Progressive 2013 Annual Report Download - page 26

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4. DEBT
Debt at December 31 consisted of:
2013 2012
(millions)
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
7% Notes due 2013 (issued: $150.0, October 1993) $ 0 $ 0 $ 149.9 $ 157.1
3.75% Senior Notes due 2021 (issued: $500.0, August 2011) 497.6 509.1 497.3 549.1
6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) 295.3 359.6 295.2 385.0
6.25% Senior Notes due 2032 (issued: $400.0, November 2002) 394.6 473.7 394.5 513.5
6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (issued:
$1,000.0, June 2007; outstanding: $677.1 and $731.2) 673.4 731.3 726.2 789.7
Total $1,860.9 $2,073.7 $2,063.1 $2,394.4
All of the outstanding debt was issued by The Progressive Corporation. Debt includes amounts we have borrowed and
contributed to the capital of our insurance subsidiaries or used, or have available for use, for other business purposes. Fair
values are obtained from external sources. There are no restrictive financial covenants or credit rating triggers on our debt.
Interest on all debt is payable semiannually at the stated rates. However, the 6.70% Fixed-to-Floating Rate Junior
Subordinated Debentures due 2067 (the “6.70% Debentures”) will only bear interest at this fixed annual rate through, but
excluding, June 15, 2017. Thereafter, the 6.70% Debentures will bear interest at an annual rate equal to the three-month
LIBOR plus 2.0175%, and the interest will be payable quarterly until the 6.70% Debentures are redeemed or retired.
Except for the 6.70% Debentures, all principal is due at the maturity stated in the table above. The 6.70% Debentures will
become due on June 15, 2037, the scheduled maturity date, but only to the extent that we have received sufficient net
proceeds from the sale of certain qualifying capital securities. We must use our commercially reasonable efforts, subject to
certain market disruption events, to sell enough qualifying capital securities to permit repayment of the 6.70% Debentures in
full on the scheduled maturity date or, if sufficient proceeds are not realized from the sale of such qualifying capital
securities by such date, on each interest payment date thereafter. Any remaining outstanding principal will be due on
June 15, 2067, the final maturity date.
We retired the entire $150 million of our 7% Notes and the entire $350 million of our 6.375% Senior Notes at maturity in
October 2013 and January 2012, respectively. The 3.75% Senior Notes, the 6 5/8% Senior Notes, and the 6.25% Senior
Notes (collectively, “Senior Notes”) may be redeemed in whole or in part at any time, at our option, subject to a “make-
whole” provision. The 6.70% Debentures may be redeemed, in whole or in part, at any time: (a) prior to June 15, 2017, at a
redemption price equal to the greater of (i) 100% of the principal amount of the 6.70% Debentures being redeemed, or (ii) a
“make-whole” amount, in each case plus any accrued and unpaid interest; or (b) on or after June 15, 2017, at a redemption
price equal to 100% of the principal amount of the 6.70% Debentures being redeemed, plus any accrued and unpaid
interest.
During 2013 and 2012, we repurchased, in the open market, $54.1 million and $30.9 million, respectively, in aggregate
principal amount of our 6.70% Debentures. Since the amount paid exceeded the carrying value of the debt we repurchased,
we recognized losses on these extinguishments of $4.3 million and $1.8 million for 2013 and 2012, respectively.
Prior to issuance of each of the Senior Notes and 6.70% Debentures, we entered into forecasted debt issuance hedges
against possible rises in interest rates. Upon issuance of the applicable debt securities, the hedges were closed and we
recognized unrealized gains (losses) as part of accumulated other comprehensive income. The original unrealized gain
(loss) at the time of each debt issuance and the unamortized balance at December 31, 2013, on a pretax basis, of these
hedges, were as follows:
(millions)
Unrealized Gain (Loss)
at Debt Issuance
Unamortized Balance
at December 31, 2013
3.75% Senior Notes $ (5.1) $(4.1)
6 5/8% Senior Notes (4.2) (3.3)
6.25% Senior Notes 5.1 4.1
6.70% Debentures 34.4 9.7
App.-A-26