<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 June 30, 1996
--------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-9518
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THE PROGRESSIVE CORPORATION
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0963169
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6300 Wilson Mills Road, Mayfield Village, Ohio 44143
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(Address of principal executive offices) (Zip Code)
(216) 461-5000
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(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: 71,354,898 outstanding at June 30, 1996
<PAGE> 2
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements.
The Progressive Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
----------------------------------- ------------------------------
Periods Ended June 30, 1996 1995 % Change 1996 1995 % Change
- ----------------------------------------------------------------------------------------- ------------------------------
(millions - except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
NET PREMIUMS WRITTEN $875.1 $754.4 16 $1,685.3 $1,441.3 17
====================== ======================
REVENUES
Premiums earned $784.5 $677.4 16 $1,516.5 $1,301.7 17
Investment income 53.4 50.0 7 106.2 94.8 12
Net realized gains (losses) on security sales (0.2) 22.1 -- 4.7 37.5 (87)
Service revenues 10.4 10.0 4 19.8 19.3 3
---------------------- ----------------------
Total revenues 848.1 759.5 12 1,647.2 1,453.3 13
---------------------- ----------------------
EXPENSES
Losses and loss adjustment expenses 538.6 494.6 9 1,064.1 931.5 14
Policy acquisition costs 119.4 114.0 5 239.5 220.6 9
Other underwriting expenses 51.3 40.9 25 92.2 84.9 9
Investment expenses 1.4 2.5 (44) 3.2 4.6 (30)
Service expenses 12.3 8.8 40 21.6 17.2 26
Interest expense 15.0 14.2 6 29.3 28.5 3
---------------------- ----------------------
Total expenses 738.0 675.0 9 1,449.9 1,287.3 13
---------------------- ----------------------
NET INCOME
Income before income taxes 110.1 84.5 30 197.3 166.0 19
Provision for income taxes 31.7 23.7 34 55.5 44.5 25
---------------------- ----------------------
Net income $ 78.4 $ 60.8 29 $ 141.8 $ 121.5 17
====================== ======================
PER SHARE
Primary $ 1.01 $ .79 28 $ 1.83 $ 1.59 15
Fully diluted 1.01 .79 28 1.83 1.59 15
WEIGHTED NUMBER AVERAGE EQUIVALENT SHARES
Primary 73.6 74.0 (1) 74.1 74.0 --
Fully diluted 73.7 74.0 -- 74.1 74.0 --
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
The Progressive Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
---------------------------- ---------------
1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(millions)
ASSETS
<S> <C> <C> <C>
Investments:
Held-to-maturity:
Fixed maturities, at amortized cost (market: $318.8) $ -- $309.7 $ --
Available-for-sale:
Fixed maturities, at market (amortized cost:
$3,098.5, $2,347.9 and $2,729.5) 3,091.2 2,349.8 2,772.9
Equity securities, at market
Preferred stocks (cost: $298.2, $315.2 and $379.4) 298.2 314.8 382.3
Common stocks (cost: $335.8, $213.1 and $277.6) 381.9 230.1 310.0
Short-term investments, at amortized cost (market $297.7, $280.7,
and $302.8) 297.7 280.7 302.8
---------------------------- ------------------
Total investments 4,069.0 3,485.1 3,768.0
Cash 11.2 13.2 16.2
Accrued investment income 50.1 39.1 39.8
Premiums receivable, net of allowance for doubtful accounts of
$20.4, $16.4, and $19.2 794.1 622.8 649.9
Reinsurance recoverables 315.8 374.3 338.1
Prepaid reinsurance premiums 91.5 81.6 70.5
Deferred acquisition costs 193.9 183.7 181.9
Income taxes 77.8 88.8 58.3
Property and equipment, net of accumulated depreciation of
$138.5, $119.3 and $128.7 166.9 152.7 159.2
Other assets 23.4 37.9 70.6
---------------------------- ------------------
Total assets $5,793.7 $5,079.2 $5,352.5
============================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Unearned premiums $1,399.4 $1,174.7 $1,209.6
