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, 2004
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: 217,038,929 outstanding at July 31, 2004
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Progressive Corporation and Subsidiaries
| Three Months |
Six Months |
|||||||||||||||||||||||
| Periods Ended June 30, |
2004 |
2003 |
% Change |
2004 |
2003 |
% Change |
||||||||||||||||||
| (millions – except per share amounts) | ||||||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||
Net premiums earned |
$ | 3,234.0 | $ | 2,774.9 | 17 | $ | 6,327.5 | $ | 5,373.2 | 18 | ||||||||||||||
Investment income |
124.7 | 112.5 | 11 | 239.6 | 228.5 | 5 | ||||||||||||||||||
Net realized gains (losses) on securities |
(3.4 | ) | 23.1 | NM | 56.1 | 20.0 | 181 | |||||||||||||||||
Service revenues |
11.9 | 10.5 | 13 | 24.5 | 19.3 | 27 | ||||||||||||||||||
Other income (expense) |
.2 | — | NM | — | — | — | ||||||||||||||||||
Total revenues |
3,367.4 | 2,921.0 | 15 | 6,647.7 | 5,641.0 | 18 | ||||||||||||||||||
Expenses: |
||||||||||||||||||||||||
Losses and loss adjustment expenses |
2,090.7 | 1,920.3 | 9 | 4,052.8 | 3,653.8 | 11 | ||||||||||||||||||
Policy acquisition costs |
348.3 | 306.6 | 14 | 682.3 | 594.3 | 15 | ||||||||||||||||||
Other underwriting expenses |
324.2 | 236.5 | 37 | 600.4 | 468.7 | 28 | ||||||||||||||||||
Investment expenses |
2.9 | 2.3 | 26 | 6.2 | 5.6 | 11 | ||||||||||||||||||
Service expenses |
6.6 | 6.8 | (3 | ) | 12.1 | 12.7 | (5 | ) | ||||||||||||||||
Interest expense |
19.7 | 23.7 | (17 | ) | 40.2 | 47.8 | (16 | ) | ||||||||||||||||
Total expenses |
2,792.4 | 2,496.2 | 12 | 5,394.0 | 4,782.9 | 13 | ||||||||||||||||||
Income before income taxes |
575.0 | 424.8 | 35 | 1,253.7 | 858.1 | 46 | ||||||||||||||||||
Provision for income taxes |
188.7 | 138.5 | 36 | 407.4 | 280.3 | 45 | ||||||||||||||||||
Net income |
$ | 386.3 | $ | 286.3 | 35 | $ | 846.3 | $ | 577.8 | 46 | ||||||||||||||
COMPUTATION OF EARNINGS PER SHARE |
||||||||||||||||||||||||
Basic: |
||||||||||||||||||||||||
Average shares outstanding |
216.3 | 217.6 | (1 | ) | 216.4 | 217.8 | (1 | ) | ||||||||||||||||
Per share |
$ | 1.79 | $ | 1.32 | 36 | $ | 3.91 | $ | 2.65 | 47 | ||||||||||||||
Diluted: |
||||||||||||||||||||||||
Average shares outstanding |
216.3 | 217.6 | (1 | ) | 216.4 | 217.8 | (1 | ) | ||||||||||||||||
Net effect of dilutive stock-based
compensation |
3.5 | 3.9 | (10 | ) | 3.5 | 3.7 | (5 | ) | ||||||||||||||||
Total equivalent shares |
219.8 | 221.5 | (1 | ) | 219.9 | 221.5 | (1 | ) | ||||||||||||||||
Per share |
$ | 1.76 | $ | 1.29 | 36 | $ | 3.85 | $ | 2.61 | 48 | ||||||||||||||
Dividends per Share |
$ | .025 | $ | .025 | — | $ | .050 | $ | .050 | — | ||||||||||||||
NM = Not Meaningful
See notes to consolidated financial statements.
