UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-Q
(Mark One)
| [ ü ] | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||
| For the quarterly period ended | June 30, 2002 | |||
| 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 incorporation or organization) |
(I.R.S. Employer 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 [ ü ] | 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: 217,725,495 outstanding at July 31, 2002
1
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
The Progressive Corporation and Subsidiaries
| Three Months | Six Months | |||||||||||||||||||||||||
| Periods Ended June 30, | 2002 | 2001 | % Change | 2002 | 2001 | % Change | ||||||||||||||||||||
| (millions – except per share amounts) | ||||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||
Premiums earned |
$ | 2,136.0 | $ | 1,755.8 | 22 | $ | 4,103.5 | $ | 3,429.7 | 20 | ||||||||||||||||
Recurring investment income |
117.0 | 104.0 | 13 | 225.1 | 201.5 | 12 | ||||||||||||||||||||
Net realized losses on security sales |
(3.0 | ) | (3.1 | ) | (3 | ) | (17.8 | ) | (5.6 | ) | 218 | |||||||||||||||
Service revenues |
8.8 | 5.9 | 49 | 16.6 | 10.8 | 54 | ||||||||||||||||||||
Total revenues |
2,258.8 | 1,862.6 | 21 | 4,327.4 | 3,636.4 | 19 | ||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||
Losses and loss adjustment expenses |
1,519.3 | 1,318.1 | 15 | 2,876.7 | 2,594.1 | 11 | ||||||||||||||||||||
Policy acquisition costs |
252.1 | 210.9 | 20 | 486.1 | 414.1 | 17 | ||||||||||||||||||||
Other underwriting expenses |
224.7 | 164.4 | 37 | 414.4 | 314.0 | 32 | ||||||||||||||||||||
Investment expenses |
2.3 | 2.5 | (8 | ) | 5.3 | 7.2 | (26 | ) | ||||||||||||||||||
Service expenses |
5.4 | 4.7 | 15 | 10.5 | 9.3 | 13 | ||||||||||||||||||||
Interest expense |
18.1 | 12.8 | 41 | 36.2 | 25.1 | 44 | ||||||||||||||||||||
Total expenses |
2,021.9 | 1,713.4 | 18 | 3,829.2 | 3,363.8 | 14 | ||||||||||||||||||||
Income before income taxes |
236.9 | 149.2 | 59 | 498.2 | 272.6 | 83 | ||||||||||||||||||||
Provision for income taxes |
76.5 | 45.5 | 68 | 161.6 | 82.3 | 96 | ||||||||||||||||||||
Net income |
$ | 160.4 | $ | 103.7 | 55 | $ | 336.6 | $ | 190.3 | 77 | ||||||||||||||||
COMPUTATION
OF EARNINGS PER SHARE1 |
||||||||||||||||||||||||||
Basic: |
||||||||||||||||||||||||||
Average shares outstanding |
219.8 | 221.6 | (1 | ) | 220.1 | 221.2 | — | |||||||||||||||||||
Per share |
$ | .73 | $ | .47 | 55 | $ | 1.53 | $ | .86 | 78 | ||||||||||||||||
Diluted: |
||||||||||||||||||||||||||
Average shares outstanding |
219.8 | 221.6 | (1 | ) | 220.1 | 221.2 | — | |||||||||||||||||||
Net effect of dilutive stock options |
4.6 | 4.2 | 10 | 4.5 | 3.9 | 15 | ||||||||||||||||||||
Total equivalent shares |
224.4 | 225.8 | (1 | ) | 224.6 | 225.1 | — | |||||||||||||||||||
Per share |
$ | .71 | $ | .46 | 54 | $ | 1.50 | $ | .85 | 76 | ||||||||||||||||
1Presented on a post-split basis. The Company’s 3 for 1 stock split was effective April 22, 2002.
See notes to consolidated financial statements.
