UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2003
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
| 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
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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: 217,254,968 outstanding at July 31, 2003
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Progressive Corporation and Subsidiaries
Consolidated Statements of Income
(unaudited)
| Three Months | Six Months | |||||||||||||||||||||||||
| % | % | |||||||||||||||||||||||||
| Periods Ended June 30, | 2003 | 2002 | Change | 2003 | 2002 | Change | ||||||||||||||||||||
| (millions – except per share amounts) | ||||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||
Premiums earned |
$ | 2,774.9 | $ | 2,136.0 | 30 | $ | 5,373.2 | $ | 4,103.5 | 31 | ||||||||||||||||
Investment income |
112.5 | 117.0 | (4 | ) | 228.5 | 225.1 | 2 | |||||||||||||||||||
Net realized gains (losses) on securities |
23.1 | (3.0 | ) | NM | 20.0 | (17.8 | ) | NM | ||||||||||||||||||
Service revenues |
10.5 | 8.8 | 19 | 19.3 | 16.6 | 16 | ||||||||||||||||||||
Total revenues |
2,921.0 | 2,258.8 | 29 | 5,641.0 | 4,327.4 | 30 | ||||||||||||||||||||
Expenses: |
||||||||||||||||||||||||||
Losses and loss adjustment expenses |
1,920.3 | 1,519.3 | 26 | 3,653.8 | 2,876.7 | 27 | ||||||||||||||||||||
Policy acquisition costs |
306.6 | 252.1 | 22 | 594.3 | 486.1 | 22 | ||||||||||||||||||||
Other underwriting expenses |
236.5 | 224.7 | 5 | 468.7 | 414.4 | 13 | ||||||||||||||||||||
Investment expenses |
2.3 | 2.3 | — | 5.6 | 5.3 | 6 | ||||||||||||||||||||
Service expenses |
6.8 | 5.4 | 26 | 12.7 | 10.5 | 21 | ||||||||||||||||||||
Interest expense |
23.7 | 18.1 | 31 | 47.8 | 36.2 | 32 | ||||||||||||||||||||
Total expenses |
2,496.2 | 2,021.9 | 23 | 4,782.9 | 3,829.2 | 25 | ||||||||||||||||||||
Income before income taxes |
424.8 | 236.9 | 79 | 858.1 | 498.2 | 72 | ||||||||||||||||||||
Provision for income taxes |
138.5 | 76.5 | 81 | 280.3 | 161.6 | 73 | ||||||||||||||||||||
Net income |
$ | 286.3 | $ | 160.4 | 78 | $ | 577.8 | $ | 336.6 | 72 | ||||||||||||||||
COMPUTATION OF EARNINGS PER SHARE |
||||||||||||||||||||||||||
Basic: |
||||||||||||||||||||||||||
Average shares outstanding |
217.6 | 219.8 | (1 | ) | 217.8 | 220.1 | (1 | ) | ||||||||||||||||||
Per share |
$ | 1.32 | $ | .73 | 81 | $ | 2.65 | $ | 1.53 | 73 | ||||||||||||||||
Diluted: |
||||||||||||||||||||||||||
Average shares outstanding |
217.6 | 219.8 | (1 | ) | 217.8 | 220.1 | (1 | ) | ||||||||||||||||||
Net effect of dilutive stock options |
3.9 | 4.6 | (15 | ) | 3.7 | 4.5 | (18 | ) | ||||||||||||||||||
Total equivalent shares |
221.5 | 224.4 | (1 | ) | 221.5 | 224.6 | (1 | ) | ||||||||||||||||||
Per share |
$ | 1.29 | $ | .71 | 82 | $ | 2.61 | $ | 1.50 | 74 | ||||||||||||||||
Dividends per Share |
$ | .025 | $ | .023 | 9 | $ | .050 | $ | .046 | 9 | ||||||||||||||||
NM = Not Meaningful
See notes to consolidated financial statements.