2
The Progressive Corporation and Subsidiaries
| June 30, |
December 31, | |||||||||||
| 2004 |
2003 |
2003 |
||||||||||
| (millions) | (audited) | |||||||||||
Assets |
||||||||||||
Investments: |
||||||||||||
Available-for-sale: |
||||||||||||
Fixed maturities, at market (amortized cost: $9,651.3, $7,760.8 and $8,899.0) |
$ | 9,679.4 | $ | 8,108.7 | $ | 9,133.4 | ||||||
Equity securities, at market |
||||||||||||
Preferred stocks (cost: $846.6, $773.7 and $751.3) |
846.7 | 813.4 | 778.8 | |||||||||
Common equities (cost: $1,601.8, $1,591.3 and $1,590.6) |
2,026.8 | 1,719.4 | 1,972.1 | |||||||||
Short-term investments, at amortized cost (market: $1,114.8, $1,123.6 and $648.0) |
1,114.8 | 1,123.6 | 648.0 | |||||||||
Total investments |
13,667.7 | 11,765.1 | 12,532.3 | |||||||||
Cash |
22.0 | 17.9 | 12.1 | |||||||||
Accrued investment income |
101.6 | 82.4 | 97.4 | |||||||||
Premiums receivable, net of allowance for doubtful accounts of
$63.8, $55.7 and $66.8 |
2,322.6 | 2,045.0 | 2,079.6 | |||||||||
Reinsurance recoverables, including $41.0, $36.1 and $41.4 on paid losses |
286.0 | 241.9 | 271.3 | |||||||||
Prepaid reinsurance premiums |
129.3 | 116.6 | 114.7 | |||||||||
Deferred acquisition costs |
449.8 | 418.7 | 412.3 | |||||||||
Income taxes |
— | 26.2 | 81.6 | |||||||||
Property and equipment, net of accumulated depreciation of
$513.1, $433.8 and $476.4 |
647.9 | 525.4 | 584.7 | |||||||||
Other assets |
89.8 | 62.1 | 95.5 | |||||||||
Total assets |
$ | 17,716.7 | $ | 15,301.3 | $ | 16,281.5 | ||||||
Liabilities and Shareholders’ Equity |
||||||||||||
Unearned premiums |
$ | 4,220.7 | $ | 3,853.1 | $ | 3,894.7 | ||||||
Loss and loss adjustment expense reserves |
4,925.0 | 4,152.1 | 4,576.3 | |||||||||
Accounts payable, accrued expenses and other liabilities |
1,507.4 | 1,426.1 | 1,290.1 | |||||||||
Income taxes |
52.4 | — | — | |||||||||
Debt |
1,290.0 | 1,489.4 | 1,489.8 | |||||||||
Total liabilities |
11,995.5 | 10,920.7 | 11,250.9 | |||||||||
Shareholders’ equity: |
||||||||||||
Common Shares, $1.00 par value (authorized 600.0, issued 230.1,
including treasury shares of 12.8, 12.7 and 13.7) |
217.3 | 217.4 | 216.4 | |||||||||
Paid-in capital |
777.3 | 674.5 | 688.3 | |||||||||
Unamortized restricted stock |
(58.4 | ) | (33.1 | ) | (28.9 | ) | ||||||
Accumulated other comprehensive income (loss): |
||||||||||||
Net unrealized appreciation on investment securities |
294.6 | 335.2 | 418.2 | |||||||||
Net unrealized gains on forecasted transactions |
10.2 | 11.2 | 10.7 | |||||||||
Foreign currency translation adjustment |
(3.9 | ) | (4.8 | ) | (3.9 | ) | ||||||
Retained earnings |
4,484.1 | 3,180.2 | 3,729.8 | |||||||||
Total shareholders’ equity |
5,721.2 | 4,380.6 | 5,030.6 | |||||||||
Total liabilities and shareholders’ equity |
$ | 17,716.7 | $ | 15,301.3 | $ | 16,281.5 | ||||||
See notes consolidated financial statements.
