<PAGE> 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 March 31, 1999
---------------------------------------------
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)
(440) 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: 72,899,802 outstanding at April 30, 1999
<PAGE> 2
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, 1999 1998 % Change
---------------------------- ---------------------------------------------------
(millions - except per share amounts)
<S> <C> <C> <C>
NET PREMIUMS WRITTEN $1,553.7 $1,345.3 15
=====================================
REVENUES
Premiums earned $1,322.1 $1,145.7 15
Investment income 74.7 72.0 4
Net realized gains on security sales 2.0 26.7 (93)
Service revenues 11.2 10.5 7
-------------------------------------
Total revenues 1,410.0 1,254.9 12
-------------------------------------
EXPENSES
Losses and loss adjustment expenses 913.9 784.2 17
Policy acquisition costs 175.0 155.9 12
Other underwriting expenses 141.7 110.9 28
Investment expenses 2.1 2.5 (16)
Service expenses 10.0 9.4 6
Interest expense 16.8 16.1 4
-------------------------------------
Total expenses 1,259.5 1,079.0 17
-------------------------------------
NET INCOME
Income before income taxes 150.5 175.9 (14)
Provision for income taxes 45.2 55.8 (19)
-------------------------------------
Net income $105.3 $120.1 (12)
=====================================
COMPUTATION OF EARNINGS PER SHARE
Basic:
Average shares outstanding 72.7 72.4 --
=====================================
Per share $1.45 $1.66 (13)
=====================================
Diluted:
Average shares outstanding 72.7 72.4 --
Net effect of dilutive stock options 2.0 3.5 (43)
-------------------------------------
Total equivalent shares 74.7 75.9 (2)
=====================================
Per share $1.41 $1.58 (11)
=====================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
The Progressive Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
--------------------------- ------------------
1999 1998 1998
---------------------------- ------------------
<S> <C> <C> <C>
(millions)
ASSETS
Investments:
Available-for-sale:
Fixed maturities, at market (amortized cost:
$4,646.7, $3,832.7 and $4,171.6) $4,665.4 $3,885.7 $4,219.0
Equity securities, at market
Preferred stocks (cost: $361.5, $420.3 and
$374.3) 365.1 434.6 376.5
Common stocks (cost: $647.5, $520.7 and
$512.2) 814.1 708.5 636.9
Short-term investments, at amortized cost
(market: $356.7, $468.1 and $441.9) 356.7 468.1 441.9
---------------------------- ------------------
Total investments 6,201.3 5,496.9 5,674.3
Cash 25.3 13.4 18.6
Accrued investment income 49.7 37.5 53.1
Premiums receivable, net of allowance
for doubtful accounts of $32.5, $31.1 and $34.0 1,618.0 1,310.3 1,456.2
Reinsurance recoverables 281.8 326.6 281.0
Prepaid reinsurance premiums 78.8 78.9 77.7
Deferred acquisition costs 332.9 278.1 299.1
Income taxes 154.1 62.5 192.9
Property and equipment, net of accumulated
depreciation of $206.5, $170.1 and $194.1 404.8 286.3 376.2
Other assets 29.2 40.2 34.0
---------------------------- ------------------
Total assets $9,175.9 $7,930.7 $8,463.1
============================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Unearned premiums 2,562.4 2,178.7 2,329.7
Loss and loss adjustment expense reserves 2,192.0 2,148.1 2,188.6
Policy cancellation reserve 21.1 28.7 29.1
Accounts payable and accrued expenses 644.1 496.7 582.0
Debt 1,070.5 776.1 776.6
---------------------------- ------------------
Total liabilities 6,490.1 5,628.3 5,906.0
---------------------------- ------------------
Shareholders' equity:
Common Shares, $1.00 par value (treasury shares of
10.3, 10.7 and 10.6) 72.8 72.4 72.5
Paid-in capital 465.5 420.9 448.3
Accumulated comprehensive income:
Net unrealized appreciation on investment securities 122.8 165.6 113.3
Other comprehensive income (9.0) (6.3) (9.6)
Retained earnings 2,033.7 1,649.8 1,932.6
---------------------------- ------------------
Total shareholders' equity 2,685.8 2,302.4 2,557.1