Loss and loss adjustment expense reserves 1,693.3 1,546.2 1,610.5
Policy cancellation reserve 39.8 40.5 40.8
Accounts payable and accrued expenses 426.1 324.0 339.9
Funded debt 775.6 675.7 675.9
---------------------------- ------------------
Total liabilities 4,334.2 3,761.1 3,876.7
---------------------------- ------------------
Shareholders' equity:
9 3/8% Serial Preferred Shares, Series A (issued and outstanding:
0, 3.5 and 3.4) -- 85.8 83.6
Common Shares, $1.00 par value
(treasury shares of 11.7, 11.2 and 11.0) 71.3 71.9 72.1
Paid-in capital 376.3 370.4 374.8
Net unrealized appreciation on investment securities 25.2 12.0 51.1
Retained earnings 986.7 778.0 894.2
---------------------------- ------------------
Total shareholders' equity 1,459.5 1,318.1 1,475.8
---------------------------- ------------------
Total liabilities and shareholders' equity $5,793.7 $5,079.2 $5,352.5
============================ ==================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
The Progressive Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 1995
- ----------------------------------------------------------------------------------------
(millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 141.8 $ 121.5
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12.8 10.0
Net realized gains on security sales (4.7) (37.5)
Changes in:
Unearned premiums 189.8 138.0
Loss and loss adjustment expense reserves 82.8 111.8
Accounts payable and accrued expenses 55.6 0.6
Policy cancellation reserve (1.0) (6.8)
Prepaid reinsurance (21.0) 1.6
Reinsurance recoverables 22.3 5.4
Premiums receivable (144.2) (80.4)
Deferred acquisition costs (12.0) (22.1)
Income taxes (5.5) (8.8)
Other, net (3.9) 12.6
----------------------
Net cash provided by operating activities 312.8 245.9
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases:
Held-to-maturity: fixed maturities -- (0.2)
Available-for-sale: fixed maturities (2,233.4) (1,530.4)
equity securities (280.0) (526.3)
Sales:
Available-for-sale: fixed maturities 1,649.6 1,080.7
equity securities 287.2 477.9
Maturities, paydowns, calls and other:
Held-to-maturity: fixed maturities -- 26.7
Available-for-sale: fixed maturities 202.2 254.1
equity securities 25.6 10.4
Net (purchases) sales of short-term investments 5.1 (1.6)
(Receivable) payable on securities 76.8 (18.1)
Purchases of property and equipment (18.1) (21.0)
----------------------
Net cash used in investing activities (285.0) (247.8)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 4.1 7.2
Tax benefits from exercise of stock options 2.9 6.8
Proceeds from funded debt 99.6 --
Payments on funded debt (0.2) (0.2)
Redemption of Preferred Shares (80.8) --
Dividends paid to shareholders (11.1) (12.1)
Acquisition of treasury shares (47.3) --
-----------------------
Net cash provided by (used in) financing activities (32.8) 1.7
----------------------
Decrease in cash (5.0) (0.2)
Cash, January 1 16.2 13.4
-----------------------
Cash, June 30 $ 11.2 $ 13.2
======================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
The Progressive Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 Supplemental Cash Flow Information. The Company paid income taxes of
$52.4 million and $40.5 million for the six months ended June 30, 1996 and 1995,
respectively. Total interest paid was $28.3 million for each of the six months
ended June 30, 1996 and 1995.
NOTE 2 On May 31, 1996, the Company redeemed all of its remaining outstanding
9 3/8% Serial Preferred Shares, Series A (Cumulative, Liquidation Preference
$25.00 per share) ("Preferred Shares") at a total cost of $82.1 million,
including accrued but unpaid dividends through the redemption date. The
redemption was funded through the sale on May 28, 1996, of $100 million of the
Company's 7.30% Notes due 2006 at par in an underwritten public offering. The
remaining proceeds of the offering were added to the investment portfolios of
the Company's subsidiaries and will be available for general corporate purposes,
which may include supporting premium growth.