3
The Progressive Corporation and Subsidiaries
| Six Months Ended June 30, |
2004 |
2003 |
||||||
| (millions) | ||||||||
Cash Flows From Operating Activities |
||||||||
Net income |
$ | 846.3 | $ | 577.8 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||
Depreciation |
46.6 | 41.7 | ||||||
Amortization of fixed maturities |
84.2 | 39.2 | ||||||
Amortization of restricted stock |
11.6 | 3.1 | ||||||
Net realized (gains) losses on securities |
(56.1 | ) | (20.0 | ) | ||||
Changes in: |
||||||||
Unearned premiums |
326.0 | 548.8 | ||||||
Loss and loss adjustment expense reserves |
348.7 | 339.1 | ||||||
Accounts payable, accrued expenses and other liabilities |
173.1 | 90.0 | ||||||
Prepaid reinsurance premiums |
(14.6 | ) | (19.9 | ) | ||||
Reinsurance recoverables |
(14.7 | ) | (26.2 | ) | ||||
Premiums receivable |
(243.0 | ) | (302.2 | ) | ||||
Deferred acquisition costs |
(37.5 | ) | (55.2 | ) | ||||
Income taxes |
200.6 | 100.0 | ||||||
Tax benefit from exercise/vesting of stock-based
compensation |
29.0 | 28.6 | ||||||
Other, net |
6.8 | (24.0 | ) | |||||
Net cash provided by operating activities |
1,707.0 | 1,320.8 | ||||||
Cash Flows From Investing Activities |
||||||||
Purchases: |
||||||||
Available-for-sale: fixed maturities |
(3,430.5 | ) | (5,183.4 | ) | ||||
equity securities |
(464.4 | ) | (554.4 | ) | ||||
Sales: |
||||||||
Available-for-sale: fixed maturities |
2,283.2 | 4,518.8 | ||||||
equity securities |
317.0 | 191.1 | ||||||
Maturities, paydowns, calls and other: |
||||||||
Available-for-sale: fixed maturities |
357.8 | 340.7 | ||||||
equity securities |
50.0 | 8.8 | ||||||
Net purchases of short-term investments |
(466.8 | ) | (555.8 | ) | ||||
Net unsettled security transactions |
32.0 | 146.0 | ||||||
Purchases of property and equipment |
(115.0 | ) | (64.1 | ) | ||||
Net cash used in investing activities |
(1,436.7 | ) | (1,152.3 | ) | ||||
Cash Flows From Financing Activities |
||||||||
Proceeds from exercise of stock options |
36.4 | 36.3 | ||||||
Payment of debt |
(200.0 | ) | — | |||||
Dividends paid to shareholders |
(10.8 | ) | (10.9 | ) | ||||
Acquisition of treasury shares |
(86.0 | ) | (192.9 | ) | ||||
Net cash used in financing activities |
(260.4 | ) | (167.5 | ) | ||||
Increase in cash |
9.9 | 1.0 | ||||||
Cash, January 1 |
12.1 | 16.9 | ||||||
Cash, June 30 |
$ | 22.0 | $ | 17.9 | ||||
See notes to consolidated financial statements.
4
The Progressive Corporation and Subsidiaries
Note 1 Basis of Presentation — These financial statements and the notes thereto should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2003.
The consolidated financial statements reflect all normal recurring adjustments which were, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results of operations for the period ended June 30, 2004, are not necessarily indicative of the results expected for the full year.
Note 2 Stock-Based Compensation —The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) 123, “Accounting for Stock-Based Compensation,” to account for its stock compensation activity in the financial statements. Prior to January 1, 2003, the Company followed the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for its stock option activity.
The change to the fair value method of accounting was applied prospectively to all non-qualified stock option awards granted, modified, or settled after January 1, 2003. No stock options were granted after December 31, 2002. As a result, there is no compensation cost for stock options included in net income for 2003 or 2004; however, compensation expense would have been recognized if the fair value method had been used for all awards since the original effective date of SFAS 123 (January 1, 1995). Prior to 2003, the Company granted all options currently outstanding at an exercise price equal to the market price of the Company’s Common Shares at the date of grant and therefore, under APB 25, no compensation expense was recorded.