---------------------------- ------------------
Total liabilities and shareholders' equity $9,175.9 $7,930.7 $8,463.1
============================ ==================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
The Progressive Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1999 1998
--------------------------- ------------ ------------
<S> <C> <C>
(millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $105.3 $120.1
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15.0 12.9
Net realized gains on security sales (2.0) (26.7)
Changes in:
Unearned premiums 232.7 198.6
Loss and loss adjustment expense reserves 3.4 1.5
Accounts payable and accrued expenses 46.2 37.5
Policy cancellation reserve (8.0) (6.0)
Prepaid reinsurance premiums (1.1) .9
Reinsurance recoverables (.8) (9.1)
Premiums receivable (161.8) (149.5)
Deferred acquisition costs (33.8) (18.5)
Income taxes 33.7 30.6
Other, net 18.9 1.3
------------ ------------
Net cash provided by operating activities 247.7 193.6
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases:
Available-for-sale: fixed maturities (1,969.6) (1,586.1)
equity securities (194.5) (258.0)
Sales:
Available-for-sale: fixed maturities 1,417.6 1,469.7
equity securities 67.6 161.5
Maturities, paydowns, calls and other:
Available-for-sale: fixed maturities 71.9 119.9
equity securities 2.4 11.1
Net (purchases) sales of short-term investments 85.2 (58.7)
(Receivable) payable on securities 15.9 (27.2)
Purchase of property and equipment (43.3) (38.9)
------------- -------------
Net cash used in investing activities (546.8) (206.7)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 6.4 2.8
Tax benefit from exercise of stock options 10.7 5.2
Proceeds from debt 293.7 --
Dividends paid to shareholders (4.7) (4.3)
Acquisition of treasury shares (.3) (.5)
------------- -------------
Net cash provided by financing activities 305.8 3.2
------------- -------------
Increase (decrease) in cash 6.7 (9.9)
Cash, January 1 18.6 23.3
------------- -------------
Cash, March 31 $25.3 $13.4
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
The Progressive Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 Basis of Presentation -- These financial statements and the
notes thereto should be read in conjunction with the Company's audited financial
statements included in its Annual Report on Form 10-K for the year ended
December 31, 1998.
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 March 31, 1999, are not necessarily indicative of the results expected for
the full year.
NOTE 2 Supplemental Cash Flow Information -- The Company paid income
taxes of $0 and $18.2 million for the periods ended March 31, 1999 and 1998,
respectively. Total interest paid was $6.6 million for both periods.
NOTE 3 Debt -- On March 1, 1999, the Company issued $300 million of
6 5/8% Senior Notes due March 1, 2029. Debt at March 31 consisted of:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- -----------------------------
Market Market
Cost Value Cost Value
----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
6 5/8% Senior Notes $ 293.7 $ 288.8 $ - $ -
7.30% Notes 99.7 104.3 99.7 106.0
6.60% Notes 199.1 202.3 199.0 200.7
7% Notes 148.5 154.5 148.4 154.2
8 3/4% Notes 30.0 30.2 29.7 30.9
10% Notes 149.8 160.1 149.7 164.3
10 1/8% Subordinated Notes 149.7 160.4 149.6 164.0
---------- ---------- -------- --------
$ 1,070.5 $ 1,100.6 $ 776.1 $ 820.1
========== ========== ======== ========
</TABLE>
NOTE 4 Comprehensive Income -- Total comprehensive income was $115.4
million and $163.4 million at March 31, 1999 and 1998, respectively.
NOTE 5 Dividends -- On March 31, 1999, the Company paid a quarterly
dividend of $.065 per Common Share to shareholders of record as of the close of
business on March 12, 1999. The dividend was declared by the Board of Directors
on February 19, 1999.
On April 23, 1999, the Board of Directors declared a quarterly dividend of $.065
per Common Share, payable June 30, 1999, to shareholders of record as of the
close of business on June 11, 1999.
