the progressive corporation 2006 annual report
financial review
Consolidated Statements of Income | Consolidated Balance Sheets | Consolidated Statements of Changes in Shareholders' Equity | Consolidated Statements of Cash Flows | Notes to Consolidated Financial Statements
The Progressive Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2006, 2005 and 2004
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4) Debt
Debt at December 31 consisted of:
| 2006 | 2005 | |||||||
| (millions) | Carrying Value |
Fair Value |
Carrying Value |
Fair Value |
||||
|---|---|---|---|---|---|---|---|---|
| 7.30% Notes due 2006 (issued: $100.0, May 1996) | $ | — | $ | — | $ | 100.0 | $ | 101.0 |
| 6.375% Senior Notes due 2012 (issued: $350.0, December 2001) | 348.3 | 365.4 | 348.0 | 372.7 | ||||
| 7% Notes due 2013 (issued: $150.0, October 1993) | 149.1 | 163.2 | 149.0 | 166.6 | ||||
| 6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) | 294.3 | 325.2 | 294.2 | 331.5 | ||||
| 6.25% Senior Notes due 2032 (issued: $400.0, November 2002) | 393.8 | 414.0 | 393.7 | 424.1 | ||||
| $ | 1,185.5 | $ | 1,267.8 | $ | 1,284.9 | $ | 1,395.9 | |
Debt includes amounts we have borrowed and contributed to the capital of our insurance subsidiaries or borrowed for other business purposes. Fair values are obtained from publicly quoted sources. Interest on all debt is payable semiannually and all principal is due at maturity. There are no restrictive financial covenants or credit rating triggers.
The 7.30% Notes were repaid during 2006, at their scheduled maturity. The 6.375% 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 the option of Progressive, subject to a “make whole” provision. The 7% Notes are noncallable.
Prior to issuance of the Senior Notes, we entered into forecasted debt issuance hedges against possible rises in interest rates. Upon issuance of the applicable debt securities, the hedges were closed. We recognized, as part of accumulated other comprehensive income, unrealized gains (losses) of $18.4 million, $(4.2) million and $5.1 million associated with the 6.375% Senior Notes, the 6 5/8% Senior Notes and the 6.25% Senior Notes, respectively. The gains (losses) on these hedges are recognized as adjustments to interest expense and are amortized over the life of the related debt issuances.
In December 2005, we entered into an uncommitted line of credit with National City Bank in the principal amount of $125 million, replacing a prior credit facility with National City Bank for $100 million, which had the same material terms. No commitment fees are required to be paid. There are no rating triggers under this line of credit. We had no borrowings under these arrangements at December 31, 2006 or 2005. Interest on amounts borrowed would generally accrue at the one month London interbank offered rate (LIBOR) plus .375%.
Aggregate principal payments on debt outstanding at December 31, 2006, are $0 for each of the next 5 years and $1.2 billion thereafter.