2
The Progressive Corporation and Subsidiaries
| June 30, | December 31, | |||||||||||||||
| 2002 | 2001 | 2001 | ||||||||||||||
| (millions) | ||||||||||||||||
Assets |
||||||||||||||||
Investments - |
||||||||||||||||
Available-for-sale: |
||||||||||||||||
Fixed maturities, at market (amortized cost: $6,662.7, $5,248.4 and
$5,873.0) |
$ | 6,820.7 | $ | 5,290.0 | $ | 5,949.0 | ||||||||||
Equity securities, at market |
||||||||||||||||
Preferred stocks (cost: $682.4, $850.5 and $675.4) |
714.5 | 874.5 | 713.9 | |||||||||||||
Common
equities (cost: $1,412.8, $953.9 and $1,263.7) |
1,325.5 | 959.1 | 1,336.0 | |||||||||||||
Short-term investments, at amortized cost (market: $449.3, $325.6 and $227.4) |
449.3 | 325.6 | 227.4 | |||||||||||||
Total investments |
9,310.0 | 7,449.2 | 8,226.3 | |||||||||||||
Cash |
14.9 | 38.7 | 11.2 | |||||||||||||
Accrued investment income |
81.6 | 73.9 | 75.2 | |||||||||||||
Premiums receivable, net of allowance for doubtful accounts of
$45.5, $39.5 and $46.2 |
1,734.0 | 1,540.5 | 1,497.1 | |||||||||||||
Reinsurance recoverables |
201.2 | 209.9 | 201.5 | |||||||||||||
Prepaid reinsurance premiums |
96.2 | 66.8 | 77.6 | |||||||||||||
Deferred acquisition costs |
364.8 | 323.0 | 316.6 | |||||||||||||
Income taxes |
152.4 | 182.3 | 178.1 | |||||||||||||
Property and equipment, net of accumulated depreciation of
$420.1, $349.7 and $384.8 |
498.3 | 506.9 | 498.0 | |||||||||||||
Other assets |
43.8 | 38.5 | 40.8 | |||||||||||||
Total assets |
$ | 12,497.2 | $ | 10,429.7 | $ | 11,122.4 | ||||||||||
Liabilities and Shareholders’ Equity |
||||||||||||||||
Unearned premiums |
$ | 3,194.0 | $ | 2,719.5 | $ | 2,716.7 | ||||||||||
Loss and loss adjustment expense reserves |
3,436.6 | 3,113.6 | 3,238.0 | |||||||||||||
Accounts payable, accrued expenses and other liabilities |
1,391.1 | 824.8 | 821.3 | |||||||||||||
Debt |
1,096.0 | 749.0 | 1,095.7 | |||||||||||||
Total liabilities |
9,117.7 | 7,406.9 | 7,871.7 | |||||||||||||
Shareholders’ equity: |
||||||||||||||||
Common Shares, $1.00 par value (authorized 300.0, issued 230.1,
including treasury shares of 11.8, 9.3 and 9.7) |
218.3 | 73.8 | 73.4 | |||||||||||||
Paid-in capital |
573.3 | 540.7 | 554.0 | |||||||||||||
Accumulated other comprehensive income: |
||||||||||||||||
Net unrealized appreciation on investment securities |
66.8 | 46.1 | 121.5 | |||||||||||||
Forecasted hedges |
8.8 | — | 9.2 | |||||||||||||
Foreign currency translation adjustment |
(4.8 | ) | (4.8 | ) | (4.8 | ) | ||||||||||
Retained earnings |
2,517.1 | 2,367.0 | 2,497.4 | |||||||||||||
Total shareholders’ equity |
3,379.5 | 3,022.8 | 3,250.7 | |||||||||||||
Total liabilities and shareholders’ equity |
$ | 12,497.2 | $ | 10,429.7 | $ | 11,122.4 | ||||||||||
See notes to consolidated financial statements.
3
The Progressive Corporation and Subsidiaries
| Six Months Ended June 30, | 2002 | 2001 | ||||||||||
| (millions) | ||||||||||||
Cash Flows From Operating Activities |
||||||||||||
Net income |
$ | 336.6 | $ | 190.3 | ||||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||
Depreciation and amortization |
39.9 | 37.6 | ||||||||||
Net realized losses on security sales |
17.8 | 5.6 | ||||||||||
Changes in: |
||||||||||||
Unearned premiums |
477.3 | 83.0 | ||||||||||
Loss and loss adjustment expense reserves |
198.6 | 127.2 | ||||||||||
Accounts payable and accrued expenses |
191.3 | 88.4 | ||||||||||
Prepaid reinsurance premiums |
(18.6 | ) | 28.9 | |||||||||
Reinsurance recoverables |
.3 | 27.8 | ||||||||||
Premiums receivable |
(236.9 | ) | 26.5 | |||||||||
Deferred acquisition costs |
(48.2 | ) | (13.1 | ) | ||||||||
Income taxes |
55.0 | 71.6 | ||||||||||
Tax benefit from exercise of stock options |
11.9 | 12.6 | ||||||||||
Other, net |
6.1 | 6.1 | ||||||||||
Net cash provided by operating activities |
1,031.1 | 692.5 | ||||||||||
Cash Flows From Investing Activities |
||||||||||||
Purchases: |
||||||||||||
Available for sale: fixed maturities |
(4,236.3 | ) | (2,607.2 | ) | ||||||||
equity securities |
(340.4 | ) | (649.0 | ) | ||||||||
Sales: |
||||||||||||
Available for sale: fixed maturities |
3,121.4 | 1,886.1 | ||||||||||
equity securities |
182.8 | 765.8 | ||||||||||
Maturities, paydowns, calls and other: |
||||||||||||
Available for sale: fixed maturities |
290.2 | 214.5 | ||||||||||
equity securities |
— | 5.0 | ||||||||||
Net purchases of short-term investments |
(221.9 | ) | (138.8 | ) | ||||||||
Net
unsettled security transactions |
381.6 | (73.7 | ) | |||||||||
Purchases of property and equipment |
(40.8 | ) | (39.9 | ) | ||||||||
Net cash used in investing activities |
(863.4 | |||||||||||