to this Item the consolidated financial statements and the notes thereto contained in the Corporation's 1994 Annual Report to Shareholders (pages 27 through 43) and the Quarterly Highlights of Operating Results (page 44) are incorporated herein by reference.
Item 9.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item pursuant to Item 401 of Regulation S-K with respect to directors of the Corporation is incorporated herein by reference from the Corporation's definitive proxy statement filed or to be filed with the Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Act"). The information required by this Item pursuant to Item 401 of Regulation S-K with respect to executive officers of the Corporation is included in Part I hereof. The information, if any, required by this Item pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the Corporation's definitive proxy statement filed or to be filed with the Commission pursuant to the Act.
Item 11.

Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference from the Corporation's definitive proxy statement filed or to be filed with the Commission pursuant to Regulation 14A under the Act.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated herein by reference from the Corporation's definitive proxy statement filed or to be filed with the Commission pursuant to Regulation 14A under the Act.
Item 13.

Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated herein by reference from the Corporation's definitive proxy statement filed or to be filed with the Commission pursuant to Regulation 14A under the Act.
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PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) and (2) List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of the Corporation and subsidiaries, included in the Corporation's Annual Report to Shareholders for the year ended December 31, 1994, are incorporated by reference in Item 8:
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Income - Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows - Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements.
(a)(3) and (c) Exhibits
The following exhibits are included in response to Item 14(c). Management contracts and compensatory plans are indicated by an asterisk (*).
Exhibit No. Description Reference
3-a Certificate of Incorporation, Exhibit 3-a to GEICO Corpo- as amended. ration's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
3-b Bylaws of GEICO Corporation, as Exhibit No. 3-b to GEICO amended. Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1993
4-a Specimen certificate representing Exhibit 6(c) to File the common stock, $1.00 par value. No. 2-63138 on Form S-14.
(Copies of certain indentures, which in the aggregate do not represent securities worth as much as ten percent of the total consolidated assets of GEICO Corporation, will be furnished upon request.)
9 Proxy Agreement between Berkshire Exhibit 9 to Form SE filed Hathaway Inc. and Sovran Bank/ in connection with GEICO Maryland or its successors and Corporation's Annual Report assigns. on Form 10-K for the fiscal year ended December 31, 1986. - 9 - PAGE
10-a* Form of Pension Plan for Non- Exhibit 10-a to GEICO Corpo- Employee Directors, as amended. ration's Annual Report on Form 10-K for the fiscal year ended December 31, 1988.
10-b* Revised Stock Option Plan for Key Exhibit 10-b to GEICO Corpo- Employees of GEICO Corporation and ration's Annual Report on Its Subsidiaries ("1992 Plan"). Form 10-K for the fiscal year ended December 31, 1992.
10-c* Form of Non-Qualified Stock Option Exhibit No. 10-c to GEICO Agreement under the 1992 Plan, as Corporation's Annual Report amended. on Form 10-K for the fiscal year ended December 31, 1993.
10-d* Form of Incentive Stock Option Exhibit 10-d to GEICO Corpo- Agreement under the 1992 Plan. ration's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
10-e* Notice of Election to Exercise Exhibit 10-e to GEICO Corpo- Stock Options under the 1992 ration's Annual Report on Plan. Form 10-K for the fiscal year ended December 31, 1992.
10-f* Revised Stock Option Plan for Key Exhibit 10-l to Form SE Employees of GEICO Corporation and filed in connection with Its Subsidiaries ("1985 Plan"). GEICO Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1986.
10-g* Form of Non-Qualified Stock Option Exhibit 10-e to GEICO Corpo- Agreement under the 1985 Plan, ration's Annual Report as amended. on Form 10-K for the fiscal year ended December 31, 1989.
10-h* Form of Incentive Stock Option Exhibit 10-g to GEICO Corpo- Agreement under the 1985 Plan. ration's Annual Report on Form 10-K for the fiscal year ended December 31, 1989.
10-i* Form of Incentive Stock Option Exhibit 10-h to GEICO Corpo- Agreement with Stock Appreciation ration's Annual Report on Rights under the 1985 Plan. Form 10-K for the fiscal year ended December 31, 1989.
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10-j* Notice of Election to Exercise Exhibit 10-o to Form SE Stock Options and/or Stock filed in connection with Appreciation Rights under the GEICO Corporation's Annual 1985 Plan. Report on Form 10-K for the fiscal year ended December 31, 1985.
10-k* Statement of 1994 Incentive Exhibit 10-l to GEICO Corpo- Bonus Program. ration's Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
10-l* Statement of 1995 Incentive Page No. 29. Bonus Program.
10-m* Deferred Compensation Plan, Exhibit 10-m to GEICO Corpo- as amended. ration's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
10-n* Performance Share Plan, as Exhibit 10-k to GEICO Corpo- amended. ration's Annual Report on Form 10-K for the fiscal year ended December 31, 1983.
10-o* Equity Cash Bonus Plan. Page No. 30.
13 Annual Report to Shareholders Page No. 34. for the year ended December 31, 1994 (only as to material specifically incorporated herein by reference).
21 Subsidiaries of GEICO Corporation. Page No. 85.
23 Consent of Accountants. Page No. 86.
27 Financial Data Schedule Page No. 87. (Submitted as an exhibit pur- suant to the requirements of Item 601(b)(27) of Reg. S-K and not deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934.)
28P Information from reports Exhibit 28P to Form SE furnished to state insurance filed in connection with regulatory authorities. GEICO Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
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99 Annual Report on Form 11-K for To be filed by amendment. the Revised Profit Sharing Plan for the Employees of the Govern- ment Employees Companies for the fiscal year ended December 31, 1994.
(b) Reports on Form 8-K.
GEICO Corporation did not file a report on Form 8-K during the three months ended December 31, 1994.
The following financial information is included in response to Item 14(d):
Reference
Report of Independent Accountants Page No. 17.
Schedule I - Summary of Investments - Other Than Investments in Related Parties Page No. 18.
Schedule II - Condensed Financial Information of Registrant Page Nos. 19 - 22.
Schedule III - Supplementary Insurance Information Page Nos. 23 - 24.
Schedule IV - Reinsurance Page No. 25.
Schedule V - Valuation and Qualifying Accounts Page No. 26.
Schedule VI - Supplemental Information Concerning Property/Casualty Insurance Operations Page Nos. 27 - 28.
