UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
Amendment
No. 1
Quarterly
Report Pursuant to Section 13 or 15 (d) of the
Securities
Exchange Act of 1934
For the
quarterly period ended
March
27, 2009
Commission
File Number:
001-09249
|
GRACO
INC.
|
|
|
(Exact
name of registrant as specified in its charter)
|
|
|
Minnesota
|
|
41-0285640
|
|
(State
of incorporation)
|
|
(I.R.S.
Employer Identification Number)
|
88
- 11
th
Avenue N.E.
Minneapolis,
Minnesota
|
|
55413
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
|
(612)
623-6000
|
|
|
(Registrant's
telephone number, including area code)
|
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
Accelerated Filer
|
X
|
Accelerated
Filer
|
|
Non-accelerated
Filer
|
|
Smaller
reporting company
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
59,888,000
shares of the Registrant’s Common Stock, $1.00 par value were outstanding as of
April 15, 2009.
Explanatory
Note
The sole
purpose of this Amendment No.1 to our Quarterly Report on Form 10-Q for the
period ended March 27, 2009, as filed with the Securities and Exchange
Commission on April 22, 2009, is to file revised certifications of our principal
executive officer and principal financial officer as Exhibits 31.1, 31.2 and 32
to include the date of the certification and the conformed signature of such
officers, which, although affixed to the manually signed originals, were
unintentionally omitted from the EDGAR filing.
No other
changes have been made to the Form 10-Q other than those described
above. This Amendment No. 1 does not reflect subsequent events
occurring after the original filing date of the Form 10-Q or modify or update in
any way disclosures made in the Form 10-Q.
GRACO
INC. AND SUBSIDIARIES
INDEX
Page
Number
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Consolidated
Statements of Earnings
|
3
|
|
|
Consolidated
Balance Sheets
|
4
|
|
|
Consolidated
Statements of Cash Flows
|
5
|
|
|
Notes
to Consolidated Financial Statements
|
6
|
|
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis
|
|
|
|
of
Financial Condition and Results of Operations
|
14
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
19
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
20
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
21
|
|
|
|
|
|
Item
6.
|
Exhibits
|
21
|
|
|
|
|
SIGNATURES
|
|
|
|
EXHIBITS
|
|
PART
I
Item
1.
GRACO
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
(Unaudited)
(In
thousands except per share amounts)
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
137,880
|
|
|
$
|
204,120
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
73,552
|
|
|
|
92,267
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
64,328
|
|
|
|
111,853
|
|
|
|
|
|
|
|
|
|
|
Product
development
|
|
|
10,051
|
|
|
|
7,940
|
|
Selling,
marketing and distribution
|
|
|
31,933
|
|
|
|
33,821
|
|
General
and administrative
|
|
|
16,215
|
|
|
|
17,738
|
|
|
|
|
|
|
|
|
|
|
Operating
Earnings
|
|
|
6,129
|
|
|
|
52,354
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,366
|
|
|
|
1,603
|
|
Other
expense (income), net
|
|
|
595
|
|
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
Earnings
Before Income Taxes
|
|
|
4,168
|
|
|
|
50,866
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
1,400
|
|
|
|
15,300
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
2,768
|
|
|
$
|
35,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Net Earnings per Common Share
|
|
$
|
0.05
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Net Earnings per Common Share
|
|
$
|
0.05
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Declared per Common Share
|
|
$
|
0.19
|
|
|
$
|
0.19
|
|
See notes
to consolidated financial statements.
