Graco 2010 Annual Report Download - page 34

Newell Rubbermaid Inc. 2010 Annual Report
30 NEWELL RUBBERMAID 2010 Annual Report
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Debt
The Company has varying needs for short-term working capital financing as a result of the seasonal nature of its business. The volume
and timing of production impacts the Company’s cash flows and has historically involved increased production in the first quarter of
the year to meet increased customer demand through the remainder of the year. Working capital fluctuations have historically been
financed through short-term financing arrangements, such as commercial paper or borrowings under the Revolver or receivables facility.
As of December 31, 2010, the current portion of long-term debt and short-term debt totaled $305.0 million, including the
$150.0 million remaining principal amount of the Term Loan due in September 2011, $100.0 million of borrowings under the
receivables facility, $34.0 million of commercial paper and $17.5 million of Convertible Notes that remained outstanding as of
December 31, 2010. The Company plans to refinance or repay these amounts as they come due using cash flows from operations.
On August 2, 2010 the Company announced a Capital Structure Optimization Plan (the “Plan”), which was substantially
complete as of December 31, 2010 pending the settlement of the Company’s accelerated stock buyback expected in March 2011.
The Plan included the issuance of $550.0 million of 4.70% senior notes due 2020. The Company used the proceeds from the sale
of the notes, cash on hand and short-term borrowings to fund the repurchase of $500.0 million of shares of its common stock
through an accelerated stock buyback program; complete a cash tender offer for $279.3 million of the $300.0 million principal
amount of outstanding 10.60% notes due 2019; and complete the exchange of 37.7 million shares of common stock and $52.0 million
of cash for $324.7 million of the $345.0 million principal amount of outstanding Convertible Notes. The Company also settled,
for $71.1 million cash, the convertible note hedge and warrant transactions, which were entered into concurrent with the issuance
of the Convertible Notes.
By executing the series of transactions under the Plan, the Company effectively refinanced approximately $550.0 million in
long-term debt at lower interest rates, which is expected to generate nearly $35.0 million of annual interest savings based on
effective interest rates on the extinguished Convertible Notes and certain medium-term notes of approximately 11.0%, compared
to the interest rate on the new debt of 4.7%. As of December 31, 2010, the Company had increased its outstanding common stock
by 11.9 million shares, net, and expects the final net increase to be between 9.0 and 10.0 million shares (the final number of
shares is subject to change based upon the final settlement of the accelerated stock buyback program, which is scheduled for
March 2011). Lastly, the Company substantially eliminated the potential for future share count dilution resulting from the
Convertible Notes and related hedge transactions.
Total debt was $2.4 billion and $2.5 billion as of December 31, 2010 and 2009, respectively. Total debt decreased $139.9 million,
primarily due to repayments of $305.1 million for the Company’s term loan and certain medium-term notes partially offset by
aggregate borrowings of $134.0 million under the Revolver and the receivables financing facility as of December 31, 2010, compared
to December 31, 2009 when no amounts were outstanding under either arrangement. The December 31, 2010 debt balance was
also affected by the mark-to-market adjustments necessary to record the fair value of interest rate hedges of fixed-rate debt,
in accordance with relevant authoritative guidance. The mark-to-market adjustments increased the carrying value of debt by
$23.9 million at December 31, 2010 compared to December 31, 2009.
The following table presents the average outstanding debt and weighted-average interest rates for the year ended
December 31, (dollars in millions):
2010 2009
Average outstanding debt $ 2,461.0 $ 2,843.7
Average interest rate 4.8% 4.9%
Reset Notes
In July 1998, the Company issued $250.0 million of medium-term notes, maturing in July 2028 with interest payable semiannually
(the “Reset notes”). The Reset notes contained a coupon rate reset feature occurring at two ten-year intervals, July 2008 and
July 2018. The Reset notes contained a coupon rate of 6.35% through the first interest reset date of July 2008. In addition, the
Reset notes contained an embedded remarketing option pursuant to which a third party could call the Reset notes at par at the
end of each ten-year remarketing interval, and the third party or another securities dealer could remarket the Reset notes at a
reset coupon rate, which would result in the third party realizing proceeds for the remarketed notes in an amount approximately
equal to the discounted present value of a $250.0 million ten-year note with a coupon of 5.485%, discounted at the ten-year Treasury
note yield to maturity prevailing at the time of remarketing. In the event the remarketing option at the end of each remarketing
interval was not exercised, the Reset note holders were required to put the Reset notes back to the Company at a price of par.
The embedded remarketing option was accounted for separately, as it was deemed a purchase by the Company of a transferable,
free-standing call option from the Reset note investors and the Company’s concurrent transfer of the free-standing call option
to the third party. As a result, the remarketing option, which provided for the call and remarketing of the Reset notes, was in
effect a contract between the third party and the Reset note holders that allowed the third party to call the Reset notes from
the holders at par at the end of each ten-year remarketing interval and remarket the Reset notes. The fair value of the remarketing
option purchased by the Company from the Reset note investors at the date of issuance was determined based on the amount
the third party paid the Company for the remarketing option. In summary, at issuance the Company was cash neutral with respect
to the remarketing option but implicitly issued the Reset notes at a premium because the investors purchased the Reset notes
from the Company simultaneous with the Company purchasing the remarketing option from the investors (which the Company
concurrently monetized by selling it to a third party). As a result, the Reset notes carried a premium at issuance, and the Company
recognized no gain or loss upon issuance of the Reset notes.