Financial statements of unconsolidated affiliates and 50% or less owned persons accounted for by the equity method have been omitted because they do not, considered individually or in the aggregate, constitute a significant subsidiary.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
GEICO CORPORATION
March 31, 1995 By: /s/ W. Alvon Sparks, Jr. W. Alvon Sparks, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer)
March 31, 1995 By: /s/ Thomas M. Wells Thomas M. Wells Group Vice President and Controller (Principal Accounting Officer)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Olza M. Nicely March 31, 1995 Olza M. Nicely Date President and Chief Executive Officer - Insurance Operations and Director (Co-Principal Executive Officer)
/s/ Louis A. Simpson March 31, 1995 Louis A. Simpson Date President and Chief Executive Officer - Capital Operations and Director (Co-Principal Executive Officer)
/s/ John H. Bretherick, Jr. March 31, 1995 John H. Bretherick, Jr. Date Director
/s/ Norma E. Brown March 31, 1995 Norma E. Brown Date Director
/s/ Samuel C. Butler March 31, 1995 Samuel C. Butler Date Director
/s/ James E. Cheek March 31, 1995 James E. Cheek Date Director
/s/ A. James Clark March 31, 1995 A. James Clark Date Director
/s/ Delano E. Lewis March 31, 1995 Delano E. Lewis Date Director
/s/ Coleman Raphael March 31, 1995 Coleman Raphael Date Director
/s/ William J. Ruane March 31, 1995 William J. Ruane Date Director - 14 -
SIGNATURES
/s/ W. Alvon Sparks, Jr. March 31, 1995 W. Alvon Sparks, Jr. Date Director
/s/ W. Reid Thompson March 31, 1995 W. Reid Thompson Date Director
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ANNUAL REPORT ON FORM 10-K
ITEM 14(d)
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
GEICO CORPORATION
WASHINGTON, D. C.
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REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders GEICO Corporation
Our report on the consolidated financial statements of GEICO Corporation and subsidiaries has been incorporated by reference in this Form 10-K from page 27 of the 1994 Annual Report to Shareholders of GEICO Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page 12 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
As discussed in Note A to the consolidated financial statements, GEICO Corporation changed its methods of accounting for postemployment benefits in 1994 and for income taxes, postretirement benefits other than pensions, and investments in debt securities in 1993.
By: COOPERS & LYBRAND L.L.P.
Washington, D.C. February 17, 1995
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SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
(1) Fixed maturities at amortized cost and equity securities at original cost.
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SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT GEICO CORPORATION (PARENT COMPANY) BALANCE SHEETS In Thousands
(1) Eliminated in consolidation. See accompanying note to condensed financial statements. - 19 - PAGE
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT GEICO CORPORATION (PARENT COMPANY) STATEMENTS OF INCOME In Thousands
(1) Eliminated in consolidation.
See accompanying note to condensed financial statements.
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SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT GEICO CORPORATION (PARENT COMPANY) STATEMENTS OF CASH FLOWS In Thousands
(1) Eliminated in consolidation. See accompanying note to condensed financial statements. - 21 - PAGE
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GEICO CORPORATION (PARENT COMPANY)
NOTE TO CONDENSED FINANCIAL STATEMENTS
December 31, 1994
The condensed financial statements of GEICO Corporation (parent company) should be read in conjunction with the consolidated financial statements and notes thereto of GEICO Corporation and subsidiaries incorporated by reference in this Form 10-K Annual Report.
In 1994 the parent company received $133.0 million of dividends from its consolidated subsidiaries, consisting of $115.0 million of cash and $18.0 million of equity securities. In 1992 the parent company received $389.9 million of dividends from its consolidated subsidiaries, consisting of $232.9 million of cash, $68.8 million of equity securities and $88.2 million of the common stock of GEICO Indemnity Company, a consolidated subsidiary. The noncash portion of the dividends in 1994 and 1992 related to the acquisition of equity securities and the consolidated subsidiary are excluded from the parent company's statements of cash flows.
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SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
GEICO CORPORATION AND SUBSIDIARIES In Thousands
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SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
GEICO CORPORATION AND SUBSIDIARIES In Thousands
(1) Includes interest on policyholders' funds of $3,972, $3,565 and $3,239 forthe years ended December 31, 1994, 1993 and 1992, respectively. - 24 - PAGE
SCHEDULE IV - REINSURANCE
* Includes premiums earned by life insurance and property/casualty insurance subsidiaries. - 25 - PAGE
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
GEICO CORPORATION AND SUBSIDIARIES In Thousands
(1) Uncollectible Accounts Written Off, Net of Recoveries
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PAGE
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ITEM 1. Business
National-Standard Company, an Indiana corporation, and its subsidiaries (the "Company") have generally operated prior to 1992 in two business segments: (i) wire and related products and (ii) machinery and other products. As a result of divestitures prior to 1992, the Company currently operates in only the wire and related products segment.
In Fiscal Year 1994, there were no material changes to the Company's business. During the past three years, the Company disposed of various business units and product lines as described in the following report.
Wire and Related Products Segment
The Company produces tire bead wire, welding wire, wire cloth, hose reinforcing wire, stainless steel spring and specialty wire, plated wire, and nonwoven metal fiber materials. These products are generally sold directly to other manufacturers by Company salesmen. In addition, certain classes of wire are sold through various types of distributors.
The Company also produces filters for automotive air bag inflators, which are sold by Company salesmen to automotive air bag manufacturers.
During 1994, the Company discontinued the manufacture of hose wire in North America and closed its Columbiana, Alabama facility. The North American hose wire market will be served from existing capacity available in the Company's Kidderminster, England facility. Sufficient bead wire manufacturing capacity to serve the Company's North American market has been relocated to the Company's other North American wire facilities. The Company provided $4,870,000 during the first quarter of 1994 for relocation of equipment, plant environmental stabilization, and employee severance. Approximately $2,700,000 of cash outlays related to the plant closure were made during 1994. Cash outlays during 1995 related to the closure are expected to be $700,000, primarily for plant environmental stabilization.
In 1993, the Company sold the Telford Wire Division, Telford, England and the Taydor Engineers business unit in Stourport, England. Proceeds of $1,344,000 were used to reduce its United Kingdom borrowings.
Wire and related products are supplied to major markets consisting of tire, air bag filtration, spring, automotive component, electric component, hydraulic hose, telecommunications, and fabricated metal products.
During 1990, the Company entered into a joint venture with Toyota Tsusho America, Inc., and a group of Japanese wire weavers. The venture was established to ensure that the Company would have sufficient quantities of competitively priced woven wire cloth to maintain its position as a major
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supplier of filtration materials and filters for the automotive air bag market. During 1991, the venture was self-funding, requiring no cash contributions from the Company. During 1992, the Company contributed cash of $120,000 and equipment valued at $180,000 to the venture. No additional investments were made in the venture during 1993. During 1994, the Company announced that the joint venture would be expanded in 1995 to a second manufacturing site for the production of wire cloth for air bag inflator filters. This expansion is expected to be funded from the venture's operating cash flow and from external financing available to the venture. Future requirements will be dependent on market conditions.