GRACO
INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(Unaudited)
|
(In
thousands)
|
|
|
|
|
|
|
|
|
March
27,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
14,799
|
|
|
$
|
12,119
|
|
Accounts
receivable, less allowances of
|
|
|
|
|
|
|
|
|
$6,200
and $6,600
|
|
|
106,860
|
|
|
|
127,505
|
|
Inventories
|
|
|
85,577
|
|
|
|
91,604
|
|
Deferred
income taxes
|
|
|
21,706
|
|
|
|
23,007
|
|
Other
current assets
|
|
|
5,844
|
|
|
|
6,360
|
|
Total
current assets
|
|
|
234,786
|
|
|
|
260,595
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
Cost
|
|
|
330,857
|
|
|
|
326,729
|
|
Accumulated
depreciation
|
|
|
(181,070
|
)
|
|
|
(176,975
|
)
|
Property,
plant and equipment, net
|
|
|
149,787
|
|
|
|
149,754
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
91,740
|
|
|
|
91,740
|
|
Other
Intangible Assets, net
|
|
|
49,397
|
|
|
|
52,231
|
|
Deferred
Income Taxes
|
|
|
19,337
|
|
|
|
18,919
|
|
Other
Assets
|
|
|
6,262
|
|
|
|
6,611
|
|
Total
Assets
|
|
$
|
551,309
|
|
|
$
|
579,850
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Notes
payable to banks
|
|
$
|
16,532
|
|
|
$
|
18,311
|
|
Trade
accounts payable
|
|
|
14,732
|
|
|
|
18,834
|
|
Salaries,
wages and commissions
|
|
|
12,550
|
|
|
|
17,179
|
|
Dividends
payable
|
|
|
11,321
|
|
|
|
11,312
|
|
Other
current liabilities
|
|
|
48,910
|
|
|
|
55,524
|
|
Total
current liabilities
|
|
|
104,045
|
|
|
|
121,160
|
|
|
|
|
|
|
|
|
|
|
Long-term
Debt
|
|
|
166,811
|
|
|
|
180,000
|
|
Retirement
Benefits and Deferred Compensation
|
|
|
109,496
|
|
|
|
108,656
|
|
Uncertain
Tax Positions
|
|
|
2,550
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
59,884
|
|
|
|
59,516
|
|
Additional
paid-in-capital
|
|
|
181,460
|
|
|
|
174,161
|
|
Retained
earnings
|
|
|
(103
|
)
|
|
|
8,445
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(72,834
|
)
|
|
|
(74,488
|
)
|
Total
shareholders' equity
|
|
|
168,407
|
|
|
|
167,634
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
551,309
|
|
|
$
|
579,850
|
|
See notes
to consolidated financial statements.
GRACO
INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
(In thousands)
|
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
2,768
|
|
|
$
|
35,566
|
|
Adjustments
to reconcile net earnings to
|
|
|
|
|
|
|
|
|
net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,475
|
|
|
|
7,395
|
|
Deferred
income taxes
|
|
|
(52
|
)
|
|
|
(2,885
|
)
|
Share-based
compensation
|
|
|
2,417
|
|
|
|
2,553
|
|
Excess
tax benefit related to share-based
|
|
|
|
|
|
|
|
|
payment
arrangements
|
|
|
(200
|
)
|
|
|
(1,723
|
)
|
Change
in
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
18,588
|
|
|
|
(5,296
|
)
|
Inventories
|
|
|
5,525
|
|
|
|
(9,836
|
)
|
Trade
accounts payable
|
|
|
(4,044
|
)
|
|
|
4,801
|
|
Salaries,
wages and commissions
|
|
|
(4,444
|
)
|
|
|
(6,808
|
)
|
Retirement
benefits and deferred compensation
|
|
|
3,602
|
|
|
|
(887
|
)
|
Other
accrued liabilities
|
|
|
(5,692
|
)
|
|
|
9,204
|
|
Other
|
|
|
758
|
|
|
|
(228
|
)
|
Net
cash provided by operating activities
|
|
|
27,701
|
|
|
|
31,856
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Property,
plant and equipment additions
|
|
|
(5,732
|
)
|
|
|
(5,130
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
567
|
|
|
|
39
|
|
Capitalized
software and other intangible asset additions
|
|
|
(46
|
)
|
|
|
(222
|
)
|
Acquisitions
of businesses, net of cash acquired
|
|
|
-
|
|
|
|
(35,266
|
)
|
Net
cash used in investing activities
|
|
|
(5,211
|
)
|
|
|
(40,579
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Net
borrowings (payments) on short-term lines of credit
|
|
|
(995
|
)
|
|
|
(818
|
)
|
Borrowings
on long-term line of credit
|
|
|
34,211
|
|
|
|
83,335
|
|
Payments
on long-term line of credit
|
|
|
(47,401
|
)
|
|
|
(11,800
|
)
|
Excess
tax benefit related to share-based
|
|
|
|
|
|
|
|
|
payment
arrangements
|
|
|
200
|
|
|
|
1,723
|
|
Common
stock issued
|
|
|
4,949
|
|
|
|
9,811
|
|
Common
stock retired
|
|
|
-
|
|
|
|
(59,528
|
)
|
Cash
dividends paid
|
|
|
(11,308
|
)
|
|
|
(11,376
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(20,344
|
)
|
|
|
11,347
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
534
|
|
|
|
(768
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,680
|
|
|
|
1,856
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
12,119
|
|
|
|
4,922
|
|
End
of period
|
|
$
|
14,799
|
|
|
$
|
6,778
|
|
|
|
|
|
|
|
|
|
|
See notes
to consolidated financial statements.
