Graco 2012 Annual Report Download - page 42

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and the current ratio is primarily attributable to an increase in accounts receivable balances due to the timing of sales in
the fourth quarter of 2012 compared to the same quarter in 2011 and lower combined levels of short-term and current
portion of long-term debt, partially offset by an increase in accounts payable.
• The Company monitors its overall capitalization by evaluating net debt to total capitalization. Net debt to total
capitalization is defined as the sum of short- and long-term debt, less cash, divided by the sum of total debt and stockholders’
equity, less cash. Net debt to total capitalization was 0.46:1 and 0.52:1 at December 31, 2012 and December 31, 2011,
respectively.
The Company has from time to time refinanced, redeemed or repurchased its debt and taken other steps to reduce its debt or lease
obligations or otherwise improve its overall financial position and balance sheet. Going forward, depending on market conditions,
its cash positions and other considerations, the Company may continue to take such actions.
Borrowing Arrangements
In December 2011, the Company entered into a five-year credit agreement (the “Credit Agreement”) with a syndicate of banks.
The Credit Agreement provides for an unsecured syndicated revolving credit facility with a maturity date of December 2, 2016,
and an aggregate commitment at any time outstanding of up to $800.0 million (the “Facility”). In December 2012, the Company
obtained an extension of the term of the Credit Agreement for a period of one year beyond its original maturity date such that the
Credit Agreement will expire on December 1, 2017. The Facility provides the committed backup liquidity for the issuance of
commercial paper and accordingly, commercial paper may be issued only up to the amount available for borrowing under the
Facility. The Facility also provides for the issuance of up to $100.0 million of letters of credit, so long as there is a sufficient
amount available for borrowing under the Facility. As of December 31, 2012, there were no borrowings or standby letters of credit
issued or outstanding under the Facility, and there was no commercial paper outstanding. Concurrent with the Company’s entry
into the Credit Agreement, the Company terminated its $665.0 million syndicated revolving credit facility, which was scheduled
to expire in November 2012.
In addition to the committed portion of the Facility, the Credit Agreement provides for extensions of competitive bid loans from
one or more lenders (at the lenders’ discretion) of up to $500.0 million, which are not a utilization of the amount available for
borrowing under the Facility.
In September 2012, the Company renewed its 364-day receivables financing facility that provides for maximum borrowings of
up to $200.0 million such that it will expire in September 2013. As of December 31, 2012, aggregate borrowings of $200.0 million
were outstanding under the facility at a weighted-average interest rate of 0.9%.
The following table presents the maximum and average daily borrowings outstanding under the Company’s short-term borrowing
arrangements during the years ended December 31, (in millions):
2012 2011
Short-term Borrowing Arrangement Maximum Average Maximum Average
Commercial paper $ 392.8 $ 163.6 $ 214.5 $ 80.0
Receivables financing facility 200.0 128.3 200.0 160.1
The indentures governing the Company’s medium-term notes contain usual and customary nonfinancial covenants. The Company’s
borrowing arrangements other than the medium-term notes contain usual and customary nonfinancial covenants and certain
financial covenants, including minimum interest coverage and maximum debt-to-total-capitalization ratios. As defined by the
agreements governing the borrowing arrangements, minimum interest coverage ratio is computed as adjusted Earnings before
Interest, Taxes, Depreciation and Amortization (“EBITDA”) divided by adjusted interest expense for the four most recent quarterly
periods. Generally, maximum debt-to-total-capitalization is calculated as the sum of short-term and long-term debt divided by the
sum of (i) total debt, (ii) total stockholders’ equity and (iii) a specified dollar amount ranging from $550.0 million to $750.0 million
related to impairment charges incurred by the Company. As of December 31, 2012, the Company had complied with all covenants
under the indentures and its other borrowing arrangements, and the Company could access the full borrowing capacity available
under the Facility and utilize the $800.0 million for general corporate purposes without exceeding the debt-to-total-capitalization
limits in its financial covenants. A failure to maintain the financial covenants would impair the Company’s ability to borrow under
the Facility and the receivables facility and may result in the acceleration of the repayment of certain indebtedness.