The Company's wire products are generally highly competitive, with a number of other producers located both in the U.S. and in foreign countries. In some cases, the Company's customers are also manufacturing products for their own use similar to those produced by the Company. The Company remains the leading U.S. producer of tire bead wire for the tire industry. Bekaert Corporation, Delta Wire Corporation, and Amercord, Inc. are the Company s major bead wire competitors. The Company is the major supplier of air bag filtration materials in the U.S. While there are a limited number of manufacturers in the Company's line of filtration materials, the Company regards the field as highly competitive. Competitive factors for all of the Company s products are generally considered to be price, service and product quality.
During 1994, the Company announced that additional air bag filter manufacturing capacity would be installed at a new leased facility in Mesa, Arizona early in 1995. The Company expects to spend approximately $800,000 for the additional capacity. This will be funded through available capital expenditure lines of credit.
During 1993, the Company added air bag filter wire cloth weaving capacity at new leased facilities in Knoxville, Tennessee and Clearfield, Utah. In addition, certain air bag filtration products and manufacturing processes were relocated from the Corbin, Kentucky facility to the new facilities.
Although wire and related products are generally basic materials or fabricated products which do not require assembly, production time is relatively short and backlog is not significant. There was a backlog of approximately $27,750,000 and $14,900,000 at September 30, 1994 and 1993, respectively.
During 1988, the Company closed its strip steel and flat wire facility located in Clifton, New Jersey. Prior to 1992, the facility was included in the "machinery and other products" segment. During the past six years, the Company has undertaken to obtain New Jersey approval to transfer title for the property. Due to the environmental regulations in the State of New Jersey, title to real estate cannot be passed without the Department of Environmental Protection s written approval. This project has involved
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demolition of the buildings and continuing remediation of environmental problems from production wastes through use of an on-site landfill and off-site disposal. The cash outlays related to the property, which have been primarily environmental, were $285,000, $282,000, $380,000, $3,027,000, $712,000, and $3,028,000 in 1994, 1993, 1992, 1991, 1990, and 1989, respectively. These cash outlays, up to the estimated realizable value of the property, have been reported as other assets, with the balance charged to operations. In 1994, 1993, 1992, 1991 and 1990, the Company expensed $2,030,000, $0, $333,000, $3,898,000 and $2,933,000, respectively, associated with the project, primarily to adjust the property value to current market and to recognize the current estimated cost of soil remediation. The Company expects to spend $290,000 in 1995 on the project. Future cash outlays of approximately $2,469,000 will be needed prior to sale of the property. The Company intends to spend this amount in conjunction with or just prior to the sale.
Environmental
In addition to amounts spent in connection with the Clifton, New Jersey facility, the Company had cash outlays of approximately $2,531,000 during the 1994 fiscal year, and $1,471,000 during the 1993 fiscal year on pollution control equipment and related operational environmental projects and procedures at the Company's seven U.S. plants. The largest annual cash outlays during 1994 and 1993 were $1,740,000 and $607,000, respectively, at the closed Columbiana facility, primarily for plant environmental stabilization in 1994, and environmental operational procedures in 1993. Compliance with federal, state, and local environmental regulations which have been enacted or adopted is estimated to require operational cash outlays of approximately $1,925,000 during 1995. In 1993, environmental expense provisions totaling $3,600,000 were recorded to (1) decommission hose wire plating equipment and dispose of hazardous materials normally used in the plating process, (2) provide for soil remediation at an unused fill site, and (3) provide for the closure of waste water surface impoundments which are no longer in use. The Company does not expect existing regulations will have any material effect on its net earnings or competitive position.
The Company has previously been designated a potentially responsible party (PRP) by the Environmental Protection Agency (EPA) for four actual or potential superfund sites, all of which have in excess of twenty other PRP's. The Company has completed or is undertaking all investigative work requested or required by the appropriate governmental agencies or by relevant statutes, regulations, or local ordinances at minimal out-of- pocket costs. In one instance, the Company has no record of participation at the site. In two instances, the Company's records indicate that it had only de minimus involvement. The Company has reviewed its involvement at the fourth site and has previously accrued $300,000 for its share of estimated site remediation based upon all information currently available.
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The Company does not believe future costs for these sites will have a materially adverse effect on the consolidated financial condition of the Company or its consolidated results of operations.
General
The Company's major raw material steel is purchased in several forms from domestic and foreign steel companies. Raw materials were readily available during the year and no shortages are anticipated for the 1995 fiscal year. The Company also purchases a variety of component parts for use in some of the products it manufactures. The Company believes that its sources of supply of these materials are adequate for its needs. The Company's major sources of energy needed in its operations are natural gas, fuel oil and electrical power. In certain locations where the Company believes its regular source of energy may be interrupted, it has made plans for alternative fuels.
The Company owns or is licensed under a number of patents covering various products and processes. Although these have been of value in the growth of the business and will continue to be of considerable value in its future growth, the Company's success or growth has not generally been dependent upon any one patent or group of related patents. The Company believes that the successful manufacture and sale of its products generally depend more upon its technological know-how and manufacturing skills. Seasonal activity has no material effect on the Company's level of business or working capital requirements. The Company's largest customers include the major producers of automotive air bag restraint systems, i.e., Morton International and TRW, and some of the major tire and rubber companies, i.e., the Cooper Tire and Rubber Company, the Dunlop Tire and Rubber Corporation (owned by Sumitomo), the Firestone Tire and Rubber Company (owned by Bridgestone), Gates Rubber Company, General Tire (owned by Continental), the Goodyear Tire and Rubber Company, and the Uniroyal-Goodrich Company (owned by Michelin). The Goodyear Tire and Rubber Company accounted for approximately 17%, and the ten largest customers, in the aggregate, accounted for approximately 62% of consolidated sales in the last fiscal year. Generally, business with these customers is on the basis of purchase orders without firm commitments to purchase specific quantities. No other material part of the Company's business is dependent upon any single customer or very few customers, the loss of which would have a material adverse effect upon the Company.
During the 1994 fiscal year, the Company spent approximately $959,000 on research and development of new products and process alternatives compared to $982,000 and $994,000 for the years ended September 30, 1993 and 1992, respectively. These cash outlays are for Company sponsored activities.
Only three products, high carbon steel wire, low carbon steel wire, and air bag inflator filters, each account for 10% or more of total sales. High
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carbon and low carbon steel wire were, respectively, 38% and 21% of total sales in 1994; 51% and 20% of total sales in 1993; and 51% and 21% of total sales in 1992. Air bag inflator filters accounted for 12% of total sales in 1994, and less than 10% in prior years.
