Graco 2008 Annual Report Download - page 29

Newell Rubbermaid Inc. 2008 Annual Report
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Debt
The Company’s objective is to finance the business through the appropriate mix of short-term and long-term 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 involves 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 the commercial paper markets in the U.S., which is supported by the Revolver. However, access
to the commercial paper market cannot be assured with the Company’s current short-term debt credit ratings and, therefore, the Company may be required
to access the Revolver for future working capital needs.
Total debt increased $694.4 million to $2.9 billion as of December 31, 2008 from $2.2 billion as of December 31, 2007. The increase in 2008 resulted
from the issuance of $750.0 million of senior unsecured notes in March 2008 and $400.0 million borrowed pursuant to the Term Loan, offset by the repayment
of $315.0 million of medium term notes and $197.0 million of commercial paper. The December 31, 2008 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, pursuant to Statement of Financial Accounting Standards
(“SFAS”) No. 133, “Accounting for Derivative Investments and Hedging Activities,” as amended. The mark-to-market adjustments increased the carrying
value of debt by $62.3 million in 2008 compared to 2007.
As of December 31, 2008, the Company had $761.0 million of short-term debt, including a floating rate note of $448.0 million related to its 2001
receivables facility that matures in September 2009, a $50.0 million principal payment on the Term Loan due in September 2009, and $250.0 million of
medium term notes that mature in December 2009. The Company plans to address these obligations through the capital markets or other arrangements;
however, access to the capital markets cannot be assured, particularly in light of the recent turmoil and uncertainty in the global credit markets, the
February 2009 downgrade by Moody’s and Standard & Poor’s of the Company’s credit ratings to the lowest rating considered “investment grade,” and
alternative financing arrangements may result in higher borrowing costs for the Company.
Pension Obligations
The Company has adopted and sponsors pension plans in the U.S. and in various other countries. The Company’s ongoing funding requirements for its
pension plans are largely dependent on the value of each of the plan’s assets and the investment returns realized on plan assets. In 2008, total contributions
to all of the Company’s pension plans totaled approximately $32.6 million. During 2008, the Company’s primary U.S. defined benefit pension plan moved
from a near fully funded status to an approximate $260.0 million underfunded status, driven by a decrease in the value of plan assets. Because of this
situation, the Company currently expects to make contributions to its primary U.S. defined benefit pension plan of approximately $50 to $75 million in
2009, which is in addition to the $25.0 million of contributions expected to be made to the Company’s other pension plans in 2009.
Future increases or decreases in pension liabilities and required cash contributions are highly dependent on changes in interest rates and the actual
return on plan assets. The Company determines its plan asset investment mix, in part, on the duration of each plan’s liabilities. Across all plans, at
December 31, 2008, approximately 41% of assets are invested in equities, 23% in fixed income investments, 17% in cash and 19% in other investments.
To the extent each plan’s assets decline in value or do not generate the returns expected by the Company, the Company may be required to make contributions
to the pension plans to ensure the pension obligations are adequately funded as required by law or mandate.
Dividends
In January 2009, the Company reduced the quarterly dividend payable on its common stock from $0.21 per share to $0.105 per share. The Company currently
expects to maintain this dividend rate throughout 2009; however, the payment of dividends to holders of the Company’s common stock remains at the
discretion of the Board of Directors and will depend upon many factors, including the Company’s financial condition, earnings, legal requirements and other
factors the Board of Directors deems relevant.
Credit Ratings
The Company’s credit ratings are periodically reviewed by rating agencies. In February 2009, Moody’s Investors Service downgraded the Company’s long-term
debt rating from Baa2 to Baa3 and its short-term debt rating from P-2 to P-3, and Standard & Poor’s downgraded the Company’s long-term rating from
BBB+ to BBB- and its short-term debt rating from A-2 to A-3. Both Moody’s and Standard & Poor’s reaffirmed their Negative outlook. The Company’s current
senior debt credit ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings are Baa3, BBB- and BBB, respectively. Its current short-term
debt credit ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings are P-3, A-3 and F-2, respectively. Changes in the Company’s
operating results, cash flows, or financial position could impact the ratings assigned by the various rating agencies. Refer to Item 1A. Risk Factors for a
more detailed discussion of the Company’s credit ratings.
Outlook
In 2009, the Company expects to generate sufficient cash flows from operations to contribute $75 to $100 million to its foreign and U.S. pension plans, use
$100 million of cash for restructuring activities related to Project Acceleration, and fund capital expenditures of approximately $150 million, which include
expenditures associated with the implementation of SAP.
Overall, the Company believes that available cash and cash equivalents, cash flows generated from future operations, access to capital markets, and
availability under the Revolver, will be adequate to support the cash needs of existing businesses, assuming the Company refinances its maturing short-term
debt in 2009.