<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-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 March 31, 1995
----------------------------------------------
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, $1.00 par value: 71,835,953 outstanding at April 28, 1995
1
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
The Progressive Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1995 1994 % Change
- ------------------------------------------------------------------------------------------------------------
(millions - except per share amounts)
<S> <C> <C> <C>
NET PREMIUMS WRITTEN $686.9 $558.2 23
=======================
REVENUES
Premiums earned $624.3 $478.7 30
Investment income 44.8 36.8 22
Net realized gains (losses) on security sales 15.4 (2.6) --
Service revenues 9.3 9.5 (2)
-----------------------
Total revenues 693.8 522.4 33
-----------------------
EXPENSES
Losses and loss adjustment expenses 436.9 309.0 41
Policy acquisition costs 106.6 87.1 22
Other underwriting expenses 44.0 38.9 13
Investment expenses 2.1 2.1 --
Service expenses 8.4 8.1 4
Interest expense 14.3 13.5 6
-----------------------
Total expenses 612.3 458.7 33
-----------------------
NET INCOME
Income before Federal income taxes 81.5 63.7 28
Provision for Federal income taxes 20.8 15.6 33
-----------------------
Net income $ 60.7 $ 48.1 26
=======================
PER SHARE
Primary $ .79 $ .62 27
Fully diluted .79 .62 27
WEIGHTED NUMBER EQUIVALENT SHARES
Primary 74.0 74.5 (1)
Fully diluted 74.1 74.5 (1)
See notes to consolidated financial statements.
</TABLE>
2
<PAGE> 3
The Progressive Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------------------------------
1995 1994 1994
------------------------------------------------------------------------------------------------------------------
(millions)
<S> <C> <C> <C>
ASSETS
Investments:
Held-to-maturity:
Fixed maturities, at amortized cost (market:
$329.0, $358.8 and $343.8) $ 321.0 $ 346.9 $ 337.6
Available-for-sale:
Fixed maturities, at market (amortized cost:
$2,219.0, $1,963.3 and $2,129.7) 2,201.8 1,969.3 2,087.0
Equity securities, at market
(cost: $434.4, $461.7 and $481.0) 439.4 472.8 476.3
Short-term investments, at amortized cost
(market: $298.5, $299.8 and $279.2) 298.5 299.8 279.1
--------------------------------------------------
Total investments 3,260.7 3,088.8 3,180.0
Cash 15.2 17.7 13.4
Accrued investment income 36.5 36.6 43.4
Premiums receivable, net of allowance
for doubtful accounts of $16.4, $8.9 and $15.6 574.4 421.4 542.4
Reinsurance recoverables 387.7 407.3 379.7
Prepaid reinsurance premiums 77.0 87.8 83.2
Deferred acquisition costs 170.9 138.4 161.6
Federal income taxes 88.4 76.2 103.2
Property and equipment, net of accumulated
depreciation of $121.4, $108.5 and $116.7 149.2 116.9 143.3
Other assets 90.9 24.5 24.9
--------------------------------------------------
Total assets $4,850.9 $4,415.6 $4,675.1
===================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Unearned premiums $1,093.1 $ 854.7 $1,036.7
Loss and loss adjustment expense reserves 1,486.0 1,389.9 1,434.4
Policy cancellation reserve 43.3 56.3 47.3
Accounts payable and accrued expenses 310.9 422.1 329.2
Funded debt 675.7 675.4 675.6
--------------------------------------------------
Total liabilities 3,609.0 3,398.4 3,523.2
--------------------------------------------------
Shareholders' equity:
9 3/8% Serial Preferred Shares, Series A (issued
and outstanding, 3.5, 3.6 and 3.5) 85.8 87.0 85.8
Common Shares, $1.00 par value (treasury shares of
11.2, 10.1 and 11.2) 71.8 72.1 71.2
Paid-in capital 368.9 359.2 357.1
Net unrealized appreciation (depreciation) on
investment securities (7.9) 11.1 (30.7)
Retained earnings 723.3 487.8 668.5
--------------------------------------------------
Total shareholders' equity 1,241.9 1,017.2 1,151.9
--------------------------------------------------
Total liabilities and shareholders' equity $4,850.9 $4,415.6 $4,675.1
===================================================
See notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