During 1993, the Company experienced work stoppages by the United Steelworkers of America at the Niles, Michigan; Corbin, Kentucky; and Columbiana, Alabama plants. The Niles and Corbin strikes were settled during 1993 with modified health care benefits similar to the health benefits for salaried employees. The Columbiana plant was closed on June 1, 1994, and certain production equipment was relocated to other Company facilities. The Company continued to supply product during the work stoppages. Additional costs, including security services, additional wages, and air freight, were approximately $4,500,000 for the three work stoppages in 1993, and $4,266,000 for the work stoppage in Columbiana in 1994. Additionally, in 1993, as a result of the work stoppage in Columbiana, the Company discontinued hose wire plating in North America and wrote down the value of its hose wire plating equipment by $909,000.
At September 30, 1994, the Company employed 1,282 persons in its operations throughout the world.
During 1993, the Company elected early adoption of The Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits Other than Pensions." The one-time transition obligation recognized at the time of adoption was $48,676,000. Primarily as a result of this accounting change, the Company has a negative net worth of $28,266,000.
International Operations
The Company has foreign subsidiaries in Canada and the United Kingdom which are similar to certain of the Company's domestic operations and with generally the same markets. The financial information about foreign and domestic operations for the three years ended September 30, 1994 is included in Note 13 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data" section of this Report (incorporated herein by this reference). Foreign operations are subject to the usual risks of doing business abroad, such as possible devaluation of currency, restrictions on the transfer of funds and, in certain parts of the world, political instability.
Accounting principles dictate that results of operations for the Company's international operations are translated into U.S. dollars in accordance with the Statement of Financial Accounting Standards No. 52. A translation adjustment is recorded as a separate component of shareholders' equity, "Cumulative Translation Adjustment." The Cumulative Translation Adjustment account, at the end of 1994, reflects a slight decrease of approximately
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$300,000. This minor change is due to the U.S. dollar's position against the British pound and the Canadian dollar remaining substantially unchanged since the end of 1993. The change in exchange rates does not have a materially adverse effect on the cash flow of the international operations.
In October 1992, the Company sold its interest in its foreign affiliate in India, receiving $693,000 in net proceeds, which was used to reduce debt. A loss of $1,041,000 net of the 1992 equity in earnings of $165,000 was recorded at September 30, 1992 in anticipation of this transaction. The Company's accounts reflect its share of these results at the close of the fiscal year of this affiliate as other income.
ITEM 2.

ITEM 2. Properties
The Company conducts its domestic operations from facilities having an aggregate floor space of approximately 1,176,000 square feet. The domestic total includes principal facilities in Niles, Michigan (456,000 square feet); Stillwater, Oklahoma (314,000 square feet); Corbin, Kentucky (225,000 square feet); Mishawaka, Indiana (78,000 square feet); Knoxville, Tennessee (50,000 square feet); and Clearfield, Utah (53,000 square feet). The Knoxville and Clearfield facilities were leased in 1993 for five-year terms with renewal options.
The Company also operates from principal facilities in England (260,000 square feet) and Canada (107,000 square feet).
The majority of the Company's plants are of modern construction and the remaining older plants are well maintained and considered adequate for their current use. Manufacturing of wire and wire related products is conducted at all Company facilities. The Company's plants generally are operated on a multishift basis and, while particular plants may be operating at capacity levels, overall the Company's facilities are adequate to provide for a significant increase in unit volume due to the Company's ability to redistribute production of similar products between Company facilities with minimal cost or inconvenience.
ITEM 3.

ITEM 3. Legal Proceedings
The Company is not involved in any material pending legal proceedings.
ITEM 4.

ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders since the last annual meeting held January 27, 1994.
ITEM 4A. Executive Officers of the Registrant (Furnished in accordance with Item 401(b) of Regulation S-K, pursuant to General Instruction G(3) of Form 10-K)
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The following table sets forth certain data concerning the Executive Officers of the Registrant, all of whom are elected annually by the Board of Directors. Some of the Officers of the Registrant also serve as Directors or Officers of the subsidiaries.
All of the above-named officers of the Registrant have been employees of the Company for more than five years.
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PART II. ITEM 5.

ITEM 5.Market for the Registrant's Common Equity and Related Shareholder Matters
Common stock market prices, information on stock exchanges and number of shareholders is included in Note 14 of Notes to Consolidated Financial Statements in Item 8, "Financial Statements and Supplementary Data" section of this Report (incorporated herein by this reference). No dividends were paid during fiscal 1994 or 1993, nor during the portion of fiscal 1995 prior to filing of this Report. Under current loan agreements, the Company is restricted from paying any dividends. Future dividends will be based on the Company's financial performance.
ITEM 6.

ITEM 6. Selected Financial Data (In thousands, except per share and employee data)
The following selected financial data are derived from the consolidated financial statements of the Company. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein. Specifically, discussions regarding accounting changes, divestitures, and other related information that affects the comparability of this data can be found in Items 7, 8, and 14 herein.
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ITEM 7.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in thousands except share data)
Results of Operations
Net sales for the year of $217,916 were 4.6% above 1993, as sales of air bag inflator filtration products increased 68% over 1993 due to the significant growth of that market segment and the Company's position as the leading supplier of those materials in North America. The Company's weld wire product lines experienced 15% growth over 1993 due primarily to improving North American automotive sales. These increases were offset by a decline in hose wire sales as the Company ceased the manufacture of hose wire in North America during 1993, and a decline in bead wire sales due to the impact of the work stoppage at Columbiana early in 1994 and work stoppages at customer facilities at the end of 1994.
Net sales for 1993 of $208,254 were 3.2% below 1992 and 10.5% below 1991 due to business units sold during 1992 and 1991. During 1993, the Company experienced increased demand for its air bag materials and weld wire product lines. 1993 sales in those product lines increased 51% and 11%, respectively, over 1992. Sales of hose wire decreased 22% due to the work stoppage in Columbiana, Alabama and subsequent discontinuation of hose wire plating in North America. During 1992, sales for remaining operations increased 6% due to increased sales of air bag filtration materials and welding wire. Growth in both products is expected to continue for at least the next several years.
