Graco 2007 Annual Report Download - page 62

Newell Rubbermaid Inc. 2007 Annual Report
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Floating Rate Note
Under a 2001 receivables facility with a financial institution, the Company created a financing entity that is consolidated in the Company’s financial statements.
Under this facility, the Company regularly enters into transactions with the financing entity to sell an undivided interest in substantially all of the Company’s
U.S. trade receivables to the financing entity. In 2001, the financing entity issued $450.0 million in preferred debt securities to the financial institution.
Certain levels of accounts receivable write-offs and other events would permit the financial institution to terminate the receivables facility. On September 18,
2006, in accordance with the terms of the receivables facility, the financing entity caused the preferred debt securities to be exchanged for cash of
$2.2 million, a two year floating rate note in an aggregate principal amount of $448.0 million and a cash premium of $5.2 million. Because this debt
matures in 2008, the entire amount is considered to be short-term at December 31, 2007. At any time prior to maturity of the note, the holder may elect to
convert it into new preferred debt securities of the financing entity with a par value equal to the outstanding principal amount of the note. The note must
be repaid and any preferred debt securities into which the note is converted must be retired or redeemed before the Company can have access to the
financing entity’s receivables. As of December 31, 2007 and December 31, 2006, the aggregate amount of outstanding receivables sold under this facility
was $643.3 million and $696.7 million, respectively. The receivables and the note are recorded in the consolidated financial statements of the Company.
Junior Convertible Subordinated Debentures
In 1997, a 100% owned finance subsidiary (the “Subsidiary”) of the Company issued 10.0 million shares of 5.25% convertible preferred securities (the
“Preferred Securities”). Holders of the Preferred Securities are entitled to cumulative cash dividends of 5.25% of the liquidation preference of $50 per
Preferred Security, or $2.625 per year. Each of these Preferred Securities is convertible into 0.9865 of a share of the Company’s common stock. In 2005 and
2004, the Company purchased 750,000 shares and 825,000 shares, respectively, of its Preferred Securities from holders at an average price of $47.075
per share ($35.3 million) and $43.6875 per share ($36.0 million), respectively. As of December 31, 2007, 8.4 million shares of Preferred Securities were
outstanding which were convertible into 8.3 million shares of the Company’s common stock. As of December 31, 2007, the Company fully and unconditionally
guarantees 8.4 million shares of the Preferred Securities issued by the Subsidiary, which are callable at 100.0% of the liquidation preference.
The proceeds received by the Subsidiary from the issuance of the Preferred Securities were invested in the Company’s 5.25% Junior Convertible
Subordinated Debentures (the “Debentures”). In addition, the Subsidiary received approximately $15.5 million of the Company’s Debentures as payment
for a $15.5 million loan the Company borrowed from the Subsidiary to purchase 100% of the common equity interests in the Subsidiary. As a result, the
Company issued an aggregate of $515.5 million of Debentures, and the Subsidiary is the sole holder of the Debentures. The Debentures are the sole assets
of the Subsidiary, mature on December 1, 2027, bear interest at an annual rate of 5.25%, are payable quarterly and became redeemable by the Company
beginning in December 2001. The Company may defer interest payments on the Debentures for a period of up to 20 consecutive quarters, during which
period distribution payments on the Preferred Securities are also deferred. Under this circumstance, the Company may not declare or pay any cash
distributions with respect to its common or preferred stock or debt securities that do not rank senior to the Debentures. The Preferred Securities are
mandatorily redeemable upon the repayment of the Debentures at maturity or upon acceleration of the Debentures. As of December 31, 2007, the Company
has not elected to defer interest payments. In connection with the Company’s purchase of the Preferred Securities in 2005 and 2004, the Company
negotiated the early retirement of the corresponding Debentures with the Subsidiary. The Company accounted for these transactions as extinguishments of
debt, which resulted in $436.7 million of Debentures outstanding as of December 31, 2007. The Company recorded a net gain of $1.7 million in 2005
associated with the 2005 purchases of Preferred Securities, which was included in other expense (income), net.
Terminated Interest Rate Swaps
At December 31, 2007 and 2006, the carrying amount of long-term debt and current maturities thereof includes $8.5 million and $11.9 million (of which
$2.0 million and $3.4 million is classified as current), respectively, relating to terminated interest rate swap agreements.
FOOTNOTE 11
Derivative Financial Instruments
Interest Rate Risk Management
At December 31, 2007, the Company had interest rate swaps designated as fair value hedges with an outstanding notional principal amount of $250.0 million,
with a net accrued interest payable of $0.2 million. There was $1.2 million of credit exposure on the Company’s interest rate derivatives at December 31, 2007.
At December 31, 2007, the Company had long-term cross currency interest rate swaps with an outstanding notional principal amount of $312.4 million,
with a net accrued interest receivable of $1.7 million. The maturities on these long-term cross currency interest rate swaps are three years.