GRACO
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
The
consolidated balance sheet of Graco Inc. and Subsidiaries (the Company) as
of March 27, 2009 and the related statements of earnings and cash flows
for the thirteen weeks then ended have been prepared by the Company and
have not been audited.
|
|
In
the opinion of management, these consolidated financial statements reflect
all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position of Graco Inc. and
Subsidiaries as of March 27, 2009, and the results of operations and cash
flows for all periods presented.
|
|
Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Therefore, these
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's 2008 Annual Report on Form
10-K.
|
|
The
results of operations for interim periods are not necessarily indicative
of results that will be realized for the full fiscal
year.
|
2.
|
The
following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share
amounts):
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings available to common shareholders
|
|
$
|
2,768
|
|
|
$
|
35,566
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding for basic
|
|
|
|
|
|
|
|
|
earnings
per share
|
|
|
59,638
|
|
|
|
61,254
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock options computed using the
|
|
|
|
|
|
|
|
|
treasury
stock method and the average market price
|
|
|
265
|
|
|
|
663
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding for diluted
|
|
|
|
|
|
|
|
|
earnings
per share
|
|
|
59,903
|
|
|
|
61,917
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.05
|
|
|
$
|
0.57
|
|
Stock
options to purchase 4,034,000 and 2,215,000 shares were not included in the 2009
and 2008 computations of diluted earnings per share, respectively, because they
would have been anti-dilutive.
3.
|
Information
on option shares outstanding and option activity for the thirteen weeks
ended March 27, 2009 is shown below (in thousands, except per share
amounts):
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Option
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 26, 2008
|
|
|
3,955
|
|
|
$
|
30.77
|
|
|
|
2,186
|
|
|
$
|
24.98
|
|
Granted
|
|
|
1,111
|
|
|
|
20.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(52
|
)
|
|
|
6.98
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(45
|
)
|
|
|
33.27
|
|
|
|
|
|
|
|
|
|
Outstanding,
March 27, 2009
|
|
|
4,969
|
|
|
$
|
28.76
|
|
|
|
2,494
|
|
|
$
|
27.41
|
|
The
aggregate intrinsic value of exercisable option shares was $3.4 million as of
March 27, 2009, with a weighted average contractual term of 4.7
years. There were approximately 4.9 million share options vested and
expected to vest as of March 27, 2009, with an aggregate intrinsic value of $3.4
million, a weighted average exercise price of $28.76 and a weighted average
contractual term of 6.8 years.
Information
related to options exercised in the first three months of 2009 and 2008 follows
(in thousands):
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
received
|
|
$
|
360
|
|
|
$
|
3,329
|
|
Aggregate
intrinsic value
|
|
|
679
|
|
|
|
4,134
|
|
Tax
benefit realized
|
|
|
250
|
|
|
|
1,500
|
|
The
Company recognized year-to-date share-based compensation of $2.4 million in 2009
and $2.6 million in 2008. As of March 27, 2009, there was $11.4
million of unrecognized compensation cost related to unvested options, expected
to be recognized over a weighted average period of 2.6 years.