The Progressive Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Three months ended March 31, 1995 1994
- -------------------------------------------------------------------------------------------------------
(millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 60.7 $ 48.1
Adjustments to reconcile net income to net cash provided
from operating activities:
Depreciation and amortization 4.8 4.0
Net realized (gains) losses on security sales (15.4) 2.6
Changes in:
Unearned premiums 56.4 82.7
Loss and loss adjustment expense reserves 51.6 41.3
Accounts payable and accrued expenses (12.5) 30.3
Policy cancellation reserve (4.0) (3.8)
Prepaid reinsurance 6.2 (3.2)
Reinsurance recoverables (8.0) (26.4)
Premiums receivable (32.0) (40.8)
Deferred acquisition costs (9.3) (13.8)
Federal income taxes 2.4 14.2
Other, net 8.8 6.8
----------------------------------
Net cash provided by operating activities 109.7 142.0
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases:
Held-to-maturity: fixed maturities -- (46.3)
Available-for-sale: fixed maturities (752.9) (429.5)
equity securities (249.8) (54.5)
Sales:
Available-for-sale: fixed maturities 510.8 137.4
equity securities 297.2 28.7
Maturities, paydowns, calls and other:
Held-to-maturity: fixed maturities 16.0 8.1
Available-for-sale: fixed maturities 164.4 79.6
Net purchases of short-term investments (19.4) (69.0)
(Receivable) payable on securities (68.9) 36.2
Purchase of property and equipment (11.6) (14.7)
----------------------------------
Net cash used in investing activities (114.2) (324.0)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 6.3 1.0
Tax benefits from exercise of stock options 6.1 --
Proceeds from funded debt -- 198.4
Payments on funded debt (.1) (.2)
Dividends paid to shareholders (6.0) (5.7)
Acquisition of treasury shares -- (2.5)
----------------------------------
Net cash provided by financing activities 6.3 191.0
----------------------------------
Increase in cash 1.8 9.0
Cash, January 1 13.4 8.7
----------------------------------
Cash, March 31 $ 15.2 $ 17.7
==================================
See notes to consolidated financial statements.
</TABLE>
4
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The Progressive Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 Supplemental Cash Flow Information -- The Company paid Federal
income taxes of $6.5 million and $0 for the periods ended March 31, 1995 and
1994, respectively. Total interest paid was $6.6 million and $5.1 million for
the periods ended March 31, 1995 and 1994, respectively.
NOTE 2 On March 31, 1995, the Company paid a quarterly dividend of
$.055 per Common Share and a regular quarterly dividend of approximately $.59
per share on the 9 3/8% Serial Preferred Shares, Series A, to shareholders of
record as of the close of business on March 10, 1995. Both dividends were
declared by the Board of Directors on February 10, 1995.
On April 28, 1995, the Board of Directors declared a quarterly dividend of
$.055 per Common Share and a regular quarterly dividend of approximately $.59
per share on the 9 3/8% Serial Preferred Shares, Series A. Both dividends are
payable June 30, 1995, to shareholders of record as of the close of business on
June 9, 1995.
NOTE 3 The 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 March 31, 1995 are not necessarily indicative
of the results expected for the full year.
5
<PAGE> 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
For the first quarter 1995, operating income, which excludes net realized gains
and losses on security sales, was $50.7 million, or $.66 per share, compared to
$49.8 million, or $.64 per share, last year. The combined ratio was 94.1,
compared to 90.9 for the first quarter 1994.
Net premiums written increased 23% over the first quarter 1994, primarily
reflecting unit growth in the core automobile insurance business. This growth
resulted from the Company maintaining competitive rates due to cost control
efforts. Premiums earned, which are a function of the amount of premiums
written in the current and prior periods, increased 30% for the quarter.
Service revenue decreased 2% to $9.3 million for the quarter.