NOTE 3 Funded debt at June 30 consisted of:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------------------
Market Market
Cost Value Cost Value
-------------- --------------- -------------- ---------------
<C> <C> <C> <C> <C>
7.3% Notes $ 99.6 $ 99.6 $ -- $ --
6.6% Notes 198.8 192.9 198.6 196.3
7.0% Notes 148.3 141.0 148.3 142.6
8 3/4% Notes 29.4 31.6 29.1 32.3
10% Notes 149.5 167.6 149.4 173.1
10 1/8% Subordinated Notes 149.4 168.0 149.3 173.0
Other funded debt 0.6 0.6 1.0 1.0
-------------- --------------- -------------- ---------------
$ 775.6 $ 801.3 $ 675.7 $ 718.3
============== =============== ============== ===============
</TABLE>
NOTE 4 On June 30, 1996, the Company paid a quarterly dividend of $.055 per
Common Share to shareholders of record as of the close of business on June 14,
1996. The dividend was declared by the Board of Directors on April 26, 1996.
On July 26, 1996, the Board of Directors declared a quarterly dividend of $.06
per Common Share, payable September 30, 1996, to shareholders of record as of
the close of business on September 13, 1996.
NOTE 5 Certain amounts in the consolidated financial statements for prior
periods were reclassified to conform with the 1996 presentation.
NOTE 6 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 periods ended
June 30, 1996 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 second quarter 1996, operating income, which excludes net realized gains
(losses) on security sales and one-time items, was $78.5 million, or $1.05 per
share, compared to $46.4 million, or $.60 per share, last year. The increase was
due primarily to favorable underwriting results as discussed below. During the
quarter, the Company redeemed all of its outstanding Preferred Shares at a
liquidation price of $25.00 per share, which exceeded its carrying value of
$24.11 per share, resulting in a one-time $.04 per share impact. The combined
ratio was 90.4, compared to 95.9 for the second quarter 1995. For the six months
ended June 30, 1996, operating income was $138.7 million, or $1.83 per share,
compared to $97.1 million, or $1.26 per share, in 1995. The year-to-date
combined ratio was 92.0, compared to 95.0 last year.
Net premiums written increased 16% over the second quarter 1995 and 17%
year-to-date, primarily reflecting an increase in unit sales. Premiums earned,
which are a function of the amount of premiums written in the current and prior
periods, increased 16% for the quarter and 17% for the first six months. Service
revenue increased 4% to $10.4 million for the quarter and 3% to $19.8 million
for the first six months.
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, and costs to settle these claims,
decreased as a percentage of premiums earned to 69% for the quarter, compared to
73% in 1995. The lower loss ratio was primarily attributable to declining
severity not anticipated by our pricing. In addition, 1995 results included $7.9
million of losses from storms that hit Texas and Louisiana. Year-to-date claim
costs were 70%, compared to 72% last year.
Policy acquisition costs and other underwriting expenses were 22% of premiums
earned for the second quarter, compared to 23% in 1995, and 22% for the first
six months, compared to 23% last year. Service expenses increased 40% for the
quarter and 26% for the first six months, primarily due to the costs associated
with acquiring a majority interest in a company which provides vehicle
inspection services.
Recurring investment income (interest and dividends) increased 7% for the
quarter and 12% for the first six months, reflecting an increase in the average
investment portfolio, partially offset by an increase in the common stock
portfolio, and a decrease in the pretax yields. The Company had net realized
gains (losses) on security sales of $(.2) million and $4.7 million for the
quarter and first six months, respectively, compared to $22.1 million and $37.5
million in 1995. On June 30, 1996, the Company's portfolio had $38.8 million in
total unrealized gains, compared to $78.7 million at December 31, 1995,
primarily reflecting an increase in interest rate levels as evidenced by the
3-year treasury note yield increasing from 5.2% to 6.3% during the first six
months.
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 securities ($3,304.5 million,
or 81.2%, at June 30, 1996, and $2,764.2 million, or 79.4%, at June 30, 1995).
6
<PAGE> 7
Long-term investment-grade fixed-income securities represented $69.8 million, or
1.7%, and $101.4 million, or 2.9%, of the total investment portfolio at June 30,
1996 and 1995, respectively. The duration of the fixed-income portfolio was 2.8
years at June 30, 1996, compared to 1.8 years at June 30, 1995.