5
<PAGE> 6
NOTE 6 Segment Information -- The Company's Personal Lines business units write
insurance for private passenger automobiles and recreation vehicles. The other
lines of business include writing insurance for small fleets of commercial
vehicles, lenders' collateral protection and directors' and officers' liability,
and providing related services. All revenues are generated from external
customers.
For the three months ended March 31,
(millions)
<TABLE>
<CAPTION>
1999 1998
------------------------------- -------------------------------
Pretax Pretax
Revenues Profit (Loss) Revenues Profit (Loss)
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Personal Lines $ 1,227.8 $ 82.2 1,056.4 84.6
Other 105.5 10.5 99.8 11.2
Investments(1) 76.7 74.6 98.7 96.2
Interest Expense - (16.8) - (16.1)
---------- --------- ---------- --------
$ 1,410.0 $ 150.5 $ 1,254.9 $ 175.9
========== ========= ========== ========
</TABLE>
(1) Revenues represent recurring investment income and net realized gains on
security sales; pretax profit is net of investment expenses.
NOTE 7 Reclassifications -- Certain amounts in the financial statements
for prior periods were reclassified to conform with the 1999 presentation.
NOTE 8 Related Party Transaction -- On April 23, 1999, subsequent to
the balance sheet date, the Company sold, in a cash transaction, its corporate
aircraft to ACME Acquisition Corporation, a company owned by Peter B. Lewis, the
Company's Chairman of the Board, President and Chief Executive Officer -
Insurance Operations. The airplane had a net book value of $6.9 million and was
sold to Mr. Lewis for $12.1 million, the fair market value of the airplane as
determined by an independent appraiser.
6
<PAGE> 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
For the first quarter 1999, operating income, which excludes net realized gains
and losses on security sales, was $104.0 million, or $1.39 per share, compared
to $102.8 million, or $1.35 per share, last year. The combined ratio was 93.1,
compared to 91.7 for the first quarter 1998.
Net premiums written increased 15% over the first quarter 1998, primarily
reflecting an increase in unit sales driven by the Company's competitive rates
and its effort to increase brand awareness through its advertising campaign.
Ninety-three percent of the Company's net premiums written were generated by the
Personal Lines business units, which write insurance for private passenger
automobiles and recreation vehicles. The Personal Lines business is generated
either by an agent or written directly by the Company. The Agent channel
includes business written by our network of 30,000 Independent Insurance Agents
and through Strategic Alliance business relationships (other insurance
companies, financial institutions, employers and national brokerage agencies).
For the first quarter 1999, total net premiums written through Independent
Agents and Strategic Alliance agency relationships increased 8% to $1,245.7
million, compared to $1,154.9 million last year. Direct business includes
business written through 1 800 AUTO PRO(R), over the Internet and by the
Strategic Alliances business unit on behalf of affinity groups. For the first
quarter 1999, net premiums written on a Direct basis increased 108% to $205.5
million, compared to $98.7 million last year. Premiums earned, which are a
function of the amount of premiums written in the current and prior periods,
increased 15% 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, were 69% of premiums earned for the
quarter, compared to 68% for the same period last year.
Policy acquisition costs and other underwriting expenses as a percentage of
premiums earned were 24% and 23% in the first quarter 1999 and 1998,
respectively. Other underwriting expenses include additional advertising
expenses.
Recurring investment income (interest and dividends) increased 4% for the
quarter, reflecting an increase in the average investment portfolio, partially
offset by a decrease in the pretax yields. The weighted average annualized fully
taxable equivalent book yield of the portfolio was 6.2% and 6.4% for the
quarters ended March 31, 1999 and 1998, respectively. The Company had net
realized gains on security sales of $2.0 million for the quarter, compared to
$26.7 million in the first quarter of 1998. At March 31, 1999, the Company's
portfolio had $188.9 million in total unrealized gains, compared to $174.3
million at December 31, 1998.
7
<PAGE> 8
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-maturity securities ($4,743.1 million,
or 76.5%, at March 31, 1999, and $4,131.1 million, or 75.1%, at March 31, 1998).