The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions and results:
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
Expected
life in years
|
|
|
6.0
|
|
|
|
6.0
|
|
Interest
rate
|
|
|
2.1
|
%
|
|
|
3.1
|
%
|
Volatility
|
|
|
29.9
|
%
|
|
|
25.0
|
%
|
Dividend
yield
|
|
|
3.7
|
%
|
|
|
2.1
|
%
|
Weighted
average fair value per share
|
|
$
|
4.25
|
|
|
$
|
8.32
|
|
Under the
Company’s Employee Stock Purchase Plan, the Company issued 312,000 shares in
2009 and 216,000 shares in 2008. The fair value of the employees’
purchase rights under this Plan was estimated on the date of
grant. The benefit of the 15 percent discount from the lesser of the
fair market value per common share on the first day and the last day of the plan
year was added to the fair value of the employees’ purchase rights determined
using the Black-Scholes option-pricing model with the following assumptions and
results:
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
Expected
life in years
|
|
|
1.0
|
|
|
|
1.0
|
|
Interest
rate
|
|
|
0.7
|
%
|
|
|
1.5
|
%
|
Volatility
|
|
|
51.5
|
%
|
|
|
27.1
|
%
|
Dividend
yield
|
|
|
4.5
|
%
|
|
|
2.1
|
%
|
Weighted
average fair value per share
|
|
$
|
5.60
|
|
|
$
|
8.14
|
|
4.
|
The
components of net periodic benefit cost (credit) for retirement benefit
plans were as follows (in
thousands):
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
Pension
Benefits
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,279
|
|
|
$
|
1,391
|
|
Interest
cost
|
|
|
3,220
|
|
|
|
3,146
|
|
Expected
return on assets
|
|
|
(2,700
|
)
|
|
|
(4,850
|
)
|
Amortization
and other
|
|
|
2,414
|
|
|
|
152
|
|
Net
periodic benefit cost (credit)
|
|
$
|
4,213
|
|
|
$
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
Postretirement
Medical
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
150
|
|
|
$
|
125
|
|
Interest
cost
|
|
|
350
|
|
|
|
375
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
Net
periodic benefit cost (credit)
|
|
$
|
500
|
|
|
$
|
500
|
|
5.
|
Total
comprehensive income was as follows (in
thousands):
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
2,768
|
|
|
$
|
35,566
|
|
Cumulative
translation adjustment
|
|
|
234
|
|
|
|
(5
|
)
|
Pension
and postretirement
|
|
|
|
|
|
|
|
|
medical
liability adjustment
|
|
|
2,329
|
|
|
|
124
|
|
Gain
(loss) on interest rate hedge contracts
|
|
|
(73
|
)
|
|
|
(2,775
|
)
|
Income
taxes
|
|
|
(836
|
)
|
|
|
977
|
|
Comprehensive
income
|
|
$
|
4,422
|
|
|
$
|
33,887
|
|
|
Components
of accumulated other comprehensive income (loss) were (in
thousands):
|
|
|
March
27,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Pension
and postretirement medical liability adjustment
|
|
$
|
(68,855
|
)
|
|
$
|
(70,322
|
)
|
Gain
(loss) on interest rate hedge contracts
|
|
|
(3,156
|
)
|
|
|
(3,109
|
)
|
Cumulative
translation adjustment
|
|
|
(823
|
)
|
|
|
(1,057
|
)
|
Total
|
|
$
|
(72,834
|
)
|
|
$
|
(74,488
|
)
|
6.