In 2003, the Company began issuing restricted stock awards. Compensation expense for restricted stock awards is recognized over their respective vesting periods. The current year expense is not representative of the effect on net income for future years since each subsequent year will reflect expense for additional awards.
See Item 5-Other Information in Part II of the Company’s Form 10-Q for the quarterly period ended March 31, 2004, for details regarding the restricted stock awards granted by the Company during the first quarter of 2004.
The following table is presented in accordance with SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” and shows the effects on net income and earnings per share had the fair value method been applied to all outstanding and unvested stock option awards for the periods presented. The Company used the Black-Scholes pricing model to calculate the fair value of the options awarded as of the date of grant.
5
| Six months ended June 30, |
||||||||
| (millions, except per share amounts) | 2004 |
2003 |
||||||
Net income, as reported |
$ | 846.3 | $ | 577.8 | ||||
Deduct: Total stock-based employee
compensation expense determined
under the fair value based method
for all awards, net of related tax effects |
(2.9 | ) | (7.7 | ) | ||||
Net income, pro forma |
$ | 843.4 | $ | 570.1 | ||||
Earnings per share |
||||||||
Basic – as reported |
$ | 3.91 | $ | 2.65 | ||||
Basic – pro forma |
$ | 3.90 | $ | 2.62 | ||||
Diluted – as reported |
$ | 3.85 | $ | 2.61 | ||||
Diluted – pro forma |
$ | 3.85 | $ | 2.58 | ||||
Note 3 Supplemental Cash Flow Information — The Company paid income taxes of $239.0 million and $154.0 million during the six months ended June 30, 2004 and 2003, respectively. Total interest paid was $49.2 million and $49.9 million during the six months ended June 30, 2004 and 2003, respectively.
Note 4 Debt — Debt at June 30 consisted of:
| 2004 |
2003 |
|||||||||||||||
| Market | ||||||||||||||||
| (millions) |
Cost |
Value |
Cost |
Market Value |
||||||||||||
6.60% Notes due 2004 |
$ | — | $ | — | $ | 199.9 | $ | 205.3 | ||||||||
7.30% Notes due 2006 |
99.9 | 107.7 | 99.8 | 113.2 | ||||||||||||
6.375% Senior Notes due 2012 |
347.6 | 376.7 | 347.4 | 397.2 | ||||||||||||
7% Notes due 2013 |
148.8 | 167.4 | 148.8 | 178.5 | ||||||||||||
6 5/8% Senior Notes due 2029 |
294.1 | 302.2 | 294.0 | 317.5 | ||||||||||||
6.25% Senior Notes due 2032 |
393.6 | 390.4 | 393.5 | 448.4 | ||||||||||||
Other Debt |
6.0 | 6.0 | 6.0 | 6.0 | ||||||||||||
| $ | 1,290.0 | $ | 1,350.4 | $ | 1,489.4 | $ | 1,666.1 | |||||||||
Note 5 Comprehensive Income — Total comprehensive income was $212.1 million and $487.2 million for the quarters ended June 30, 2004 and 2003, respectively, and $722.2 million and $750.1 million for the six months ended June 30, 2004 and 2003, respectively.
Note 6 Dividends — On June 30, 2004, the Company paid a quarterly dividend of $.025 per Common Share to shareholders of record as of the close of business on June 11, 2004. The Board of Directors declared the dividend on April 16, 2004.
Note 7 Segment Information — The Company’s Personal Lines business units write insurance for private passenger automobiles and recreation vehicles. The Commercial Auto business unit writes primary liability, physical damage and other auto-related insurance for automobiles and trucks owned by small businesses. The Company’s other businesses principally include directors’ and officers’ liability insurance and processing business for Commercial Auto Insurance Procedures (CAIP), which are state-supervised plans serving the involuntary market. The “other businesses” also manage the run-off from discontinued product lines. All revenues are generated from external customers.