Long-term investment-grade fixed-maturity securities represented $157.0 million,
or 2.5%, and $102.4 million, or 1.9%, of the total investment portfolio at
March 31, 1999 and 1998, respectively. Non-investment-grade fixed-maturity
securities were $122.0 million, or 2.0%, in 1999, and $120.3 million, or 2.2%,
in 1998, 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 3.0 years
at March 31, 1999 and 1998.
Derivative instruments are primarily used to manage the risks and enhance the
returns of the available-for-sale portfolio and may also be used for trading
purposes. Derivative instruments classified as held or issued for other than
trading had a net market value of $(.3) million at March 31, 1999, compared to
$2.4 million at March 31, 1998. Trading positions had a net market value of
$(4.1) million as of March 31, 1999, compared to $.8 million as of March 31,
1998. As of March 31, 1999, the Company had open investment funding commitments
of $46.9 million.
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, 1999, operations generated a positive cash flow
of $247.7 million.
On March 1, 1999, the Company issued $300 million of 6 5/8% Senior Notes due
March 1, 2029, under a shelf registration statement filed with the Securities
and Exchange Commission in 1998. The Company may redeem all or part of the Notes
at any time, subject to a "make whole" provision. There are no sinking fund
requirements. The Notes were priced at 98.768% to yield 6.721% to maturity.
Interest is payable semiannually on March 1 and September 1, beginning
September 1, 1999. Net proceeds to the Company of $293.7 million (after
discount and underwriting fees) are intended to be used, together with other
available funds, to retire certain of the Company's current outstanding debt
upon its maturity, including $30 million of 8 3/4% Notes, which are due
June 1, 1999, and $150 million each of 10% Notes and 10 1/8% Subordinated
Notes, both of which are due December 15, 2000.
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.
The Company is currently constructing a corporate office complex in Mayfield
Village, Ohio at an estimated cost of $70.1 million, of which $37.8 million has
been paid through March 31, 1999, including $9.1 million paid in the first
quarter 1999. The first of three buildings is expected to be completed in May
1999, with the other two buildings to be completed by the end of 1999. The
Company completed the construction of its regional call center in Tampa, Florida
in February 1999. The total estimated cost of the project is $45.1 million, of
which $44.1 million has been paid through March 31, 1999, including $2.8 million
paid in the first quarter 1999.
8
<PAGE> 9
YEAR 2000 COMPLIANCE
The year 2000 problem exists because many computer programs only use the last
two digits to refer to a year and could recognize "00" as 1900 instead of 2000.
If not corrected, many computer and other microchip supported applications could
fail or create erroneous results. The extent of the potential impact is still
unknown but could affect the global economy. In response to this issue, the
Company has evaluated its applications and operating software (including its
claims reporting, financial reporting, policy issuance, policy maintenance and
other internal production systems), hardware and software products, and
third-party data exchanges and business relationships and is in the process of
evaluating its end user computing activities and facilities implications
(including public utility services). The Company has established a dedicated,
tenured project team responsible for overseeing progress on the Company's
compliance program and periodically reporting to management.
The Company began converting its applications software to be year 2000 compliant
in July 1995 and, as a result, has been able to avoid redeploying significant
resources or deferring other important projects to specifically address the year
2000 issues. During the first quarter 1998, the Company retained independent
consultants to determine its state of readiness. Although some additional areas
of focus were identified, the consultants noted that the Company was adequately
addressing its critical internal systems and issues. As of March 31, 1999, the
Company has completed approximately 99% of its efforts to bring its applications
software in compliance. Testing of critical applications is being accomplished
through the use of a special systems environment known as a "Time Warp Lab,"
which mimics the Company's production environment. As a final test of year 2000
readiness, after conversion and year 2000 certification, critical applications
are run in the Time Warp Lab while systems clocks turn over from 1999 to 2000
and beyond. The total cost to modify these existing production systems, which
includes both internal and external costs of programming, coding and testing, is
estimated to be $8.5 million, of which $7.8 million had been expensed through
March 31, 1999. The Company also replaced some of its systems during 1998. In
addition to being year 2000 compliant, these new systems added increased
functionality to the Company. The total cost of these systems, which include
both internal and external costs, is estimated to be $5.3 million, and the
majority of the projects were completed in 1998, with remaining parallel testing
scheduled during the first half of 1999. As of March 31, 1999, $5.1 million had
been paid for these systems. All costs are being funded through operating cash
flows. In addition, the Company has identified approximately 380 third parties
with which data is exchanged. All critical data exchanges are being tested for
compliance. Unless delayed by our business partners' testing schedules, all
testing of critical data exchanges is expected to be completed by the end of the
second quarter 1999.