|
The
Company has three reportable segments: Industrial, Contractor
and Lubrication. The Company does not track assets by
segment. Sales and operating earnings by segment for the
thirteen weeks ended March 27, 2009 and March 28, 2008 were as follows (in
thousands):
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
Net
Sales
|
|
|
|
|
|
|
Industrial
|
|
$
|
75,232
|
|
|
$
|
114,251
|
|
Contractor
|
|
|
47,448
|
|
|
|
66,180
|
|
Lubrication
|
|
|
15,200
|
|
|
|
23,689
|
|
Consolidated
|
|
$
|
137,880
|
|
|
$
|
204,120
|
|
|
|
|
|
|
|
|
|
|
Operating
Earnings
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
11,495
|
|
|
$
|
37,898
|
|
Contractor
|
|
|
1,239
|
|
|
|
13,696
|
|
Lubrication
|
|
|
(1,436
|
)
|
|
|
4,317
|
|
Unallocated
corporate (expense)
|
|
|
(5,169
|
)
|
|
|
(3,557
|
)
|
Consolidated
|
|
$
|
6,129
|
|
|
$
|
52,354
|
|
7.
|
Major
components of inventories were as follows (in
thousands):
|
|
|
March
27,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Finished
products and components
|
|
$
|
49,779
|
|
|
$
|
50,703
|
|
Products
and components in various
|
|
|
|
|
|
|
|
|
stages
of completion
|
|
|
32,070
|
|
|
|
24,938
|
|
Raw
materials and purchased components
|
|
|
39,130
|
|
|
|
51,348
|
|
|
|
|
120,979
|
|
|
|
126,989
|
|
Reduction
to LIFO cost
|
|
|
(35,402
|
)
|
|
|
(35,385
|
)
|
Total
|
|
$
|
85,577
|
|
|
$
|
91,604
|
|
8.
|
Information
related to other intangible assets follows (dollars in
thousands):
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
Life
|
|
|
Original
|
|
|
Accumulated
|
|
|
Currency
|
|
|
Book
|
|
|
|
(years)
|
|
|
Cost
|
|
|
Amortization
|
|
|
Translation
|
|
|
Value
|
|
March
27, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
|
3 -
8
|
|
|
$
|
41,075
|
|
|
$
|
(14,017
|
)
|
|
$
|
(181
|
)
|
|
$
|
26,877
|
|
Patents,
proprietary technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
product documentation
|
|
|
3 -
15
|
|
|
|
22,737
|
|
|
|
(11,153
|
)
|
|
|
(87
|
)
|
|
|
11,497
|
|
Trademarks,
trade names
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other
|
|
|
3 -
10
|
|
|
|
5,514
|
|
|
|
(4,290
|
)
|
|
|
(11
|
)
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,326
|
|
|
|
(29,460
|
)
|
|
|
(279
|
)
|
|
|
39,587
|
|
Not
Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
names
|
|
|
|
|
|
|
9,810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
79,136
|
|
|
$
|
(29,460
|
)
|
|
$
|
(279
|
)
|
|
$
|
49,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
26, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
|
3 -
8
|
|
|
$
|
41,075
|
|
|
$
|
(12,470
|
)
|
|
$
|
(181
|
)
|
|
$
|
28,424
|
|
Patents,
proprietary technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
product documentation
|
|
|
3 -
15
|
|
|
|
23,780
|
|
|
|
(11,290
|
)
|
|
|
(87
|
)
|
|
|
12,403
|
|
Trademarks,
trade names
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other
|
|
|
3 -
10
|
|
|
|
5,514
|
|
|
|
(3,908
|
)
|
|
|
(12
|
)
|
|
|
1,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,369
|
|
|
|
(27,668
|
)
|
|
|
(280
|
)
|
|
|
42,421
|
|
Not
Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
names
|
|
|
|
|
|
|
9,810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
80,179
|
|
|
$
|
(27,668
|
)
|
|
$
|
(280
|
)
|
|
$
|
52,231
|
|
Amortization
of intangibles was $2.8 million in the first quarter of
2009. Estimated annual amortization expense is as
follows: $10.7 million in 2009, $9.7 million in 2010, $8.6 million in
2011, $7.7 million in 2012, $4.1 million in 2013 and $1.6 million
thereafter.