Over the past several years, the Company's strategy has been to focus on a core wire business and to develop the air bag filtration materials business. This strategy has led to the divestiture of the non-core specialty wire business and all of its non-wire related businesses. Proceeds from the divestitures have been utilized to fund investment in the remaining business and to reduce debt. Since September 30, 1990, debt has been reduced $15,710 and the air bag filtration materials sales have increased 161%. The effect of the divestiture activities on the Company's sales and gross margins is shown in the following table:
Gross profit margins change due to several factors. For the Company, the most significant factor is the level of sales and production. As production increases, a relatively lower level of fixed costs is associated with each unit, and the gross profit percentage increases. Similarly, as volume falls, fewer units are available to cover the fixed costs of manufacturing and the profit percentage decreases. In addition to volume, changes in product mix, selling prices, and costs also affect the gross margins. Although it would appear that prior to 1992 the divested businesses were more profitable than the remaining operations, these businesses increasingly required substantially higher selling and administrative expense and significant levels of working capital that, even considering the higher gross margins, resulted in lower net returns. The margin effect of divesting these businesses is shown in the table above. The effect of the increased selling and administrative costs of the divested businesses is reflected in the divested operations line in the table on page 11.
During 1993, the Company experienced work stoppages by the United Steelworkers of America at the Niles, Michigan; Corbin, Kentucky; and Columbiana, Alabama plants. The Niles and Corbin strikes were settled during 1993 with modified health care benefits similar to the health benefits for salaried employees. The Columbiana plant was struck on June 1, 1993. The plant operated during the remainder of 1993 and through May 1994 with replacement workers and personnel from other Company facilities. The Company continued to supply product during the work stoppages. Additional costs including security services, additional wages, and air freight were approximately $4,500 for the three work stoppages in 1993. In addition, as a result of the work stoppage in Columbiana, the Company discontinued hose wire plating in North America in 1993 and wrote down the value of its hose wire plating equipment by $909.
During 1994, the additional costs of operating the Columbiana facility including security services, additional wages, and freight were approximately $4,266. In addition, during 1994, the Company provided $4,870 for the closure of the Columbiana plant. The closure provision is included in selling and administrative expense as noted on page 11.
During 1992, margins improved based upon the higher sales of the Company's core wire products and its air bag filtration materials business.
The political changes that occurred in the Eastern Bloc countries had a negative effect on business activity, and a general slowdown in the
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Company's Western European markets caused a 10% decline in volume of major product lines between 1990 and 1992. This decline caused capacity in international operations to be under-utilized in 1992. During 1993, sales to other worldwide markets from international operations increased 8%, resulting in better capacity utilization and improved operating results. During 1994, sales from international operations decreased 5% as new worldwide capacity was added in Copperply and bead wire and aggressive pricing affected bead and hose wire.
In recent years, the Company has not been able to raise prices in line with inflation and rising raw material costs due to the effects of worldwide overcapacity in the Company's major product lines and competitive pressure in the Company's automotive markets. Since 1989, inflation as measured by the Consumer Price Index has risen 20%, while average selling prices have risen only 7%. Had selling prices increased 20%, sales in 1994 would have been approximately $246,000.
In 1993, the Company sold the Telford Wire Division and Taydor Engineers business units in England. Proceeds of $1,344 were used to reduce its United Kingdom borrowings.
In 1993, environmental expense provisions totaling $3,600 were recorded to: (1) decommission hose wire plating equipment and dispose of hazardous materials normally used in the plating process, (2) provide for soil remediation at an unused fill site, and (3) provide for the closure of waste water surface impoundments which are no longer in use. In 1994, additional environmental expense provisions of $700 relating to the disposal of hazardous materials normally used in the hose wire plating process were recorded.
During 1994 and 1993, the Company provided $2,832 and $4,651, respectively, for the estimated cost of compliance with environmental regulations and continuing modifications in operating requirements. The majority of the 1994 provisions were made in the Company's first quarter and are related to the closing of the Columbiana facility. The majority of the 1993 provisions were made in the Company's fourth quarter as a result of an expansion of clean-up operations and changes in estimated costs to complete. In addition to the amounts charged to earnings, $165 and $142 of costs were capitalized in the respective years. The Company's actual environmental related cash outlays for 1994 and 1993 were $2,816 and $1,753, respectively, of which $285 and $282 were spent on the Clifton, New Jersey property.
The Company has previously been designated a potentially responsible party (PRP) by the Environmental Protection Agency (EPA) for four actual or potential superfund sites, all of which have in excess of twenty other PRP's. The Company has completed or is undertaking all investigative work requested or required by the appropriate governmental agencies or by
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relevant statutes, regulations, or local ordinances at minimal out-of- pocket costs. In one instance, the Company has no record of participation at the site. In two instances, the Company's records indicate that it had only de minimus involvement. The Company has reviewed its involvement at the fourth site and has previously accrued $300 for its share of estimated site remediation based upon all information currently available. The Company does not believe future costs for these sites will have a materially adverse effect on the consolidated financial condition of the Company or its consolidated results of operations.
The Company has reviewed its current projects which are expected to be completed in 1995 and all environmental regulations and acts to ensure continuing compliance. In 1995, the Company expects to spend $290 on the Clifton, New Jersey project. Future cash outlays of approximately $2,469 will be needed prior to sale of the property. These amounts have already been accrued for financial statement purposes. Additionally, the Company expects to spend $1,925 on environmentally related capital and operational projects, of which $625 will be charged against 1995 earnings.
In 1989, in response to expected market changes, the Company adopted a strategy that included, among other things, the decision to exit non- strategic and/or non-profitable businesses and to continually adapt general and administrative cost levels to the changing business.
In 1994, 1993, and 1992, $6,955, $2,390, and $2,677, respectively, the net cost of restructuring the Company in those years, including net loss on sale of fixed assets and product lines of $0, $196, and $1,451, respectively; the write-off of nonproductive facilities and obsolete inventory of $4,219, $909, and $681, respectively; severance costs of the salaried and hourly workforce, and provision for transferring manufacturing of certain product lines between plants, is included in selling and administrative costs. The 1994 net cost of restructuring also included $1,700 for the Columbiana plant environmental stabilization. The Company will incur no further material cash outflows related to the restructuring.
The following summary shows the changing level of selling and administrative expense and identifies selling and administrative expense directly attributable to divested operations and amounts attributable to restructuring activities.
The net effect of all the above elements is seen in the Company's operating profit (loss).
Operating profit by Geographic Area is presented in Note 13 of Notes to Consolidated Financial Statements in Item 8.

ITEM 8. Financial Statements and Supplementary Data
The Report of Independent Auditors, Consolidated Financial Statements and Supplementary Schedules are set forth on pages 15 to 37 of this Report and are incorporated herein by reference.
ITEM 9.

ITEM 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
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PART III
ITEM 10.

ITEM 10. Directors and Executive Officers of the Registrant Identification of Directors
Information in respect of Directors as set forth under the caption "Election of Directors" in the annual Proxy Statement relating to the Annual Meeting of Shareholders scheduled for January 26, 1995 is incorporated herein by reference.