6
| Three Months |
Six Months |
|||||||||||||||||||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||||||||||||||||||
| Pretax | Pretax | Pretax | Pretax | |||||||||||||||||||||||||||||
| Profit | Profit | Profit | Profit | |||||||||||||||||||||||||||||
| Periods ended June 30, | Revenues |
(Loss) |
Revenues |
(Loss) |
Revenues |
(Loss) |
Revenues |
(Loss) |
||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
Personal
Lines - Agency |
$ | 1,945.9 | $ | 273.2 | $ | 1,705.1 | $ | 179.0 | $ | 3,817.3 | $ | 567.7 | $ | 3,305.6 | $ | 388.8 | ||||||||||||||||
Personal
Lines - Direct |
909.6 | 128.6 | 755.7 | 78.2 | 1,775.5 | 267.3 | 1,462.8 | 172.0 | ||||||||||||||||||||||||
Total Personal Lines1 |
2,855.5 | 401.8 | 2,460.8 | 257.2 | 5,592.8 | 835.0 | 4,768.4 | 560.8 | ||||||||||||||||||||||||
Commercial Auto Business |
370.4 | 71.0 | 295.6 | 51.3 | 717.2 | 158.8 | 568.3 | 94.9 | ||||||||||||||||||||||||
Other
businesses2 |
20.2 | 3.5 | 29.0 | 6.7 | 42.0 | 10.6 | 55.8 | 7.3 | ||||||||||||||||||||||||
Investments3 |
121.3 | 118.4 | 135.6 | 133.3 | 295.7 | 289.5 | 248.5 | 242.9 | ||||||||||||||||||||||||
Interest expense |
— | (19.7 | ) | — | (23.7 | ) | — | (40.2 | ) | — | (47.8 | ) | ||||||||||||||||||||
| $ | 3,367.4 | $ | 575.0 | $ | 2,921.0 | $ | 424.8 | $ | 6,647.7 | $ | 1,253.7 | $ | 5,641.0 | $ | 858.1 | |||||||||||||||||
1Personal automobile insurance accounted for 93% of the total Personal Lines
segment net premiums earned in all periods presented.
2Includes both other indemnity businesses as well as the Company’s service
business operations. For the three months ended June 30, 2004, both revenues
and pretax profit include $.2 million of additional interest received during
the second quarter on an income tax refund the Company received in February
2004.
3Revenues represent recurring investment income and net realized gains (losses) on securities; pretax profit is net of investment expenses.
Note 8 Litigation —The Company is named as defendant in various lawsuits arising out of its insurance operations. All legal actions relating to claims made under insurance policies are considered by the Company in establishing its loss and loss adjustment expense reserves.
In addition, the Company is named as defendant in a number of class action or individual lawsuits, the outcomes of which are uncertain at this time. These cases include those alleging damages as a result of the Company’s total loss evaluation methodology, use of after-market parts, use of consumer reports (such as credit reports) in underwriting and related notice requirements under the federal Fair Credit Reporting Act, charging betterment in first party physical damage claims, the adjusting of personal injury protection and medical payment claims, the use of preferred provider rates for payment of personal injury protection claims, the use of automated database vendors to assist in evaluating certain first party bodily injury claims, offering alternative commission programs or the alleged diminution of value to vehicles which are involved in accidents, and cases challenging other aspects of the Company’s claims and marketing practices and business operations, including worker classification issues.
The Company plans to contest the outstanding suits vigorously, but may pursue settlement negotiations in appropriate cases. In accordance with generally accepted accounting principles (GAAP), the Company has established accruals for lawsuits as to which the Company has determined that it is probable that a loss has been incurred and the Company can reasonably estimate its potential exposure. Pursuant to GAAP, the Company has not established reserves for those lawsuits where the loss is not probable and/or the Company is currently unable to estimate the potential exposure. If any one or more of these lawsuits results in a judgment against or settlement by the Company in an amount that is significantly in excess of the reserve established for such lawsuit (if any), the resulting liability could have a material impact on the Company’s financial condition, cash flows and results of operations.
