2. Progressive Corporation (a property and casualty insurance company) reported the following in its 2016 annual report: 2016 Carrying Value Fair Value 2015 Carrying Fair Value Value $ 498.4 $528.8 $498.1 $528.7 495.8 464.6 0 0 295.9 380.1 295.7 376.0 395.2 499.0 395.0 490.6 (millions) 3.75% Senior Notes due 2021 (issued: $500.0, August 2011) 2.45% Senior Notes due 2027 (issued: $500.0, August 2016) 6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) 6.25% Senior Notes due 2032 (issued: $400.0, November 2002) 4.35% Senior Notes due 2044 (issued: $350.0, April 2014) 3.70% Senior Notes due 2045 (issued: $400.0, January 2015) 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (issued: $1,000.0, June 2007; outstanding: $594.6 and $614.4) Other debt instruments 346.4 362.3 346.4 352.8 395.1 372.5 395.0 362.0 594.1 581.2 612.8 612.8 127.3 127.3 164.9 164.9 Total $3,148.2 $ 3,315.8 $ 2,707.9 $2,887.8 During 2016, we renewed the unsecured, discretionary line of credit (the "Line of Credit") with PNC Bank, National Association (PNC) in the maximum principal amount of $100 million. The prior line of credit, entered into in March 2015, had expired. The Line of Credit is on substantially the same terms and conditions as the prior line of credit. Subject to the terms and conditions of the Line of Credit documents, advances under the Line of Credit (if any) will bear interest at a variable rate equal to the higher of PNC's Prime Rate or the sum of the Federal Funds Open Rate plus 50 basis points. Each advance must be repaid on the 30th day after the advance or, if earlier, on April 30, 2017, the expiration date of the Line of Credit. Prepayments are permitted without penalty. All advances under the Line of Credit are subject to PNC's discretion. We had no borrowings under the Line of Credit or the prior line of credit in 2016 or 2015. Aggregate principal payments on debt outstanding at December 31, 2016, is as follows: (in millions) Year 2017 2018 2019 2020 2021 Thereafter Total Payments $25.0 25.0 11.3 0.8 500.0 2,609.8 $3,171.9 e. What cash interest payment did Progressive make for the 6 5/8 notes in 2016? What interest expense did Progressive record for these notes during 2016? Assume for this question that Progressive pays interest annually. 6pts f. If Progressive were to repurchase all of its bonds on January 1, 2017, how would the income statement be affected? 4pts g. How much does the company owe under the line of credit with PNC Bank at year end? Why does Progressive discuss this in its debt footnote? 4pts h. What does the footnote reveal about timing of debt due in 2017 and thereafter? 4pts 2. Progressive Corporation (a property and casualty insurance company) reported the following in its 2016 annual report: 2016 Carrying Value Fair Value 2015 Carrying Fair Value Value $ 498.4 $528.8 $498.1 $528.7 495.8 464.6 0 0 295.9 380.1 295.7 376.0 395.2 499.0 395.0 490.6 (millions) 3.75% Senior Notes due 2021 (issued: $500.0, August 2011) 2.45% Senior Notes due 2027 (issued: $500.0, August 2016) 6 5/8% Senior Notes due 2029 (issued: $300.0, March 1999) 6.25% Senior Notes due 2032 (issued: $400.0, November 2002) 4.35% Senior Notes due 2044 (issued: $350.0, April 2014) 3.70% Senior Notes due 2045 (issued: $400.0, January 2015) 6.70% Fixed-to-Floating Rate Junior Subordinated Debentures due 2067 (issued: $1,000.0, June 2007; outstanding: $594.6 and $614.4) Other debt instruments 346.4 362.3 346.4 352.8 395.1 372.5 395.0 362.0 594.1 581.2 612.8 612.8 127.3 127.3 164.9 164.9 Total $3,148.2 $ 3,315.8 $ 2,707.9 $2,887.8 During 2016, we renewed the unsecured, discretionary line of credit (the "Line of Credit") with PNC Bank, National Association (PNC) in the maximum principal amount of $100 million. The prior line of credit, entered into in March 2015, had expired. The Line of Credit is on substantially the same terms and conditions as the prior line of credit. Subject to the terms and conditions of the Line of Credit documents, advances under the Line of Credit (if any) will bear interest at a variable rate equal to the higher of PNC's Prime Rate or the sum of the Federal Funds Open Rate plus 50 basis points. Each advance must be repaid on the 30th day after the advance or, if earlier, on April 30, 2017, the expiration date of the Line of Credit. Prepayments are permitted without penalty. All advances under the Line of Credit are subject to PNC's discretion. We had no borrowings under the Line of Credit or the prior line of credit in 2016 or 2015. Aggregate principal payments on debt outstanding at December 31, 2016, is as follows: (in millions) Year 2017 2018 2019 2020 2021 Thereafter Total Payments $25.0 25.0 11.3 0.8 500.0 2,609.8 $3,171.9 e. What cash interest payment did Progressive make for the 6 5/8 notes in 2016? What interest expense did Progressive record for these notes during 2016? Assume for this question that Progressive pays interest annually. 6pts f. If Progressive were to repurchase all of its bonds on January 1, 2017, how would the income statement be affected? 4pts g. How much does the company owe under the line of credit with PNC Bank at year end? Why does Progressive discuss this in its debt footnote? 4pts h. What does the footnote reveal about timing of debt due in 2017 and thereafter? 4pts
