Graco 2012 Annual Report Download - page 77

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Medium-term Notes
The Company’s outstanding medium-term notes consisted of the following principal amounts and interest rate swap values as of
December 31, (in millions):
2012 2011
6.75% senior notes due 2012 $ — $ 250.0
5.50% senior notes due 2013 — 500.0
2.00% senior notes due 2015 250.0 —
2.05% senior notes due 2017 350.0 —
6.25% senior notes due 2018 250.0 250.0
10.60% senior notes due 2019 20.7 20.7
4.70% senior notes due 2020 550.0 550.0
4.00% senior notes due 2022 250.0 —
6.11% senior notes due 2028 1.5 10.0
Interest rate swaps 31.7 35.8
Unamortized gain on termination of interest rate swaps — 15.8
Total medium-term notes $ 1,703.9 $ 1,632.3
Average stated interest rate of all medium-term notes outstanding as of December 31, 2012 was 3.94%.
As of December 31, 2012, the Company was party to fixed-for-floating interest rate swaps designated as fair value hedges. The
interest rate swaps relate to an aggregate $750.0 million principal amount of the medium-term notes and result in the Company
effectively paying a floating rate of interest on the medium-term notes hedged by the interest rate swap, which includes fixed-for-
floating interest rate contracts with third-party financial institutions the Company entered into during 2012 relating to $500.0
million of the 4.70% medium-term notes due 2020. See Footnote 11 for further details. During 2011, the Company, at its option,
terminated and settled certain interest rate swaps related to an aggregate $750.0 million principal amount of medium-term notes
with original maturity dates ranging between March 2012 and April 2013. The Company received cash proceeds of $22.7 million
from counterparties as settlement for the interest rate swaps. Under the relevant authoritative guidance, gains resulting from the
early termination of interest rate swaps were deferred and amortized as adjustments to interest expense over the remaining period
of the debt originally covered by the interest rate swaps. The cash received from the termination of the interest rate swaps is
included in operating activities in accrued liabilities and other in the Consolidated Statement of Cash Flows for 2011.
The medium-term note balances at December 31, 2012 and 2011 include mark-to-market adjustments of $31.7 million and $35.8
million, respectively, to record the fair value of the hedges of the fixed-rate debt, and the mark-to-market adjustments had the
effect of increasing the reported value of the medium-term notes. Compared to the stated rates of the underlying medium-term
notes, the interest rate swaps, including amortization of settled interest rate swaps, had the effect of reducing interest expense by
$21.8 million, $31.5 million and $30.3 million for 2012, 2011 and 2010, respectively.
In June 2012, the Company completed the offering and sale of $500.0 million of unsecured senior notes, consisting of $250.0
million aggregate principal amount of 2.0% notes due 2015 (the "2015 Notes") and $250.0 million aggregate principal amount of
4.0% notes due 2022 (the "2022 Notes" and, together with the 2015 Notes, the "Notes"). The aggregate net proceeds from the
issuance of the Notes were $495.1 million and were used to fund the redemption of all of the $436.7 million of junior convertible
subordinated debentures which underlie the outstanding 5.25% convertible preferred securities with an aggregate liquidation
preference of $421.2 million, to reduce short-term borrowings and for general corporate purposes. The Notes are senior obligations
of the Company and rank equally with all of its other unsecured and unsubordinated indebtedness from time to time outstanding.
The 2015 Notes may be redeemed by the Company at any time and the 2022 Notes may be redeemed at any time prior to the date
that is three months prior to the maturity date of the 2022 Notes, in whole or in part, at a redemption price plus accrued and unpaid
interest to the date of redemption. The redemption price is equal to the greater of (1) 100% of the principal amount of the Notes
being redeemed on the redemption date and (2) the sum of the present values of the remaining scheduled payments of principal
and interest thereon (not including any portion of any payments of interest accrued through the date of the redemption), discounted
to the date of redemption on a semiannual basis at a specified rate. If the 2022 Notes are redeemed on or after a date that is three
months prior to the maturity date of the 2022 Notes, then the redemption price is equal to 100% of the principal amount of the
2022 Notes being redeemed plus accrued interest to such redemption date. The Notes also contain a provision that allows holders
of the Notes to require the Company to repurchase all or any part of the Notes if a change of control triggering event occurs. Under
this provision, the repurchase of the Notes will occur at a purchase price of 101% of the outstanding principal amount, plus accrued
and unpaid interest, if any, on such Notes to the date of repurchase. The Notes are classified as long-term debt in the Company's
Consolidated Balance Sheet at December 31, 2012 based on their maturity dates in 2015 and 2022.