In respect of information as to the Company's Executive Officers, see the caption "Executive Officers of the Registrant" at the end of Part I of this report.
ITEM 11.

ITEM 11. Executive Compensation
The information set forth under the caption "Organization and Remuneration of the Board" and the information relating to Executive Officers' compensation in the annual Proxy Statement relating to the Annual Meeting of Shareholders scheduled for January 26, 1995 is incorporated herein by reference.
ITEM 12.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the captions "Stock Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in the annual Proxy Statement relating to the Annual Meeting of Shareholders scheduled for January 26, 1995 is incorporated herein by reference.
ITEM 13.

ITEM 13. Certain Relationships and Related Transactions
The information set forth under the caption "Information Regarding Other Transactions" in the annual Proxy Statement relating to the Annual Meeting of Shareholders scheduled for January 26, 1995 is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements and Schedules
The financial statements and schedules listed in the accompanying Index to Consolidated Financial Statements and Schedules are filed as part of this report.
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2. Exhibits
The exhibits listed in the accompanying Exhibit Index and required by Item 601 of Regulation S-K (numbered in accordance with Item 601 of Regulation S-K) are filed or incorporated by reference as part of this Report.
(b) There were no reports on Form 8-K filed during the three months ended September 30, 1994.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, National-Standard Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL-STANDARD COMPANY
/s/ Michael B. Savitske
Michael B. Savitske President and Chief Executive Officer, Director
/s/ William D. Grafer
William D. Grafer Vice President, Finance (Principal Financial and Accounting Officer)
Dated: December 1, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
HAROLD G. BERNTHAL Director ) DAVID F. CRAIGMILE Director )-By: /s/ Rene J. VanSteelandt JOHN E. GUTH, JR. Chairman of the Board ) Rene J. VanSteelandt ERNEST J. NAGY Director ) Attorney-in-Fact CHARLES E. SCHROEDER Director ) DONALD F. WALTER Director ) December 1, 1994
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NATIONAL-STANDARD COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
___________________________________________________________________________
Page Reference in Report on Form 10-K ___________________________________________________________________________
Consolidated Statements of Operations for the years ended September 30, 1994, 1993, and 1992 16
Consolidated Statements of Shareholders' Equity for the years ended September 30, 1994, 1993, and 1992 17
Consolidated Balance Sheets at September 30, 1994 and 1993 18
Consolidated Statements of Cash Flows for the years ended 19 September 30, 1994, 1993, and 1992
Notes to Consolidated Financial Statements 20-31
Report of Independent Auditors 32
Schedules: V. Property, Plant and Equipment 33 VI. Accumulated Depreciation of Property, Plant and Equipment 34 VIII. Valuation and Qualifying Accounts 35 IX. Short-Term Borrowings 36 X. Supplementary Income Statement Information 37
Schedules other than those listed above have been omitted from this Annual Report because they are not required, are not applicable, or the required information is included in the consolidated financial statements or the notes thereto.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Share Data)
See accompanying notes to consolidated financial statements.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands except Share Data)
See accompanying notes to consolidated financial statements.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Dollars in Thousands except Share Data)
See accompanying notes to consolidated financial statements.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands except Share Data)
See accompanying notes to consolidated financial statements.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands except Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Principles of Consolidation - The consolidated financial statements include the Company and all its subsidiaries ("Company"). Intercompany accounts and transactions have been eliminated in the consolidated financial statements. The Company's 50 percent investment in a domestic joint venture is carried at equity in underlying net assets. The Company's share of operations of this affiliated company is not material.
Revenue Recognition - The Company's policy is to record sales when the product is shipped.
Translation of Currencies - The Company complies with the provisions of Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation." In the application of this accounting standard, exchange adjustments resulting from foreign currency transactions are recognized currently in income. Adjustments resulting from the translation of financial statements are reflected as a separate component of shareholders' equity.
Inventories - Inventories are stated at lower of cost or replacement market. Cost for the material content of domestic steel inventories is determined on the last-in, first-out (LIFO) method; the cost for other inventories is determined on the first-in, first-out (FIFO) method.
Property, Plant and Equipment - Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. For tax purposes, depreciation has generally been computed on a straight-line basis over prescribed lives.
Research and Development - Research and development costs are expensed currently. The Company expended $959, $982 and $994 in 1994, 1993 and 1992, respectively, on research and development activities.
Earnings Per Share - Earnings per share are based on the average number of shares of common stock outstanding during the year plus common stock equivalents for the dilutive effect of shares of common stock issuable upon the exercise of certain stock options. Nonleveraged unallocated shares in the Company Employee Stock Ownership Plan are not considered outstanding for purposes of calculating earnings per share. Common shares used in calculating earnings per share for 1994, 1993, and 1992 were 5,365,000, 5,085,000, and 4,379,000, respectively.
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Statement of Cash Flows - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Income Taxes - In February 1992, the Financial Accounting Standards Board (FASB) issued SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires a change from the deferred to the liability method of computing deferred income taxes. Under the liability method, deferred income taxes are generally determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are recorded when it is more likely than not that such tax benefits will be realized.
Effective October 1, 1992, the Company elected early adoption of SFAS No. 109. The adoption of SFAS No. 109 had no effect on the financial statements of the Company.
Postretirement Benefits Other than Pensions - In December 1990, the FASB issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." SFAS No. 106 requires that the cost of postretirement benefits be recognized during an employee's years of service versus on a pay-as-you-go basis upon retirement. SFAS No. 106 was not required to be adopted by the Company until fiscal 1994; however, early adoption was elected effective October 1, 1992.
Reclassification - Certain 1993 and 1992 amounts in the Consolidated Financial Statements have been reclassified to conform with 1994 presentation.
2. INVENTORIES
The material content of domestic steel inventories amounting to $13,854 and $10,877 at September 30, 1994 and 1993, respectively, is valued on a LIFO basis. Had the FIFO method been used, inventory would have been $4,009 and $3,909 higher than that reported at September 30, 1994 and 1993, respectively.
3. PROPERTY, PLANT AND EQUIPMENT
The Company capitalized interest cost of $168 in 1994 and $100 in 1993 with respect to qualifying construction projects. Total interest cost incurred before recognition of the capitalized amounts was $4,053 and $3,842 in 1994 and 1993, respectively.
4. RETIREMENT BENEFITS
The Company and its subsidiaries have several pension plans covering substantially all employees, including certain employees in foreign countries. The Company's policy is to fund the net periodic pension cost accrued for each plan year, but not more than the maximum deductible contribution nor less than the minimum required contribution.