Equity investments are comprised of preferred stocks ($298.2 million or 7.3% in
1996 and $314.8 million or 9.0% in 1995) and common stocks ($381.9 million or
9.4% in 1996 and $230.1 million or 6.6% in 1995). The increase in common stocks
reflects the Company's objective to increase its position in common stock
investments to 15% of the entire portfolio and to optimize returns and further
diversify the portfolio through foreign equity investments. As of June 30, 1996
and 1995, the non-investment-grade fixed-income portfolio of the Company was
$14.6 million, or .4%, and $74.6 million, or 2.1%, respectively, of the total
investment portfolio.
The Company's financial instruments with off-balance-sheet risk had net
unrealized gains (losses) of $1.5 million, compared to $(.2) million as of
June 30, 1996 and 1995, respectively.
The weighted average annualized fully taxable equivalent book yield of the
portfolio was 6.6% and 6.9% for the six months ended June 30, 1996 and 1995,
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 six months ended June 30, 1996, operations generated a positive cash flow of
$312.8 million. During the first six months, the Company repurchased 993,560
Common Shares at an average cost of $41.55 per share. During the second quarter,
the Company repurchased 941,600 Common Shares at an average cost of $41.36 per
share.
On May 28, 1996, the Company sold $100 million of its 7.30% Notes due 2006 at
par in an underwritten public offering. The net proceeds of $99.6 million (after
underwriting discount and expenses) were used primarily to fund the Preferred
Share redemption (see below). The remaining proceeds were added to the
investment portfolios of the Company's subsidiaries and will be available for
general corporate purposes, which may include supporting premium growth.
On May 31, 1996, the Company redeemed all of its remaining outstanding Preferred
Shares at a total cost of $82.1 million, including accrued but unpaid dividends
through the redemption date. The redemption was funded through the Company's
debt offering.
7
<PAGE> 8
RECENT DEVELOPMENTS
The Company has entered into a Settlement Stipulation with the California
Department of Insurance to settle Pro-West Insurance Company's Proposition 103
rollback obligation for the sum of $1,750,000. The Settlement Stipulation must
be approved by an administrative law judge and the Insurance Commissioner before
becoming final. The Company has sought indemnification for this liability from
the sellers from whom Pro-West was acquired in October 1990, in accordance with
the terms of the acquisition agreements, but the sellers have disputed such
obligation. In July 1996, the Company reached an agreement with the sellers to
settle the dispute. Under the settlement, the sellers have agreed to reimburse
Pro-West in the amount of at least $1,055,000, and potentially up to the full
amount of the rollback obligation plus certain expenses, depending on the timing
and circumstances of the indemnity payment.
8
<PAGE> 9
PART II - OTHER INFORMATION
---------------------------
ITEM 2. Changes in Securities
On May 28, 1996, the Company sold $100 million of its 7.30% Notes due
2006 (the "Notes") in an underwritten public offering. The Notes rank
on a parity with all other current and future unsecured and
unsubordinated indebtedness of the Company and prior to the
subordinated indebtedness and the Common Shares of the Company, as
well as any preferred shares that may be outstanding hereafter.
If certain defaults occur with respect to the Notes, no payment may be
made by the Company on account of the principal of or interest on, or
to acquire, any of the subordinated indebtedness until the Notes have
been paid in full or such defaults have been cured or waived. Upon any
acceleration of the principal of the subordinated indebtedness, or
upon any payment by the Company or distribution of assets of the
Company upon any dissolution, winding up, liquidation or
reorganization involving the Company, whether voluntary or
involuntary, or in bankruptcy or insolvency, all amounts due or to
become due upon the Notes must be paid in full or provided for before
any payment may be made on account of the subordinated indebtedness.
As a consequence, in the event of any such bankruptcy, insolvency or
similar event, holders of the Company's subordinated indebtedness may
recover less, ratably, than the holders of the Notes and certain other
indebtedness of the Company. Further, under Ohio law, upon any
dissolution or winding up of the Company, payment of the indebtedness
evidenced by the Notes, and other obligations of the Company, must be
made or adequately provided for prior to the distribution of any
remaining assets to holders of the Company's Common Shares and any
preferred shares which may be then outstanding.