The Company continually evaluates computer hardware and software upgrades for
enhancements and, therefore, many of the costs to replace these items to be year
2000 compliant are not likely to be incremental costs to the Company. The
Company's remediation of its mainframe hardware and operating software is 96%
complete and the remediation of its servers and client server operating software
is 85% complete. The Company estimates that all mainframe and client server
hardware and operating software will be year 2000 compliant by the first half of
1999. In addition, during 1998, the Company secured software which will assist
in the discovery of noncompliant desktop hardware and software. It is estimated
that the assessment and remediation process will be completed by the first half
of 1999.
9
<PAGE> 10
The Company is currently unable to determine the impact that year 2000
noncompliance may have on its financial condition, cash flows and results of
operations. The Company believes that it is taking the necessary measures to
address issues that may arise relating to the year 2000 and that its production
systems will be compliant. The Company realizes, however, that noncompliance by
third parties could impact its business. The possibility exists that a portion
of the Company's distribution channel may not be compliant, that communication
with agents could be disrupted, that underwriting data, such as motor vehicle
reports, could be unobtainable, that the claim settling process could be delayed
or that frequency and severity of losses may increase due to external factors.
The Company is contacting its key independent insurance agents, vendors and
suppliers (e.g. banks, credit bureaus, motor vehicle departments, rating
agencies, etc.) to determine their status of compliance and to assess the impact
of noncompliance to the Company. The Company is working closely with all
critical business relationships to minimize its exposure to year 2000 issues,
including on-site visits to identify their state of readiness.
The Company's process teams and business groups are identifying potential year
2000 scenarios. For those scenarios deemed to be both probable and with a
potentially significant business impact, the Company is developing contingency
plans. The majority of the contingency plans are drafted and were reviewed by
the Company's chief financial and technology officers during 1998. Contingency
plans include such items as hardening facilities with back-up generators,
prioritizing resources, securing alternative vendors, developing alternative
processes, pre-ordering policyholder information and other measures. The
contingency plans were substantially completed for all material relationships
during the first quarter 1999, and are being reviewed in detail in the second
quarter 1999. The Company will continue to review these plans throughout 1999.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: EXCEPT FOR HISTORICAL INFORMATION, THE MATTERS DISCUSSED IN THIS QUARTERLY
REPORT ON FORM 10-Q ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. THESE RISKS AND UNCERTAINTIES INCLUDE, WITHOUT LIMITATION,
PRICING COMPETITION AND OTHER INITIATIVES BY COMPETITORS, LEGISLATIVE AND
REGULATORY DEVELOPMENTS, WEATHER CONDITIONS (INCLUDING THE SEVERITY AND
FREQUENCY OF STORMS, HURRICANES, SNOWFALLS, HAIL AND WINTER CONDITIONS), DRIVING
PATTERNS, COURT DECISIONS AND TRENDS IN LITIGATION, INTEREST RATE LEVELS AND
OTHER CONDITIONS IN THE FINANCIAL AND SECURITIES MARKETS, UNFORESEEN
TECHNOLOGICAL ISSUES ASSOCIATED WITH THE YEAR 2000 COMPLIANCE EFFORTS AND THE
EXTENT TO WHICH VENDORS, PUBLIC UTILITIES, GOVERNMENTAL ENTITIES AND OTHER THIRD
PARTIES THAT INTERFACE WITH THE COMPANY MAY FAIL TO ACHIEVE YEAR 2000
COMPLIANCE, AND OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S SEC
REPORTS. THE COMPANY ASSUMES NO OBLIGATION TO UPDATE THE INFORMATION IN THIS
QUARTERLY REPORT.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Derivative financial instruments held or issued for purposes of managing
interest rate exposure on the anticipated debt issuance were closed on
March 1, 1999 upon the issuance of the $300 million 6 5/8% Senior Notes.
