-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LUM/W57mtlBQu/Blmpp3zyGeG+p5qP0yv4EjWkHIpHHJV6Qdr2g9eL7cVS+prY+Z NPvmPrE6I6VBGeVS5H3JCw== 0000950152-97-007738.txt : 19971111 0000950152-97-007738.hdr.sgml : 19971111 ACCESSION NUMBER: 0000950152-97-007738 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROGRESSIVE CORP/OH/ CENTRAL INDEX KEY: 0000080661 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 340963169 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05827 FILM NUMBER: 97711201 BUSINESS ADDRESS: STREET 1: 6300 WILSON MILLS RD CITY: MAYFIELD VILLAGE STATE: OH ZIP: 44143 BUSINESS PHONE: 2164615000 MAIL ADDRESS: STREET 1: 6300 WILSON MILLS RD CITY: MAYFIELD VILLAGE STATE: OH ZIP: 44143 10-Q 1 PROGRESSIVE CORPORATION FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 1O-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 -------------------------------------------- or [ ] 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 1-9518 ------------------------------------------- THE PROGRESSIVE CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0963169 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6300 Wilson Mills Road, Mayfield Village, Ohio 44143 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (216) 461-5000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Shares, $1 par value: 72,250,457 outstanding at October 31, 1997. 2 PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements. The Progressive Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Nine Months ----------------------------------- ------------------------------------ Periods Ended September 30, 1997 1996 % Change 1997 1996 % Change ------------------------------------------------------------------------------------------------------------------------ (millions - except per share amounts) NET PREMIUMS WRITTEN $ 1,199.9 $ 878.1 37 $ 3,448.7 $ 2,563.4 35 ======================= ======================= REVENUES Premiums earned $ 1,078.0 $ 827.5 30 $ 2,982.2 $ 2,344.0 27 Investment income 71.8 57.0 26 204.3 163.2 25 Net realized gains (losses) on security sales 41.4 (3.4) -- 67.7 1.2 NM Service revenues 12.1 12.8 (5) 34.5 32.6 6 ----------------------- ----------------------- Total revenues 1,203.3 893.9 35 3,288.7 2,541.0 29 ----------------------- ----------------------- EXPENSES Losses and loss adjustment expenses 756.9 572.7 32 2,116.9 1,636.7 29 Policy acquisition costs 157.4 120.0 31 433.6 359.5 21 Other underwriting expenses 89.4 61.6 45 223.0 153.9 45 Investment expenses 2.6 1.4 86 5.9 4.6 28 Service expenses 11.1 9.2 21 34.3 30.8 11 Interest expense 16.2 16.1 1 48.4 45.4 7 ----------------------- ----------------------- Total expenses 1,033.6 781.0 32 2,862.1 2,230.9 28 ----------------------- ----------------------- NET INCOME Income before income taxes 169.7 112.9 50 426.6 310.1 38 Provision for income taxes 53.5 32.6 64 131.8 88.1 50 ----------------------- ----------------------- Net income $ 116.2 $ 80.3 45 $ 294.8 $ 222.0 33 ======================= ======================= PER SHARE Primary $ 1.54 $ 1.08 43 $ 3.92 $ 2.91 35 Fully diluted 1.54 1.08 43 3.89 2.89 35 WEIGHTED NUMBER AVERAGE EQUIVALENT SHARES Primary 75.6 74.0 2 75.2 74.1 1 Fully diluted 75.7 74.2 2 75.7 74.5 2
NM - Not Meaningful See notes to consolidated financial statements. 2 3 The Progressive Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, December 31, --------------------- ------------ 1997 1996 1996 ------------------------------------------------------------------------------------------------------------ (millions) ASSETS Investments: Available-for-sale: Fixed maturities, at market (amortized cost: $3,446.3, $3,348.5 and $3,384.1) $3,509.0 $3,350.0 $3,409.2 Equity securities, at market Preferred stocks (cost: $392.3, $279.9 and $333.8) 406.0 282.6 341.6 Common stocks (cost: $516.0 , $438.3 and $458.9) 673.3 491.7 540.1 Short-term investments, at amortized cost (market: $693.0, $124.7 and $159.7) 693.0 124.7 159.7 --------------------- -------- Total investments 5,281.3 4,249.0 4,450.6 Cash 20.7 9.3 15.4 Accrued investment income 41.9 41.9 46.9 Premiums receivable, net of allowance for doubtful accounts of $27.5, $22.4 and $23.2 1,157.6 801.2 820.8 Reinsurance recoverables 362.2 319.3 310.0 Prepaid reinsurance premiums 88.6 90.9 85.8 Deferred