For further discussion on the Company’s pending litigation, see Item 3-Legal Proceedings in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.
Note 9 Reclassifications – Certain amounts in the financial statements for prior periods were classified to conform to the 2004 presentation.
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
The Progressive Corporation and subsidiaries (the “Company”) continued the success achieved in 2003 through the second quarter of 2004, with an 11% increase in net premiums written, an underwriting profit margin of 14.6% and net income of $386.3 million for the quarter. All areas of the Company continued to function well, especially product pricing and claims resolution, as highlighted in the Company’s 2003 Annual Report to Shareholders. On the other hand, market conditions continue to change and most of the Company’s competitors now have rates that appear to be consistent with their profit objectives. As a result, consumers are not being dislocated by rate or underwriting shocks, thereby negatively impacting the number of new applications the Company is receiving. The Company, along with the rest of the industry, continued to benefit from the low level of automobile accident frequency during the quarter.
At June 30, 2004, the Company had 8.8 million policies in force on a companywide basis, 14% more than at the same time last year. This growth was primarily supported by strong renewals. The Company’s measure of the average policy life expectancy for its personal auto business was slightly higher in the second quarter 2004, as compared to the first quarter 2004, but lower than the second quarter last year. The Company is continuing to refine its measurement and methodology with regards to retention. Given its continued strong underwriting margins, the Company remains in a position where it can focus on retaining customers and introduce new product improvements faster.
The Company experienced favorable reserve development of 1.1 points for the second quarter and .2 points for the first six months of 2004. The Company continued to experience a decline in accident frequency in every coverage on a quarter over prior year quarter basis. In addition, the Company has continued to maintain solid claims hiring and training and, as a result, has not had to restrict growth in any state due to a lack of claims capacity.
Based on these ongoing trends, the Company will continue to assess market conditions on a state-by-state basis and will consider, and has taken, some rate reductions in selected states to maintain attractive combinations of profit and growth. In the short term, the Company’s strategy is to maintain rate stability, with some margin reduction by absorbing future cost trends. The Company remains focused on building sustainable competitive advantages while providing longer-term price stability for customers.
The Company made no substantial changes in the allocation of its investment portfolio during the quarter. Overall, the total portfolio had a negative return for the second quarter, driven by a negative return in the fixed-income securities (primarily due to the recent rise in interest rates) partially offset by positive total returns in the common stock portfolio. Year-to-date, both the fixed-income and common stock portfolios generated positive total returns. The Company continued to keep its credit quality high and exposure to interest rate risk low. At June 30, 2004, the fixed-income portfolio duration was 3.0 years with a weighted average credit quality of AA.
FINANCIAL CONDITION
Capital Resources and Liquidity
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, 2004, operations generated positive cash flows of $1.7 billion.
During the first quarter 2004, the Company retired all $200 million of its 6.60% Notes at their maturity using part of the proceeds from the $400 million of its 6.25% Senior Notes issued in November 2002; the remainder of the proceeds from that offering are available for general corporate purposes.
8
During the second quarter 2004, the Company entered into an uncommitted line of credit with National City Bank in the principal amount of $100 million. The Company entered into the line of credit as part of a contingency plan to help the Company maintain liquidity in the unlikely event that it experiences conditions or circumstances that affect the Company’s ability to transfer or receive funds. The Company had no borrowings under this arrangement at June 30, 2004.
The Company has substantial capital resources and believes it has sufficient borrowing capacity and other capital resources to support current and anticipated growth and scheduled principal and interest payments. The Company’s existing debt covenants do not include any rating or credit triggers.
Commitments and Contingencies
The Company is currently constructing a call center in Tampa, Florida and an office building in Mayfield Village, Ohio. These projects are expected to be completed during the second half of 2004. In addition, construction was completed in the second quarter 2004 on a call center in Colorado Springs, Colorado. The total cost for these three projects is estimated to be $128 million. These projects are being funded through operating cash flows. In addition, during the first quarter 2004, the Company opened one additional claims service center,