ITEM 5. Other Information
On May 31, 1996, the Registrant redeemed all of its outstanding
Preferred Shares. The redemption was made at the redemption price of
$25.00 per share, plus accrued and unpaid dividends therein to the
date of redemption.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See exhibit index on page 12.
9
<PAGE> 10
(b) Reports on Form 8-K during the quarter ended June 30, 1996:
On April 3, 1996, the Registrant filed a Form 8-K to report the
voluntary resignation of Chief Operating Officer, Bruce W. Marlow. Mr.
Marlow plans to pursue opportunities outside of the auto insurance
business. Peter B. Lewis, President and Chief Executive Officer, has
assumed Mr. Marlow's responsibilities.
On April 16, 1996, the Registrant filed a Form 8-K to announce the
call for redemption, on May 31, 1996, of all of its outstanding 9 3/8%
Serial Preferred Shares, Series A (Cumulative, Liquidation Preference
$25.00 per share).
10
<PAGE> 11
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: July 31, 1996 BY: /s/ DAVID M. SCHNEIDER
-------------- ----------------------
David M. Schneider
Secretary
Date: July 31, 1996 BY: /s/ CHARLES B. CHOKEL
-------------- -----------------------
Charles B. Chokel
Treasurer and Chief Financial Officer
11
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit No. Form 10-Q
Under Reg. Exhibit
S-K. Item 601 No. Description of Exhibit
------------- --------- ----------------------
<S> <C> <C>
(4) 4 Form of 7.30% Notes due 2006, issued in the
aggregate principal amount of $100,000,000
under the Senior Indenture dated September 15,
1993 between the Company and State Street Bank
and Trust, as amended and supplemented
(10) 10 Amending Agreement dated April 1, 1996 between
the Company and Bruce W. Marlow relating to
certain outstanding stock options previously
granted to Mr. Marlow
(11) 11 Computation of Earnings Per Share
(12) 12 Computation of Ratio of Earnings to Fixed
Charges
(27) 27 Financial Data Schedule
</TABLE>
12
<PAGE> 1
EXHIBIT NO. 4
-------------
FORM OF 7.30% NOTES DUE 2006,
ISSUED IN THE AGGREGATE PRINCIPAL AMOUNT
OF $100,000,000 UNDER THE SENIOR INDENTURE
DATED SEPTEMBER 15, 1993 BETWEEN
THE COMPANY AND STATE STREET BANK AND
TRUST, AS AMENDED AND SUPPLEMENTED
<PAGE> 2
(FACE OF SECURITY)
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC") to the Issuer or its
agent for registration of transfer, exchange or payment, and such certificate is
registered in the name of Cede & Co., or in such other name as requested by an
authorized representative of DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
REGISTERED REGISTERED
NO. R-001 $100,000,000
CUSIP No. 743315 AH 6
SEE REVERSE FOR CERTAIN DEFINITIONS
THE PROGRESSIVE CORPORATION
7.30% NOTE DUE 2006
THE PROGRESSIVE CORPORATION, an Ohio corporation (the
"Issuer"), for value received, hereby promises to pay to CEDE & Co., c/o The
Depository Trust Company, 55 Water Street, New York, New York 10041 or
registered assigns, at the office or agency of the Issuer at the office of the
Trustee in Boston, Massachusetts, the principal sum of ONE HUNDRED MILLION
DOLLARS ($100,000,000) on June 1, 2006, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest semiannually on June 1
and December 1 of each year, commencing on December 1, 1996, on said principal
sum at said office or agency, in like coin or currency, at the rate per annum
specified in the title of this Note, from the June 1 or the December 1, as the
case may be, next preceding the date of this Note to which interest has been
paid, unless the date hereof is a date to which interest has been paid, in which
case from the date of this Note, or unless no interest has been paid on the
Notes, in which case from May 28, 1996, until payment of said principal sum has
been made or duly provided for; provided, that payment of interest may be made
at the option of the Issuer by check mailed to the address of the person
entitled thereto as such address shall appear on the Security Register.
