Graco 2010 Annual Report Download - page 64

Newell Rubbermaid Inc. 2010 Annual Report
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60 NEWELL RUBBERMAID 2010 Annual Report
Term Loan
In September 2008, the Company entered into a $400.0 million credit agreement (the “Agreement”), under which the Company
received an unsecured three-year term loan in the amount of $400.0 million (the “Term Loan”). The Company repaid $100.0 million
of the principal amount of the Term Loan in September 2010 and made a $100.0 million prepayment of the principal amount in
December 2010. As of December 31, 2010, the Company is required to repay the remaining outstanding principal amount of
$150.0 million in September 2011, the maturity date. Borrowings under the Agreement bear interest at a rate of LIBOR plus a
spread that is determined based on the credit rating of the Company, and interest is payable no less frequently than monthly.
The $150.0 million of outstanding borrowings under the Agreement at December 31, 2010 bear interest at the rate of 2.3%. The
Agreement has covenants similar to those in the Company’s syndicated revolving credit facility, including, among other things,
the maintenance of interest coverage and total indebtedness to total capital ratios and a limitation on the amount of indebtedness
subsidiaries may incur, and the Company was in compliance with such covenants as of December 31, 2010. Net proceeds from
the Term Loan were used to repay outstanding commercial paper and for general corporate purposes.
Convertible Notes
In March 2009, the Company issued $345.0 million of Convertible Notes. The Convertible Notes bear interest at a rate of 5.5% per
year, which is payable semi-annually, and the Convertible Notes mature on March 15, 2014. The Convertible Notes are convertible
at an initial conversion rate of 116.198 shares of the Company’s common stock per $1,000 principal amount of Convertible Notes
(representing an initial conversion price of approximately $8.61 per share of common stock), subject to adjustment in certain
circumstances. Upon conversion, a holder will receive cash up to the aggregate principal amount of the Convertible Notes converted,
and cash, shares of common stock or a combination thereof (at the Company’s election) in respect of the conversion value above
the Convertible Notes’ principal amount, if any. The Company entered into convertible note hedge transactions upon issuance
to reduce the Company’s cost of the conversion option (see Footnote 10). Net proceeds from this offering were used to complete
the convertible note hedge transactions and the 2009 Tender Offers and to repay debt and for general corporate purposes.
Accounting standards require the Company, as issuer of the Convertible Notes, to separately account for the liability and equity
components of the Convertible Notes in a manner that reflects the Company’s nonconvertible debt borrowing rate at the date
of issuance when interest cost is recognized in subsequent periods. The Company allocated $69.0 million of the $345.0 million
principal amount of the Convertible Notes to the equity component, which represents a discount to the debt to be amortized
into interest expense using the effective interest method through the maturity of the Convertible Notes. Accordingly, the Company’s
effective interest rate on the Convertible Notes was 10.8%.
In August 2010, in connection with the Plan, the Company commenced an exchange offer for its $345.0 million outstanding
principal amount of the Convertible Notes, for newly issued shares of its common stock and cash (the “Exchange Offer”). In
accordance with the terms of the Exchange Offer, for each $1,000 principal amount of the Convertible Notes offered for exchange,
a holder received 116.198 shares of the Company’s common stock, a cash payment of $160, and accrued and unpaid interest up
to the settlement date. In the aggregate, the holders of Convertible Notes offered to exchange $324.7 million principal amount
of the Convertible Notes. The Company paid approximately $52.0 million in cash and also issued approximately 37.7 million shares
of the Company’s common stock for all the Convertible Notes validly offered for exchange pursuant to the Exchange Offer. The
Company determined that the fair value of total consideration (including cash) paid to the holders of Convertible Notes, using
the fair market value of common stock at settlement, was $690.0 million. In accordance with the applicable authoritative
accounting guidance, the Company determined the fair value of the liability component of the Convertible Notes received in the
Exchange Offer, with the residual value representing the equity component. The excess of the fair value of the liability component,
or $356.0 million, over the carrying value of the Convertible Notes exchanged, $275.5 million, was recognized as a loss related
to the extinguishment of debt. Including fees incurred associated with the Exchange Offer and the write-off of unamortized
issuance costs, the Company recorded a pretax loss of $87.2 million upon the settlement of the Exchange Offer, which is included
in losses related to extinguishments of debt in the Consolidated Statements of Operations for the year ended December 31, 2010.
Because the last reported sale price of the Company’s common stock exceeded $11.19 for at least 20 of the last 30 consecutive
trading days in the three months ended December 31, 2009 and in the three months ended December 31, 2010, the Convertibles
Notes are convertible at the election of the holders of the Convertible Notes at any time during the three months immediately
succeeding December 31, 2010. Since conversion of the Convertible Notes is outside the control of the Company at both
December 31, 2010 and 2009, the discounted value of the outstanding Convertible Notes ($20.3 million and $345.0 million principal
amount at December 31, 2010 and 2009, respectively) are classified as current portion of long-term debt in the Consolidated
Balance Sheets at December 31, 2010 and 2009.
Receivables-Related Borrowings
In September 2009, the Company completed a 364-day receivables facility that provides for borrowings of up to $200.0 million
(the “Receivables Facility”), and the maturity date of the Receivables Facility was extended in 2010 such that it expires in
September 2011. Under the Receivables Facility, the Company and certain operating subsidiaries (collectively, “the Originators”)
sell their receivables to a financing subsidiary as the receivables are originated. The financing subsidiary is wholly owned by the
Company and is the owner of the purchased receivables and the borrower under the facility. The assets of the financing subsidiary
are restricted as collateral for the payment of debt or other obligations arising under the facility, and the financing subsidiary’s
assets and credit are not available to satisfy the debts and obligations owed to the Company’s or any other Originator’s creditors.
The Company includes the financing subsidiary’s assets, liabilities and results of operations in its consolidated financial statements.
The Receivables Facility requires, among other things, that the Company maintain certain interest coverage and total indebtedness
to total capital ratios, and the Company was in compliance with such requirements as of December 31, 2010. As of December 31,
2010, $642.1 million of outstanding accounts receivable were owned by the financing subsidiary, and these amounts are included