The net market value of these instruments at closing was $3.3 million.
No other material changes have occurred in market risk since reported in the
Annual Report on Form 10-K for the year ended December 31, 1998.
10
<PAGE> 11
PART II - OTHER INFORMATION
---------------------------
ITEM 2. Changes in Securities.
On March 1, 1999, the Company sold $300 million of its 6 5/8% Notes due
2029 (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 4. Submission of Matters to a Vote of Security Holders.
At the April 23, 1999 Annual Meeting of Shareholders of the Company,
61,821,673 Common Shares were represented in person or by proxy.
At the meeting, the shareholders elected the five directors named
below. The votes cast for each director were as follows:
<TABLE>
<CAPTION>
Director Term Expires For Withheld
-------- ------------ --- --------
<S> <C> <C> <C>
Charles B. Chokel 2000 61,634,956 186,717
Milton N. Allen 2002 61,555,049 266,624
James E. Bennett III 2002 61,288,000 533,673
Charles A. Davis 2002 61,654,967 166,706
Paul B. Sigler 2002 61,631,025 190,648
</TABLE>
11
<PAGE> 12
The following are the directors whose terms continued after the Annual
Meeting:
Director Term Expires
-------- ------------
Stephen R. Hardis 2000
Janet Hill 2000
Norman S. Matthews 2000
B. Charles Ames 2001
Peter B. Lewis 2001
Donald B. Shakelford 2001
The shareholders approved a proposal to fix the number of directors at
twelve. This proposal received 61,282,642 affirmative votes and 128,232
negative votes. There were 410,799 abstentions and no broker non-votes
with respect to this proposal.
The shareholders approved The Progressive Corporation 1999 Executive
Bonus Plan. This proposal received 60,456,770 affirmative votes and
829,175 negative votes. There were 535,728 abstentions and no broker
non-votes with respect to this proposal.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
See exhibit index on page 14.
(b) Reports on Form 8-K during the quarter ended March 31, 1999:
On January 5, 1999, the Registrant filed a Current Report on
Form 8-K, dated January 1, 1999, discussing certain changes
in the senior management of the Registrant.
On February 18, 1999, the Registrant filed a Current Report
on Form 8-K containing certain financial information
concerning the Registrant and its subsidiaries at
December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998.
On February 26, 1999, the Registrant filed a Current Report
on Form 8-K containing additional exhibits to be filed and
incorporated into the Registrant's previously filed
Registration Statement on Form S-3 (File No. 333-48935).
12
<PAGE> 13
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 11, 1999 BY: /s/ W. THOMAS FORRESTER
---------------- -------------------------------------
W. Thomas Forrester
Treasurer and Chief Financial Officer
13
<PAGE> 14
EXHIBIT INDEX
-------------
Exhibit No. Form 1O-Q
Under Reg. Exhibit
S-K, Item 601 No. Description of Exhibit
- ------------- --- ----------------------
(27) 27 Financial Data Schedule for the period ended
March 31, 1999
14
<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
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 4,665,400
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,179,200
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 6,201,300
<CASH> 25,300
<RECOVER-REINSURE> 281,800
<DEFERRED-ACQUISITION> 332,900
<TOTAL-ASSETS> 9,175,900
<POLICY-LOSSES> 2,192,000
<UNEARNED-PREMIUMS> 2,562,400
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,070,500
0
0
<COMMON> 72,800
<OTHER-SE> 2,613,000
<TOTAL-LIABILITY-AND-EQUITY> 9,175,900
1,322,100
<INVESTMENT-INCOME> 72,600
<INVESTMENT-GAINS> 2,000
<OTHER-INCOME> 11,200
<BENEFITS> 913,900
<UNDERWRITING-AMORTIZATION> 175,000
<UNDERWRITING-OTHER> 141,700
<INCOME-PRETAX> 150,500
<INCOME-TAX> 45,200
<INCOME-CONTINUING> 105,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,300
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.41
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