2
The Progressive Corporation and Subsidiaries
Consolidated Balance Sheets
(unaudited)
| June 30, | ||||||||||||||||
| December 31, | ||||||||||||||||
| 2003 | 2002 | 2002 | ||||||||||||||
| (millions) | (audited) | |||||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Available-for-sale: |
||||||||||||||||
Fixed maturities, at market (amortized cost: $7,760.8, $6,662.7
and $7,409.4) |
$ | 8,108.7 | $ | 6,820.7 | $ | 7,712.5 | ||||||||||
Equity securities, at market |
||||||||||||||||
Preferred stocks (cost: $773.7, $682.4 and $631.9) |
813.4 | 714.5 | 656.7 | |||||||||||||
Common equities (cost: $1,591.3, $1,412.8 and $1,425.3) |
1,719.4 | 1,325.5 | 1,347.3 | |||||||||||||
Short-term investments, at amortized cost (market: $1,123.6, $449.3
and $567.8) |
1,123.6 | 449.3 | 567.8 | |||||||||||||
Total investments |
11,765.1 | 9,310.0 | 10,284.3 | |||||||||||||
Cash |
17.9 | 14.9 | 16.9 | |||||||||||||
Accrued investment income |
82.4 | 81.6 | 77.9 | |||||||||||||
Premiums receivable, net of allowance for doubtful accounts of
$55.7, $45.5 and $54.6 |
2,045.0 | 1,734.0 | 1,742.8 | |||||||||||||
Reinsurance recoverables, including $36.1, $33.3 and $34.8 on paid losses |
241.9 | 201.2 | 215.7 | |||||||||||||
Prepaid reinsurance premiums |
116.6 | 96.2 | 96.7 | |||||||||||||
Deferred acquisition costs |
418.7 | 364.8 | 363.5 | |||||||||||||
Income taxes |
26.2 | 152.4 | 219.2 | |||||||||||||
Property and equipment, net of accumulated depreciation of
$433.8, $420.1 and $392.4 |
525.4 | 498.3 | 503.1 | |||||||||||||
Other assets |
62.1 | 43.8 | 44.3 | |||||||||||||
Total assets |
$ | 15,301.3 | $ | 12,497.2 | $ | 13,564.4 | ||||||||||
Liabilities and Shareholders’ Equity |
||||||||||||||||
Unearned premiums |
$ | 3,853.1 | $ | 3,194.0 | $ | 3,304.3 | ||||||||||
Loss and loss adjustment expense reserves |
4,152.1 | 3,436.6 | 3,813.0 | |||||||||||||
Accounts payable, accrued expenses and other liabilities |
1,426.1 | 1,391.1 | 1,190.1 | |||||||||||||
Debt |
1,489.4 | 1,096.0 | 1,489.0 | |||||||||||||
Total liabilities |
10,920.7 | 9,117.7 | 9,796.4 | |||||||||||||
Shareholders’ equity: |
||||||||||||||||
Common Shares, $1.00 par value (authorized 600.0, issued 230.1,
including treasury shares of 12.7, 11.8 and 12.1) |
217.4 | 218.3 | 218.0 | |||||||||||||
Paid-in capital |
674.5 | 573.3 | 584.7 | |||||||||||||
Unamortized restricted stock |
(33.1 | ) | — | — | ||||||||||||
Accumulated other comprehensive income (loss): |
||||||||||||||||
Net unrealized appreciation on investment securities |
335.2 | 66.8 | 162.4 | |||||||||||||
Hedges on forecasted transactions |
11.2 | 8.8 | 11.7 | |||||||||||||
Foreign currency translation adjustment |
(4.8 | ) | (4.8 | ) | (4.8 | ) | ||||||||||
Retained earnings |
3,180.2 | 2,517.1 | 2,796.0 | |||||||||||||
Total shareholders’ equity |
4,380.6 | 3,379.5 | 3,768.0 | |||||||||||||
Total liabilities and shareholders’ equity |
$ | 15,301.3 | $ | 12,497.2 | $ | 13,564.4 | ||||||||||
See notes to consolidated financial statements.
3
The Progressive Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
| Six Months Ended June 30, | 2003 | 2002 | ||||||||||
| (millions) | ||||||||||||
Cash Flows From Operating Activities |
||||||||||||
Net income |
$ | 577.8 | $ | 336.6 | ||||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||||||
Depreciation and amortization |
41.7 | 39.9 | ||||||||||
Amortization of restricted stock |
3.1 | — | ||||||||||
Net realized (gains) losses on securities |
(20.0 | ) | 17.8 | |||||||||
Changes in: |
||||||||||||
Unearned premiums |
548.8 | 477.3 | ||||||||||
Loss and loss adjustment expense reserves |
339.1 | 198.6 | ||||||||||
Accounts payable, accrued expenses and other liabilities |
90.0 | 191.3 | ||||||||||
Prepaid reinsurance premiums |
(19.9 | ) | (18.6 | ) | ||||||||
Reinsurance recoverables |
(26.2 | ) | .3 | |||||||||
Premiums receivable |
(302.2 | ) | (236.9 | ) | ||||||||
Deferred acquisition costs |
(55.2 | ) | (48.2 | ) | ||||||||
Income taxes |
100.0 | 55.0 | ||||||||||
Tax benefit from exercise of stock options |
28.6 | 11.9 | ||||||||||
Other, net |
15.2 | 6.1 | ||||||||||
Net cash provided by operating activities |
1,320.8 | 1,031.1 | ||||||||||
Cash Flows From Investing Activities |
||||||||||||
Purchases: |
||||||||||||
Available-for-sale: fixed maturities |
(5,183.4 | ) | (4,236.3 | ) | ||||||||
equity securities |
(554.4 | ) | (340.4 | ) | ||||||||
Sales: |
||||||||||||
Available-for-sale: fixed maturities |
4,518.8 | 3,121.4 | ||||||||||
equity securities |
191.1 | 182.8 | ||||||||||
Maturities, paydowns, calls and other: |
||||||||||||
Available-for-sale: fixed maturities |
340.7 | 290.2 | ||||||||||
equity securities |
8.8 | — | ||||||||||
Net purchases of short-term investments |
(555.8 | ) | (221.9 | ) | ||||||||
Net unsettled security transactions |
146.0 | 381.6 | ||||||||||
Purchases of property and equipment |
(64.1 | ) | (40.8 | ) | ||||||||
Net cash used in investing activities |
(1,152.3 | ) | (863.4 | ) | ||||||||
Cash Flows From Financing Activities |
||||||||||||
Proceeds from exercise of stock options |
36.3 | 15.5 | ||||||||||
Dividends paid to shareholders |
(10.9 | ) | (10.2 | ) | ||||||||
Acquisition of treasury shares |
(192.9 | ) | (169.3 | ) | ||||||||
Net cash used in financing activities |
(167.5 | ) | (164.0 | ) | ||||||||
Increase in cash |
1.0 | |||||||||||