Claim costs, which represent actual and estimated future payments to or for our
policyholders, as well as loss estimates for future assignments and assessments
under state-mandated assigned risk programs, increased as a percentage of
premiums earned to 70% for the quarter, compared to 65% in 1994. During the
quarter, the Company raised rates but at a pace slower than its rising loss
costs. Policy acquisition costs and other underwriting expenses as a
percentage of premiums earned decreased to 24% for the first quarter, compared
to 26% in 1994. Service expenses increased 4% for the quarter, primarily
reflecting a slight increase in fixed operating expenses.
Recurring investment income (interest and dividends) increased 22% for the
quarter, reflecting an increase in the average investment portfolio and a mix
shift to taxable securities. The Company had net realized gains on security
sales of $15.4 million for the quarter, compared to net realized losses on
security sales of $2.6 million in the first quarter of 1994. At March 31, 1995,
the Company's portfolio had $4.2 million in total unrealized losses, compared
to $41.1 million in total unrealized losses at December 31, 1994, primarily
reflecting a general decline in interest rate levels.
The Company continues to invest in fixed maturity, short-term and equity
securities. The majority of the portfolio ($2,617.0 million, or 80.3%, at
March 31, 1995 and $2,360.8 million, or 76.4%, at March 31, 1994) was in
short-term and intermediate-term, investment-grade fixed-income securities.
Long-term investment-grade fixed-income securities represented $53.7 million,
or 1.6%, and $81.5 million, or 2.7% of the total investment portfolio at March
31, 1995 and 1994, respectively.
As of March 31, 1995 and 1994, the equity portfolio of the Company was $439.4
million, or 13.5%, and $472.8 million, or 15.3%, respectively, of the total
investment portfolio. The equity portfolio consists of preferred stocks
($266.9 million in 1995 and $360.1 million in 1994), and common stocks ($172.5
million in 1995 and $112.7 million in 1994). As of March 31, 1995 and 1994,
the non-investment grade fixed-income portfolio of the Company was $150.6
million, or 4.6%, and $173.7 million, or 5.6%, respectively, of the total
investment portfolio.
The Company's financial instruments with off-balance-sheet risk had a net
market value of $(.6) million and $.4 million as of March 31, 1995 and 1994,
respectively.
The weighted average annualized fully taxable equivalent book yield of the
portfolio was 6.8% and 6.5% for the quarters ended March 31, 1995 and 1994,
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.
For the three months ended March 31, 1995, operations generated a positive cash
flow of $109.7 million.
6
<PAGE> 7
PART II - OTHER INFORMATION
---------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the April 28, 1995 Annual Meeting of the Shareholders of the
Company, 62,019,184 Common Shares were represented in person or by
proxy.
The shareholders approved the proposal to fix the number of directors
at nine. The proposal received 60,797,276 affirmative votes, 931,173
negative votes and 290,735 abstentions.
At the meeting, the shareholders elected the eight directors named
below, each to serve for a term of one year. One vacancy remains on
the Board. The votes cast for each director were as follows:
<TABLE>
<S> <C> <C>
For Withheld
--- --------
Milton N. Allen 61,593,216 425,968
B. Charles Ames 61,604,915 414,269
Stephen R. Hardis 61,618,948 400,236
Janet Hill 61,602,188 416,996
Peter B. Lewis 61,610,796 408,388
Norman S. Matthews 61,618,101 401,083
Donald B. Shackelford 61,615,008 404,176
Paul B. Sigler 61,598,705 420,479
</TABLE>
The shareholders approved The Progressive Corporation 1995
Executive Bonus Plan, which provides certain executive officers of the
Company with the opportunity to earn performance-based incentive
compensation. This proposal received 59,691,280 affirmative votes,
1,410,057 negative votes and 917,847 abstentions.
The shareholders approved The Progressive Corporation Executive
Deferred Compensation Plan, pursuant to which certain executive
officers and other key employees of the Company may defer receipt and
invest some or all of the incentive compensation that they earn. This
proposal received 59,219,287 affirmative votes, 1,846,911 negative
votes and 952,986 abstentions.