The following table sets forth the pension plans' funded status and amounts recognized in the Company's consolidated balance sheet at September 30, 1994 and 1993:
Net pension cost related to Company-sponsored plans included the following components:
The weighted average discount rate and rate of increase in future compensation levels used in determining the 1994 actuarial present
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value of the projected benefit obligation were 8.75% and 5%, respectively, for U.S. plans. The 1993 rates were 7.75% and 5%, respectively. The 1994 and 1993 rates for foreign plans were 9% and 7%, respectively. The 1994 and 1993 expected long-term rate of return on assets was 10.5% for U.S. plans and 10% for foreign plans.
In August of 1992, the Internal Revenue Service temporarily waived the minimum funding standard for certain of the Company's domestic defined benefit pension plans for plan years ending December 31, 1990 and 1991. These waivers were granted in accordance with Section 412(d) of the Internal Revenue Code and Section 303 of the Employee Retirement Income Security Act of 1974. The Company made contributions to the plans in 1992 of $1,460. During 1993, the Company contributed $765 to the plans. In January 1993, the Company contributed 844,513 shares of previously authorized and unissued common stock valued at $2,745. The Company's pension plans owned shares of the Company's common stock representing slightly less than 10% of the plans' asset value immediately after the January 1993 contribution. The Company made contributions to the plans in 1994 of $238. The plans currently own 1,476,779 shares of the Company's common stock. The Company has made the contributions necessary to fully fund several of the plans which previously received funding waivers. For those plans with remaining waiver amortization bases, the Company intends to comply with all conditions of the waivers, including elimination of the waiver amortization bases in installments through 1996.
The Company has an Employee Stock Ownership Plan (ESOP) for its eligible domestic employees. The amount of Company contributions made to the ESOP and charged to expense was $248 for 1994, $1,191 for 1993, and $1,117 for 1992.
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for all eligible retirees. Eligible retirees include salaried retirees and certain groups of collectively bargained retirees. The health care plan is contributory, with all future retirees' and current salaried retirees' contributions subject to an annual indexing. The Company funds the cost of these benefits on a claims-paid basis which totalled $2,794 for 1994, $3,500 for 1993, and $2,465 for 1992.
Excluding the one-time transition charge of $48,676 in 1993, the adoption of SFAS No. 106 effective October 1, 1992 had the effect of increasing the Company's net loss by $753 for 1993.
The following table sets forth the plan's funded status, reconciled with amounts recognized in the Company's consolidated balance sheet at September 30, 1994 and 1993:
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The accrued postretirement benefit cost includes approximately $3,000 and $4,150 of expected 1995 and 1994 payments, respectively, that are included in the balance sheet as a current liability.
Net periodic postretirement benefit cost included the following components:
For measurement purposes, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1995; the rate was assumed to decrease gradually to 5% for 2000 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of September 30, 1994 by $3,047 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $434.
The 1994 and 1993 weighted-average discount rates used in determining the accumulated postretirement benefit obligation were 8.75% and 7.75%, respectively. The weighted-average discount rates used in determining the 1994 and 1993 net periodic postretirement benefit cost and the transition obligation were 7.75% and 8.25%, respectively.
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6. OTHER ASSETS
In 1994, the Company closed its Columbiana, Alabama facility and is continuing its preparation for sale.
During the past six years, the Company has undertaken a project to obtain New Jersey approval to transfer title for property it owns in Clifton, New Jersey. This project has involved demolition of the buildings and continuing environmental remediation from production wastes through use of an on-site landfill and off-site disposal. Cash outlays, primarily related to the remediation, have been capitalized to the extent that, when added to the estimated costs to complete the project, they do not exceed the estimated realizable sale value of the property. In 1994, 1993, and 1992, the Company expensed $2,030, $0, and $333, respectively, associated with the project.
7. DEBT
The existing debt agreements are collateralized by substantially all assets and contain, among other things, provisions as to the maintenance of working capital and net worth, restrictions on cash dividends, redemptions of Company stock and incurrence of indebtedness. The revolving credit arrangement provides for maximum borrowing levels based on a percentage of qualified accounts receivable and inventory. Substantially all cash is restricted under existing debt agreements.
Aggregate maturities on long-term debt, based upon the credit agreements for the three fiscal years subsequent to September 30, 1995, amount to $2,992 in 1996, $31,311 in 1997, and $25 in 1998. There are no maturities extending beyond 1998.
8. LEASES
Minimum rental commitments under noncancellable operating leases, primarily machinery and equipment, in effect at September 30, 1994 were:
1995 . . . . . . . . . . . . $ 3,983 1996 . . . . . . . . . . . . 3,156 1997 . . . . . . . . . . . . 2,249 1998 . . . . . . . . . . . . 1,695 1999 . . . . . . . . . . . . 1,183 Later years . . . . . . . . 0
Operating lease rental expense was $2,626 in 1994, $2,485 in 1993, and $2,228 in 1992.
9. INCOME TAXES
The domestic and foreign components of earnings (loss) before income taxes are as follows:
The provisions (benefits) for income taxes are as follows:
At September 30, 1994, the Company had tax loss carryforwards of $34,800 in the United States, $6,900 in the United Kingdom and $2,100 in Canada. The United Kingdom carryforward period is unlimited; however, if not utilized to offset future taxable income, $1,000 of the United States loss will expire in 2001, $8,900 in 2002, $3,500 in 2004, $8,100 in 2005, $12,400 in 2006, and $900 in 2008. The period for utilizing the majority of the Canadian loss will expire in 1996.
At September 30, 1994, and after giving full effect to the 35% post-1986 investment tax credit reduction required by the Tax Reform Act of 1986, the Company has total United States tax credit carryforwards of approximately $1,400, which expire as follows: 2000, $700; 2001, $500; 2002, $100; and 2003, $100.
A reconciliation of differences between taxes computed at the federal statutory rate and the actual tax provisions is as follows:
The net deferred tax asset included the following components:
The undistributed earnings of foreign subsidiaries amounting to $2,491 are intended to be reinvested; however, those earnings remitted to the parent company should have little or no additional tax under relevant current statutes.
10. OTHER INCOME (EXPENSE), NET
The 1992 foreign affiliate expense is the loss on the sale of the Company's interest in its Indian affiliate. This charge represents the cumulative decline in the value of the Company's investment due to the effects of foreign exchange rate fluctuations; $599 of the 1992 loss had previously been reported as adjustments to shareholders' equity within the cumulative translation adjustment account.
11. LITIGATION
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The Company is involved in certain legal actions and claims arising in the ordinary course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their outcome will not have a material effect on the Company's consolidated financial statements.