Notwithstanding the foregoing, if the date hereof is after the fifteenth day of
May or November, as the case may be, and before the following June 1 or December
1, this Note shall bear interest from such June 1 or December 1; provided, that
if the Issuer shall default in the payment of interest due on such June 1 or
December 1, then this Note shall bear interest from the next preceding June 1 or
December 1, to which interest has been paid or, if no interest has been paid on
this Note, from May 28, 1996. The interest so payable on any June 1 or December
1 will, subject to certain exceptions provided in the Indenture referred to on
the reverse hereof, be paid to the person in whose name this Note is registered
at the close of business on May 15 or November 15, as the case may be, next
preceding such June 1 or December 1.
<PAGE> 3
Reference is made to the further provisions of this Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed by
the Trustee under the Indenture referred to on the reverse hereof.
IN WITNESS WHEREOF, The Progressive Corporation has caused this
instrument to be signed by its duly authorized officers and has caused its
corporate seal to be affixed hereto or imprinted hereon.
THE PROGRESSIVE CORPORATION
[CORPORATE SEAL]
By: /s/ Charles B. Chokel
-----------------------------
Charles B. Chokel
Treasurer
Attest: /s/David M. Schneider
-------------------------------
David M. Schneider
Secretary
Dated: May 28, 1996
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities, of the series designated herein,
referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY
as Trustee
By:
----------------------------
Authorized Signatory
<PAGE> 4
(BACK OF SECURITY)
THE PROGRESSIVE CORPORATION
7.30% NOTE DUE 2006
This Note is one of a duly authorized issue of debentures, notes, bonds
or other evidences of indebtedness of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to an indenture dated as of September 15, 1993, as heretofore
supplemented and amended (herein called the "Indenture"), between the Issuer and
State Street Bank and Trust Company, as Trustee (herein called the "Trustee"),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Trustee, the Issuer and the Holders of the
Securities. The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any), may be subject to different
sinking, purchase or analogous funds (if any) and may otherwise vary as in the
Indenture provided. This Note is one of a series designated as the 7.30% Notes
Due 2006 of the Issuer, limited in aggregate principal amount to $100,000,000.
In case an Event of Default, as defined in the Indenture, with respect
to the 7.30% Notes Due 2006 shall have occurred and be continuing, the principal
hereof may be declared, and upon such declaration shall become, due and payable,
in the manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Holders of not less than 66-2/3% in aggregate
principal amount of the Securities at the time Outstanding (as defined in the
Indenture) of all series to be affected (voting as one class), evidenced as in
the Indenture provided, to execute supplemental indentures adding any provisions
to or changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or modifying in any manner the rights
of the Holders of the Securities of each such series; provided, however, that no
such supplemental indenture shall (i) extend the final maturity of any Security,
or reduce the principal amount thereof, or reduce the rate or extend the time of
payment of any interest thereon, or impair or affect the rights of any Holder to
institute suit for the payment thereof, without the consent of the Holder of
each Security so affected or (ii) reduce the aforesaid percentage of Securities,
the Holders of which are required to consent to any such supplemental indenture,
without the consent of the Holder of each Security so affected. It is also
provided in the Indenture that, with respect to certain defaults or Events of
Default regarding the Securities of any series, prior to any declaration
accelerating the maturity of such Securities, the Holders of a majority in
aggregate principal amount Outstanding of the Securities of such series may on
behalf of the Holders of all the Securities of such series waive any such past
default or Event of Default and its consequences. The preceding sentence shall
not, however, apply to a default in the payment of the principal of or premium,
if any, or interest on any of the Securities. Any such consent or waiver by the
Holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders and owners
of this Note and any Note which may be issued in exchange or substitution
herefor, irrespective of whether or not any notation thereof is made upon this
Note or such other Note.
<PAGE> 5
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note in
the manner, at the respective times, at the rate and in the coin or currency
herein prescribed.
The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000 at the office or
agency of the Issuer at the office of the Trustee in Boston, Massachusetts, and
in the manner and subject to the limitations provided in the Indenture, but
without the payment of any service charge. Notes may be exchanged for a like
aggregate principal amount of Notes of other authorized denominations.