The shareholders approved the Progressive Corporation 1995
Incentive Plan, pursuant to which stock options and other stock-based
awards may be granted to officers or other key employees of the
Company or its subsidiaries. This proposal received 52,774,485
affirmative votes, 8,538,173 negative votes and 706,526 abstentions.
ITEM 5. Other Information.
On April 28, 1995, Michael C. Murr, the Company's Chief Investment
and Capital Officer and the President of Progressive Partners, Inc.,
resigned.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See exhibit index on page 9.
(b) Reports on Form 8-K during the quarter ended March 31, 1995:
None
7
<PAGE> 8
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: May 12, 1995 BY: /s/ DAVID M. SCHNEIDER
---------------- ---------------------------
David M. Schneider
Secretary of the Registrant
Date: May 12, 1995 BY: /s/ CHARLES B. CHOKEL
---------------- ---------------------------
Charles B. Chokel
Treasurer and Chief Financial
Officer of the Registrant
8
<PAGE> 9
EXHIBIT INDEX
-------------
Exhibit No. Form 10-Q
Under Reg. Exhibit
S-K, Item 601 No. Description of Exhibit
------------- --------- ----------------------
(11) 11 Computation of Earnings Per Share
(27) 27 Financial Data Schedule
(99) 99 Computation of Premiums Earned
9
<PAGE> 1
EXHIBIT NO. 11
--------------
COMPUTATION OF
EARNINGS PER SHARE
<PAGE> 2
<TABLE>
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(millions - except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------
1995 1994
--------------------- -----------------------
Per Per
Amount Share Amount Share
------ ----- ------ -----
<S> <C> <C> <C> <C>
PRIMARY:
Net income $60.7 $48.1
Less: Preferred stock dividends (2.1) (2.2)
------ ------
Income available to Common
Shareholders $58.6 $.79 $45.9 $ .62
====== ===== ====== =====
Average shares outstanding 71.5 72.1
Net effect of dilutive stock options 2.5 2.4
------ ------
Total 74.0 74.5
====== ======
FULLY DILUTED:
Net income $60.7 $48.1
Less: Preferred stock dividends (2.1) (2.2)
----- -----
Income available to Common
Shareholders $58.6 $.79 $45.9 $ .62
====== ===== ====== =====
Average shares outstanding 71.5 72.1
Net effect of dilutive stock options 2.6 2.4
------ ------
Total 74.1 74.5
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 2,201,800
<DEBT-CARRYING-VALUE> 321,000
<DEBT-MARKET-VALUE> 329,000
<EQUITIES> 439,400
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,260,700
<CASH> 15,200
<RECOVER-REINSURE> 387,700
<DEFERRED-ACQUISITION> 170,900
<TOTAL-ASSETS> 4,850,900
<POLICY-LOSSES> 1,486,000
<UNEARNED-PREMIUMS> 1,093,100
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 675,700
<COMMON> 71,800
0
85,800
<OTHER-SE> 1,084,300
<TOTAL-LIABILITY-AND-EQUITY> 4,850,900
624,300
<INVESTMENT-INCOME> 42,700
<INVESTMENT-GAINS> 15,400
<OTHER-INCOME> 9,300
<BENEFITS> 436,900
<UNDERWRITING-AMORTIZATION> 106,600
<UNDERWRITING-OTHER> 44,000
<INCOME-PRETAX> 81,500
<INCOME-TAX> 20,800
<INCOME-CONTINUING> 60,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,700
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
EXHIBIT NO. 99
--------------
COMPUTATION OF PREMIUMS EARNED
<PAGE> 2
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
COMPUTATION OF PREMIUMS EARNED
(millions)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------
1995 1994 % Change
----------------------------------------------------
<S> <C>
Total direct premiums written $726.0 $605.6 20
Reinsurance ceded, net (39.1) (47.4) 18
--------------------------------
Net premiums written 686.9 558.2 23
Change in net unearned premiums(1) (62.6) (79.5) 21
--------------------------------
Premiums earned $624.3 $478.7 30
================================
<FN>
(1) Represents change in unearned premiums net of prepaid reinsurance premiums.
</TABLE>