12. COMMON STOCK The status of the stock option plans which provide for the purchase of the Company's common stock by officers and key employees is summarized as follows:
The Long-Term Incentive Plan, under which all options were previously granted, expired September 17, 1990; however, during 1993, the National-Standard Stock Option Plan (the "1993 Plan") was approved. The 1993 Plan allows the Compensation Committee of the Board of Directors, which consists of four members who are not executive employees of the Company, to select employees who will be granted options to purchase shares of common stock at the fair market value on the date of grant. Under the 1993 Plan, 450,000 shares is the maximum amount available to be issued upon the exercise of options, and the term of each option is ten years from the date of the grant. During 1993, 320,500 options were granted to a group of 23 key management employees. The exercise price is $8-5/8 for all options granted in 1993.
A Restricted Stock Award Program ("Plan") was established in 1989. The Plan provides for grants of shares of common stock to selected
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employees, subject to forfeiture if employment terminates prior to the end of the prescribed restricted period. Such stock shall be made available from authorized and unissued shares of common stock or treasury stock of the Company. However, the maximum number of shares that may be issued at any time under the Plan is 250,000. At September 30, 1994, certain employees held 19,000 shares of restricted common stock of the Company. Awards for 8,500 of these shares were granted in 1994, with 1,000 subsequently vesting or being forfeited. The amount of compensation represented by the grant of restricted stock is amortized over a four-year vesting period.
All stock options outstanding at September 30, 1994 are currently exercisable.
13. SEGMENT INFORMATION
The Company currently operates in one industry segment: Wire and Related Products.
The Wire and Related Products Segment manufactures and sells various types of wire used mainly by other manufacturers in their products. The major use of the wire is for reinforcing tires and other rubber products. The Segment also produces wire cloth and filters for automotive air bag inflators for the air bag manufacturing industry.
Prior to 1992, the Company also operated in a Machinery and Other Products Segment. During 1991, the Company sold its tire drum and mold business located in Germany and its machinery business located in the United States, both of which made up the largest share of this segment in 1991. These divestitures and the reclassification of the air bag inflator filter business to the Wire and Related Products Segment have resulted in the Company no longer reporting a Machinery and Other Products Segment.
The Company operates its business segments primarily in two geographic areas -- United States and Europe. Due to its nature and relative immateriality, the operation in Canada has been combined with the operations in Europe and the combined total reported as foreign operations.
Intersegment sales are billed at approximate market prices and are eliminated in consolidation. Sales to unaffiliated customers include the sales to one customer by both geographic areas in the total amount of $38,038 in 1994, $42,292 in 1993, and $40,946 in 1992.
Operating profit is total sales less operating expenses and does not include general corporate expenses, interest, equity in income of affiliate, loss on sale of subsidiary, and income taxes. General
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corporate expense includes certain nonrecurring costs. Included in 1994, 1993 and 1992, respectively, are approximately $6,955, $2,390, and $2,344 of costs associated with divestitures and restructuring. Included in the divestiture and restructuring costs in 1994 and 1992, respectively, are $2,030 and $333 for costs associated with the Athenia Steel property project in Clifton, New Jersey. The information reported for geographic areas necessarily includes allocations of shared expenses and the cost of assets. Assets not identified to geographic areas are principally cash and investments.
The net assets of foreign subsidiaries included in the consolidated figures at appropriate rates of exchange are as follows:
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14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Common stock market prices are as reported in The Wall Street Journal. Common stock is traded on the New York Stock Exchange.
At September 30, 1994, there were 2,564 shareholders.
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Independent Auditors' Report
The Board of Directors National-Standard Company:
We have audited the consolidated financial statements of National-Standard Company and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examinining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National-Standard Company and subsidiaries as of September 30, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in note 1 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1993.
KPMG Peat Marwick LLP
Chicago, Illinois November 8, 1994
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
SCHEDULE V PROPERTY, PLANT AND EQUIPMENT Years Ended September 30, 1994, 1993 and 1992
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(1) Generally the rates of depreciation range from 7% to 12.5% for land improvements, 2% to 4% for buildings, 5% to 12.5% for machinery and equipment, 10% to 25% for automobiles and trucks and 10% to 16.7% for furniture and fixtures. (2) There are reclassifications within the various categories.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
SCHEDULE VI ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT Years Ended September 30, 1994, 1993 and 1992
(1) There are reclassifications within the various categories.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS Years Ended September 30, 1994, 1993 and 1992
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
SCHEDULE IX SHORT-TERM BORROWINGS
Notes:
Short-term borrowings during the years covered by this schedule consisted of amounts payable to banks for borrowing.
The weighted average interest rate during the year was computed by dividing the total interest on short-term borrowings by the monthly average of short-term borrowings outstanding.
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NATIONAL-STANDARD COMPANY AND SUBSIDIARIES
SCHEDULE X SUPPLEMENTARY INCOME STATEMENT INFORMATION For the Years Ended September 30, 1994, 1993 and 1992
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NATIONAL-STANDARD COMPANY
INDEX TO EXHIBITS
Exhibit (3)(i) Articles of Incorporation.
(3)(ii) By-Laws.
(10) Material Contracts.
(a) Management Contracts and Remunerative Plans.
(i) National-Standard Company Restricted Stock Award Plan (incorporated by reference to Exhibit (10)(a) to Registrant's Quarterly Report on Form 10-Q for the first quarter of 1989 filed January 30, 1989).
(ii) National-Standard Company Supplemental Retirement Plan (incorporated by reference to Exhibit (10)(a)(ii) to Registrant's Annual Report on Form 10-K for 1991, filed January 31, 1992).
(iii) National-Standard Spouse's Benefit Plan for Salaried Employees (incorporated by reference to Exhibit (10)(a)(iii) to Registrant's Annual Report on Form 10-K for 1991, filed January 31, 1992).
(iv) Amended and Restated Supplemental Compensation Agreements (incorporated by reference to Exhibit (10)(a)(iv) to Registrant's Annual Report on Form 10-K for 1992, filed February 23, 1993).
(v) Deferred Compensation Plan.
(vi) National-Standard Stock Option Plan (incorporated by reference to Exhibit A to Registrant's annual Proxy Statement relating to the Annual Meeting of Shareholders held May 19, 1993, filed April 15, 1993).
(b) Loan and Security Agreement by and between National-Standard Company and Foothill Capital Corporation dated as of May 24, 1994 (incorporated by reference to Exhibit (10) to Registrant's Quarterly Report on Form 10-Q for the third quarter of 1994, filed August 5, 1994).
(11) Statement Regarding Earnings Per Share Calculation.
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(21) Subsidiaries of National-Standard Company.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
(27) Financial Data Schedule.
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