acquisition costs 268.2 196.9 200.1 Income taxes 93.0 71.8 62.1 Property and equipment, net of accumulated depreciation of $148.0, $122.3 and $126.7 227.6 165.6 169.9 Other assets 32.9 41.3 22.3 --------------------- -------- Total assets $7,574.0 $5,987.2 $6,183.9 ===================== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Unearned premiums $1,979.8 $1,449.4 $1,467.3 Loss and loss adjustment expense reserves 2,140.9 1,764.1 1,800.6 Policy cancellation reserve 40.0 42.9 43.3 Accounts payable and accrued expenses 573.6 405.4 420.1 Debt 775.9 775.6 775.7 --------------------- -------- Total liabilities 5,510.2 4,437.4 4,507.0 --------------------- -------- Shareholders' equity Common Shares, $1.00 par value (net of treasury shares of 10.9, 11.7 and 11.6) 72.2 71.4 71.5 Paid-in capital 409.9 378.2 381.8 Net unrealized appreciation on investment securities 151.8 37.3 74.0 Retained earnings 1,429.9 1,062.9 1,149.6 --------------------- -------- Total shareholders' equity 2,063.8 1,549.8 1,676.9 --------------------- -------- Total liabilities and shareholders' equity $7,574.0 $5,987.2 $6,183.9 ===================== ========
See notes to consolidated financial statements. 3 4 The Progressive Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30, 1997 1996 ---------------------------------------------------------------------------------------------- (millions) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 294.8 $ 222.0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24.9 17.9 Net realized gains on security sales (67.7) (1.2) Changes in: Unearned premiums 442.0 239.8 Loss and loss adjustment expense reserves 198.9 153.6 Accounts payable and accrued expenses 99.8 65.5 Policy cancellation reserve (3.3) 2.1 Prepaid reinsurance 24.5 (20.4) Reinsurance recoverables 18.0 18.8 Premiums receivable (307.7) (151.3) Deferred acquisition costs (61.3) (15.0) Income taxes (60.1) (6.2) Other, net 35.2 15.1 -------- -------- Net cash provided by operating activities 638.0 540.7 CASH FLOWS FROM INVESTING ACTIVITIES Purchases: Available-for-sale: fixed maturities (5,050.6) (3,289.3) equity securities (519.7) (520.2) Sales: Available-for-sale: fixed maturities 4,607.1 2,280.6 equity securities 402.4 426.4 Maturities, paydowns, calls and other: Available-for-sale: fixed maturities 472.0 371.1 equity securities 85.9 40.1 Net sales of short-term investments (532.2) 178.1 Payable on securities 35.3 26.6 Purchases of property and equipment (77.7) (25.7) Purchase of Midland, net of cash acquired (48.0) -- -------- -------- Net cash used in investing activities (625.5) (512.3) CASH FLOWS FROM FINANCING ACTIVITIES Redemption of Preferred Shares -- (80.8) Proceeds from exercise of stock options 13.2 5.2 Tax benefit of stock options exercised 15.5 3.8 Proceeds from funded debt -- 99.6 Payments on funded debt (20.3) (.3) Dividends paid to shareholders (13.0) (15.3) Acquisition of treasury shares (2.6) (47.5) -------- -------- Net cash used in financing activities (7.2) (35.3) -------- -------- Increase (decrease) in cash 5.3 (6.9) Cash, January 1 15.4 16.2 -------- -------- Cash, September 30 $ 20.7 $ 9.3 ======== ========
See notes to consolidated financial statements 5 The Progressive Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 SUPPLEMENTAL CASH FLOW INFORMATION. The Company paid income taxes of $118.9 million and $75.4 million for the nine months ended September 30, 1997 and 1996, respectively. Total interest paid was $38.5 million and $34.9 million for the nine months ended September 30, 1997 and 1996. NOTE 2 Debt at September 30 consisted of:
1997 1996 --------------------------------- -------------------------------- Market Market Cost Value Cost Value -------------- --------------- -------------- -------------- 7.30% Notes $ 99.7 $103.4 $ 99.6 $ 99.9 6.60% Notes 198.9 199.4 198.8 193.5 7% Notes 148.4 149.4 148.3 140.2 8 3/4% Notes 29.6 31.2 29.4 31.6 10% Notes 149.6 165.8 149.5 167.0 10 1/8% Subordinated Notes 149.5 166.2 149.5 167.6 Other debt .2 .2 .5 .5 ------ ------ ------ ------ $775.9 $815.6 $775.6 $800.3 ====== ====== ====== ======
