Graco 2009 Annual Report Download - page 30

Newell Rubbermaid Inc. 2009 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 borrowings under
the Revolver or commercial paper supported by the Revolver.
Total debt decreased $370.5 million to $2.5 billion as of December 31, 2009 from $2.9 billion as of December 31, 2008. The net decrease was attributable
to a $325.0 million reduction in outstanding debt as a result of the completion of the Tender Offers, the repayment of the $448.0 million floating-rate note outstanding
under the Company’s previous receivables facility, a $50.0 million repayment on the Term Loan, as well as the repayment of the remaining $69.9 million principal
amount outstanding of the $250.0 million medium-term notes due December 2009. These decreases were partially offset by the March 2009 issuance of
$300.0 million of medium-term notes and $345.0 million of convertible senior notes, which have a carrying value of $284.3 million at December 31, 2009. The
December 31, 2009 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 decreased the carrying value of debt by $43.9 million in 2009
compared to 2008.
The Company’s 364-day receivables financing facility provides for maximum borrowings of up to $200.0 million, of which $188.8 million was available
for borrowing and no amounts were outstanding at December 31, 2009. The completion of the new receivables facility was coincident with the September
2009 repayment of the $448.0 million floating-rate note outstanding under the Company’s previous receivables facility.
In May 2009, the Company completed cash tender offers to repurchase $180.1 million of the $250.0 million aggregate outstanding principal amount of
notes due December 2009 and $144.9 million of the $250.0 million aggregate outstanding principal amount of notes due May 2010. In December 2009, the
Company repaid the remaining $69.9 million principal amount outstanding of the $250.0 million medium-term notes due December 2009.
As of December 31, 2009, the Company had $493.5 million of short-term debt, including $105.1 million of medium-term notes that mature in May 2010
and a $100.0 million principal payment due on the Term Loan in September 2010. In addition, because the closing sale price of the Company’s common stock
exceeded $11.19 for more than 20 of the last 30 consecutive trading days in the three months ended December 31, 2009, the convertible senior notes are
convertible at the election of the holders of the notes at any time during the three months ended March 31, 2010. Since conversion of the notes is outside the
control of the Company, the carrying value of the convertible senior notes, $284.3 million, is classified as current portion of long-term debt in the Consolidated
Balance Sheet at December 31, 2009.
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, freestanding call
option from the Reset note investors and the Company’s concurrent transfer of the freestanding 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.
In connection with the issuance of the Reset notes in July 1998, the Company entered into an agreement with the third party that afforded the Company
the right to purchase the remarketing option from the third party at the end of each ten-year remarketing interval at its then fair value in order to avoid the
remarketing of the Reset notes. The Company exercised this right in July 2008 to avoid the third party calling and remarketing the Reset notes. The Company
redeemed the $250.0 million of Reset notes in July 2008 because prevailing interest rates as of the July 2008 remarketing date would have resulted in the third
party exercising the remarketing option and calling the Reset notes at par, and the Reset notes subsequently being remarketed. The Reset notes would have
been remarketed at a premium to par in order for the third party to realize the discounted present value described above in the remarketing. A note priced
at a premium to par would carry a coupon rate greater than the rate carried by a security priced at par. Accordingly, the coupon rate arising from a potential
remarketing was estimated to approximate 9.0%, exceeding the Company’s then incremental borrowing rate of 6.25% for comparable debt. To achieve a
lower net cost of borrowing, in July 2008, the Company redeemed the Reset notes and recorded a loss on extinguishment of the Reset notes of $52.2 million
associated with the purchase of the embedded remarketing option from the third party.
The Company did not have any Reset notes outstanding as of December 31, 2009.