The Notes are not subject to redemption at the option of the Issuer or
through the operation of a sinking fund.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Issuer at the office of the Trustee in Boston,
Massachusetts, a new Note or Notes of authorized denominations for an equal
aggregate principal amount will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Issuer, the Trustee and any authorized agent of the Issuer or the
Trustee may deem and treat the registered Holder hereof as the absolute owner of
this Note (whether or not this Note shall be overdue and notwithstanding any
notation of ownership or other writing hereon), for the purpose of receiving
payment of, or on account of, the principal hereof and, subject to the
provisions on the face hereof, interest hereon, and for all other purposes, and
neither the Issuer nor the Trustee nor any authorized agent of the Issuer or the
Trustee shall be affected by notice to the contrary.
No recourse under or upon any obligation, covenant or agreement of the
Issuer in the Indenture or any indenture supplemental thereto or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer or director, as such, of the
Issuer or of any successor corporation, either directly or through the Issuer or
any successor corporation, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released
by the acceptance hereof and as part of the consideration for the issue hereof.
Terms used herein which are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture.
<PAGE> 6
ABBREVIATIONS
The following abbreviations, when used in the inscription on
the face of this instrument, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties CUST - Custodian
JT TEN - as joint tenants with right of
survivorship and not as
tenants in common UNIF GIFT MIN ACT - Uniform Gifts
to Minors Act
---------------
(State)
Additional abbreviations may also be used though not in the above list.
-------------------------------------
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------- ---------------------------------------
- ------------------------------------------------------------------------------
Please print or typewrite name and address including
postal zip code of assignee
- ------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- ------------------------------------------------------------------------------
attorney to transfer said Note on the books of the Issuer, with full power of
substitution in the premises.
Dated:
----------------------------------- -----------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within instrument in every
particular, without alteration or
enlargement or any change whatever.
<PAGE> 1
EXHIBIT NO. 10
--------------
AMENDING AGREEMENT DATED
APRIL 1, 1996
BETWEEN THE COMPANY AND
BRUCE W. MARLOW
RELATING TO CERTAIN OUTSTANDING
STOCK OPTIONS PREVIOUSLY
GRANTED TO MR. MARLOW
<PAGE> 2
AMENDING AGREEMENT
WHEREAS, The Progressive Corporation ("Company") and Bruce W. Marlow
("Optionee") have entered into certain Non-Qualified Stock Option Agreements
dated March 11, 1992, June 18, 1993 and April 14, 1994, respectively (the
"Agreements"); and
WHEREAS, Company and Optionee mutually desire to amend the Agreements;
NOW, THEREFORE, the parties hereto agree that the Agreements are hereby
amended as follows:
1. Section 5 of each of the Agreements is hereby deleted and the following
provision is substituted in its stead:
5. TERMINATION OF EMPLOYMENT. (a) If the Optionee's employment with the
Company or any of its Subsidiaries ends, by decision of the Company or
such Subsidiary or voluntary departure or resignation by Optionee, but
only if the end of the Optionee's employment is not due to the
Optionee's death, total disability or Cause (as defined below), then:
(i) if and to the extent that the Option has vested and become
exercisable prior to the date on which Optionee's employment with
Company or such Subsidiary ends, ("Termination Date"), then the
vested, unexercised portion of the Option may be exercised during
the lesser of (A) two months after such Termination Date, or (B)
the balance of the Option term; and
(ii) if and to the extent that the Option has not vested and become
exercisable prior to the Termination Date, it shall vest on such
date and may be exercised, in whole or in part, by the Optionee
at any time on or before, but not after, the fifth anniversary of
the Termination Date.
(b) If the Optionee's employment with the Company or any of its
Subsidiaries is terminated by the Company or such Subsidiary
for Cause, the Option and all rights to purchase Common
Shares thereunder shall immediately terminate. For purposes
of this Section 5, "Cause" shall mean the commission of a
felony, theft of or intentional significant damage to the
property or business of Company, gross dereliction of duty
or fraud.
(c) If Optionee's employment with the Company or any of its
Subsidiaries terminates due to death or total disability,
the provisions of Section 5(b)(6) or 5 (b)(7) of the Plan,
as applicable, shall apply.