NOTE 3 On September 30, 1997, the Company paid a quarterly dividend of $.06 per Common Share to shareholders of record as of the close of business on September 12, 1997. The dividend was declared by the Board of Directors on July 25, 1997. On October 29, 1997, the Board of Directors declared a quarterly dividend of $.06 per Common Share. The dividend is payable December 31, 1997, to shareholders of record as of the close of business on December 12, 1997. NOTE 4 The consolidated financial statements reflect all normal recurring adjustments which were, in the opinion of management, necessary to present a fair statement of the results for the interim periods. The results of operations for the period ended September 30, 1997, are not necessarily indicative of the results expected for the full year. 5 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS For the third quarter 1997, operating income, which excludes net realized gains/losses on security sales and one-time items, was $89.3 million, or $1.18 per share, compared to $82.5 million, or $1.11 per share, last year. The combined ratio was 93.1, compared to 91.2 for the third quarter 1996. For the nine months ended September 30, 1997, operating income was $250.8 million, or $3.31 per share, compared to $221.2 million, or $2.92 per share, in 1996. The year-to-date combined ratio was 93.0, compared to 91.7 last year. Net premiums written increased 37% over the third quarter 1996 and 35% year-to-date, reflecting an increase in unit sales driven by the Company's competitive rates. Premiums earned, which are a function of the amount of premiums written in the current and prior periods, increased 30% for the quarter and 27% for the first nine months. Service revenues, which primarily consist of processing business for involuntary plans, decreased 5% to $12.1 million for the quarter due to the shrinking Commercial Automobile Insurance Procedures market, and increased 6% to $34.5 million for the first nine months, driven by new service products started during 1996. Claim costs, which represent actual and estimated future payments to or for our policyholders, as well as loss estimates for assignments under state-mandated assigned risk programs and costs to settle these claims, increased slightly as a percentage of premiums earned to 70% for the quarter, compared to 69% in 1996. Year-to-date claim costs were 71%, compared to 70% last year. Policy acquisition costs and other underwriting expenses were 23% of premiums earned for the third quarter, compared to 22% in 1996, and 22% for the first nine months of both 1997 and 1996. Other underwriting expenses include additional advertising expenses as well as costs to support the Company's infrastructure. Service expenses increased 21% for the quarter and 11% for the first nine months over the corresponding periods in 1996. Third quarter 1996 service expenses were effected by reductions to the loss adjustment expense reserves; excluding these adjustments, the change in service expenses is consistent with the change in revenues. Recurring investment income (interest and dividends) increased 26% for the quarter and 25% for the first nine months, reflecting an increase in the average investment portfolio and the pretax investment yields. The Company had net realized gains (losses) on security sales of $41.4 million and $67.7 million for the third quarter and first nine months, respectively, compared to $(3.4) million and $1.2 million in 1996. On September 30, 1997, the Company's portfolio had $233.7 million in total unrealized gains, compared to $114.1 million at December 31, 1996, primarily reflecting an upward trend in the stock market. The Company continues to invest in fixed-maturity, equity and short-term securities. The majority of the portfolio was in short-term and intermediate-term, investment-grade fixed-income 6 7 securities ($3,824.3 million, or 72.4%, at September 30, 1997, and $3,335.9 million, or 78.5%, at September 30, 1996). Long-term investment-grade fixed-income securities represented $118.9 million, or 2.2%, and $75.4 million, or 1.8%, of the total investment portfolio at September 30, 1997 and 1996, respectively. Non-investment-grade fixed-maturity securities were $258.8 million, or 4.9% in 1997, and $63.4 million, or 1.5%, in 1996 and offer the Company high returns and added diversification without a significant adverse effect on the stability and quality of the investment portfolio as a whole. The duration of the fixed-income