Graco 2012 Annual Report Download - page 43

37
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 commercial paper or borrowings under the Facility
or receivables facility.
As of December 31, 2012, the current portion of long-term debt and short-term debt totaled $211.9 million, including $200.0
million of borrowings under the receivables facility.
Total debt was $1.9 billion and $2.2 billion as of December 31, 2012 and 2011, respectively, a decrease of $258.4 million. During
2012, the Company repaid $250.0 million of the 2012 Notes and repaid $8.5 million of the 2028 Notes. In July 2012, the Company
redeemed the $436.7 million outstanding principal amount of the Debentures that underlie the Preferred Securities. In December
2012, the Company repaid the $500.0 million of 2013 Notes. The decrease in total debt due to repayments in 2012 was partially
offset by issuances of an aggregate of $850 million principal amount of medium-term notes and a $100.0 million increase in
borrowings under the receivables facility during 2012.
The following table presents the average outstanding debt and weighted-average interest rates for the years ended December 31,
(in millions, except percentages):
2012 2011 2010
Average outstanding debt $ 2,195.5 $ 2,351.3 $ 2,461.0
Average interest rate(1) 3.5% 3.6% 4.8%
(1) The average interest rate includes the impacts of fixed-for-floating interest rate swaps.
The Company’s floating-rate debt, which includes medium-term notes that are subject to fixed-for-floating interest rate swaps,
was 51.7% and 17.7% of total debt as of December 31, 2012 and 2011, respectively. The increase in floating-rate debt is primarily
due to fixed-for-floating interest rate swaps related to $500.0 million of 4.7% medium-term notes due 2020 that were entered into
during 2012, whereas in 2011, the Company terminated and settled fixed-for-floating interest rate swaps relating to $750.0 million
principal amount of medium-term notes. Additionally, borrowings under the receivables facility were $200.0 million at December
31, 2012, an increase of $100.0 million compared to December 31, 2011. See Footnote 9 of the Notes to Consolidated Financial
Statements for further details.
Pension and Other Postretirement Plan Obligations
The Company 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, as well as the interest rate environment. In 2012 and 2011, the Company made cash contributions of $48.5 million and
$20.4 million, respectively, to its primary U.S. defined benefit pension plan. The Company expects to contribute approximately
$144 million to its worldwide pension and other postretirement plans in 2013, which includes $100 million contributed in January
2013 to its primary U.S. defined benefit pension plan.
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. During 2012, the projected benefit obligations of the Company’s defined benefit plans
increased approximately $170 million, primarily due to the decline in interest rates. The Company determines its plan asset
investment mix, in part, on the duration of each plan’s liabilities. To the extent each plan’s assets decline in value or do not generate
the returns expected by the Company or to the extent the pension liabilities increase due to declines in interest rates or otherwise,
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
The Company’s Board of Directors approved a 25% increase in the Company’s quarterly dividend from $0.08 per share to $0.10
per share, effective with the quarterly dividend paid in June 2012, and further increased the quarterly dividend by 50% from $0.10
per share to $0.15 per share, effective with the Company's dividend paid in December 2012. The Company intends to maintain
dividends at a level such that operating cash flows can be used to fund growth initiatives and restructuring activities, and at the
Company's discretion, to repay outstanding debt.