<PAGE> 3
2. Each of the Agreements, as herein amended, is hereby ratified and
affirmed and shall remain in full force and effect in accordance with
its terms.
IN WITNESS WHEREOF, the undersigned have duly executed this Amending
Agreement as of the 1st day of April, 1996.
THE PROGRESSIVE CORPORATION
By: /s/ David M. Schneider
-----------------------
David M. Schneider
Secretary
OPTIONEE
By: /s/ Bruce W. Marlow
------------------------
Bruce W. Marlow
<PAGE> 1
EXHIBIT NO. 11
--------------
COMPUTATION OF
EARNINGS PER SHARE
<PAGE> 2
THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(millions - except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
--------------------------------------- ----------------------------------------
Periods Ended June 30, 1996 1995 1996 1995
------------------- ------------------- -------------------- ------------------
Per Per Per Per
Amount Share Amount Share Amount Share Amount Share
------------------- ------------------- -------------------- ------------------
PRIMARY:
<S> <C> <C> <C> <C>
Net income $78.4 $60.8 $141.8 $121.5
Less: Preferred stock dividends (1.2) (2.1) (3.5) (4.2)
Excess of preferred stock
liquidation price over
carrying value (2.9) -- (2.9) --
----------- ---------- ----------- ----------
Income available to common
shareholders 74.3 1.01 58.7 .79 135.4 1.83 117.3 1.59
=================== =================== ==================== ==================
Average shares outstanding 71.4 71.8 71.8 71.7
Net effect of dilutive stock options 2.2 2.2 2.3 2.3
------------------- ---------- -------------------- ----------
Total 73.6 74.0 74.1 74.0
=================== ========== ==================== ==========
FULLY DILUTED:
Net income $78.4 $60.8 $141.8 $121.5
Less: Preferred stock dividends (1.2) (2.1) (3.5) (4.2)
Excess of preferred stock
liquidation price over
carrying value (2.9) -- (2.9) --
----------- ---------- ----------- ----------
Income available to common
shareholders 74.3 1.01 58.7 .79 135.4 1.83 117.3 1.59
=================== =================== ==================== ==================
Average shares outstanding 71.4 71.8 71.8 71.7
Net effect of dilutive stock options 2.3 2.2 2.3 2.3
------------------- ---------- -------------------- ----------
Total 73.7 74.0 74.1 74.0
=================== ========== ==================== ==========
</TABLE>
<PAGE> 1
EXHIBIT NO. 12
--------------
COMPUTATION OF
RATIO OF EARNINGS TO
FIXED CHARGES
<PAGE> 2
EXHIBIT 12
THE PROGRESSIVE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(millions)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------
1996 1995
------------ --------------
<S> <C> <C>
Income before income taxes $ 197.3 $ 166.0
------------ --------------
Fixed Charges:
Interest and amortization on indebtedness 29.3 28.5
Portion of rents representative of the interest factor 2.2 2.0
------------ --------------
Total fixed charges 31.5 30.5
------------ --------------
Total income available for fixed charges $ 228.8 $ 196.5
============ ==============
Ratio of earnings to fixed charges 7.3 6.4
============ ==============
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 3,091,200
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 680,100
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,069,000
<CASH> 11,200
<RECOVER-REINSURE> 315,800
<DEFERRED-ACQUISITION> 193,900
<TOTAL-ASSETS> 5,793,700
<POLICY-LOSSES> 1,693,300
<UNEARNED-PREMIUMS> 1,399,400
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 775,600
<COMMON> 71,300
0
0
<OTHER-SE> 1,388,200
<TOTAL-LIABILITY-AND-EQUITY> 5,793,700
1,516,500
<INVESTMENT-INCOME> 103,000
<INVESTMENT-GAINS> 4,700
<OTHER-INCOME> 19,800
<BENEFITS> 1,064,100
<UNDERWRITING-AMORTIZATION> 239,500
<UNDERWRITING-OTHER> 92,200
<INCOME-PRETAX> 197,300
<INCOME-TAX> 55,500
<INCOME-CONTINUING> 141,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,800
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