portfolio was 2.7 years at September 30, 1997, compared to 3.1 years at September 30, 1996. Derivative financial instruments are used to manage the risks and enhance the yields of the available-for-sale portfolio. These financial instruments had a net market value of $(.2) million as of September 30, 1997, compared to $.8 million as of September 30, 1996. The weighted average annualized fully taxable equivalent book yield of the portfolio was 6.7% and 6.6% for the nine months ended September 30, 1997 and 1996, respectively. FINANCIAL CONDITION Progressive's insurance operations create liquidity by collecting and investing premiums written from new and renewal business in advance of paying claims. During the first nine months, the Company repurchased 26,926 Common Shares to satisfy obligations under various employee benefit plans. For the nine months ended September 30, 1997, operations generated a positive cash flow of $638.0 million. The Company has substantial capital resources and is unaware of any trends, events, or circumstances that are reasonably likely to affect its capital resources in a material way. The Company believes it has sufficient borrowing capacity and other capital resources to support current and anticipated growth. 7 8 PART II - OTHER INFORMATION --------------------------- ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits: See exhibit index on page 10. (b) Reports on Form 8-K filed during the quarter ended September 30, 1997: None 8 9 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. THE PROGRESSIVE CORPORATION --------------------------- (Registrant) Date: November 10, 1997 BY: /s/ DAVID M. SCHNEIDER --------------------- ---------------------- David M. Schneider Secretary Date: November 10, 1997 BY: /s/ CHARLES B. CHOKEL ----------------------- --------------------- Charles B. Chokel Chief Financial Officer 9 10 EXHIBIT INDEX
Exhibit No. Form 1O-Q Under Reg. Exhibit S-K, Item 601 No. Description of Exhibit ------------- --------- ---------------------- 11 11 Computation of Earnings Per Share 27 27 Financial Data Schedule
10 EX-11 2 EXHIBIT 11 1 EXHIBIT NO. 11 -------------- COMPUTATION OF EARNINGS PER SHARE 2 THE PROGRESSIVE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (millions - except per share amounts) (unaudited)
Three Months Nine Months -------------------------------------------- -------------------------------------------- Periods Ended September 30, 1997 1996 1997 1996 -------------------------------------------- -------------------------------------------- Per Per Per Per Amount Share Amount Share Amount Share Amount Share -------------------------------------------- -------------------------------------------- PRIMARY: Net income $116.2 $80.3 $294.8 $222.0 Less: Preferred stock dividends -- -- -- (3.5) Excess of Preferred Stock liquidation price over carrying value -- -- -- (2.9) --------- --------- ----------- --------- Income available to common shareholders $116.2 $1.54 $80.3 $1.08 $294.8 $3.92 $215.6 $2.91 ============================================ ============================================ Average shares outstanding 72.1 71.4 71.9 71.6 Net effect of dilutive stock options 3.5 2.6 3.3 2.5 --------- --------- ----------- --------- Total 75.6 74.0 75.2 74.1 ========= ========= =========== ========= FULLY DILUTED: Net income $116.2 $ 80.3 $294.8 $222.0 Less: Preferred stock dividends -- -- -- (3.5) Excess of Preferred Stock liquidation price over carrying value -- -- -- (2.9) --------- --------- ----------- --------- Income available to common shareholders $116.2 $1.54 $ 80.3 $1.08 $294.8 $3.89 $215.6 $2.89 ============================================ ============================================ Average shares outstanding 72.1 71.4 71.9 71.6 Net effect of dilutive stock options 3.6 2.8 3.8 2.9 --------- --------- ----------- --------- Total 75.7 74.2 75.7 74.5 ========= ========= =========== =========
EX-27 3 EXHIBIT 27
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 3,509,000 0 0 1,079,300 0 0 5,281,300 20,700 362,200 268,200 7,574,000 2,140,900 1,979,800 0 0 775,900 0 0 72,200 1,991,600 7,574,000 2,982,200 198,400 67,700 34,500 2,116,900 433,600 223,000 426,600 131,800 294,800 0 0 0 294,800 3.92 3.89 0 0 0 0 0 0 0
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