9.
|
Components
of other current liabilities were (in
thousands):
|
|
|
March
27,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accrued
self-insured retentions
|
|
$
|
7,967
|
|
|
$
|
7,896
|
|
Accrued
warranty and service liabilities
|
|
|
7,677
|
|
|
|
8,033
|
|
Accrued
trade promotions
|
|
|
5,348
|
|
|
|
9,001
|
|
Payable
for employee stock purchases
|
|
|
619
|
|
|
|
5,473
|
|
Income
taxes payable
|
|
|
965
|
|
|
|
904
|
|
Other
|
|
|
26,334
|
|
|
|
24,217
|
|
Total
|
|
$
|
48,910
|
|
|
$
|
55,524
|
|
A
liability is established for estimated future warranty and service claims that
relate to current and prior period sales. The Company estimates
warranty costs based on historical claim experience and other factors including
evaluating specific product warranty issues. Following is a summary
of activity in accrued warranty and service liabilities (in
thousands):
|
|
Thirteen
|
|
|
|
|
|
|
Weeks
Ended
|
|
|
Year
Ended
|
|
|
|
March
27,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
8,033
|
|
|
$
|
7,084
|
|
Charged
to expense
|
|
|
1,078
|
|
|
|
6,793
|
|
Margin
on parts sales reversed
|
|
|
902
|
|
|
|
3,698
|
|
Reductions
for claims settled
|
|
|
(2,336
|
)
|
|
|
(9,542
|
)
|
Balance,
end of period
|
|
$
|
7,677
|
|
|
$
|
8,033
|
|
10.
|
The
Company
accounts for all derivatives, including those embedded in other contracts,
as either assets or liabilities and measures those financial instruments
at fair value. The accounting for changes in the fair value of
derivatives depends on their intended use and
designation.
|
As part
of its risk management program, the Company may periodically use forward
exchange contracts and interest rate swaps to manage known market
exposures. Terms of derivative instruments are structured to match
the terms of the risk being managed and are generally held to
maturity. The Company does not hold or issue derivative financial
instruments for trading purposes. All other contracts that contain
provisions meeting the definition of a derivative also meet the requirements of,
and have been designated as, normal purchases or sales. The Company’s
policy is to not enter into contracts with terms that cannot be designated as
normal purchases or sales.
In 2007,
the Company entered into interest rate swap contracts that effectively fix the
rates paid on a total of $80 million of variable rate borrowings. One
contract fixed the rate on $40 million of borrowings at 4.7 percent plus the
applicable spread (depending on cash flow leverage ratio) until December
2010. The second contract fixed an additional $40 million of
borrowings at 4.6 percent plus the applicable spread until January
2011. Both contracts have been designated as cash flow hedges against
interest rate volatility. Consequently, changes in the fair market
value are recorded in accumulated other comprehensive income (loss)
(AOCI). Amounts included in AOCI will be reclassified to earnings as
interest rates increase and as the swap contracts approach their expiration
dates. Net amounts paid or payable under terms of the contracts were
charged to interest expense and totaled $0.6 million in the first quarter of
2009.
The Company periodically evaluates its
monetary asset and liability positions denominated in foreign currencies. The
Company enters into forward contracts or options, or borrows in various
currencies, in order to hedge its net monetary positions. These instruments are
recorded at current market values and the gains and losses are included in other
expense (income), net. There were eight contracts outstanding as of March 27,
2009, with notional amounts totaling $15.6 million. There were 26
contracts outstanding during all or part of the first quarter of 2009, with net
gains of $0.4 million partially offsetting $0.6 million of exchange losses on
net monetary positions, included in other expense (income), net. The
Company believes it uses strong financial counterparts in these transactions and
that the resulting credit risk under these hedging strategies is not
significant.
The
Company uses significant other observable inputs to value the derivative
instruments used to hedge interest rate volatility and net monetary
positions. The fair market value and balance sheet classification of
such instruments follows:
|
Balance
Sheet
|
|
March
27,
|
|
|
December
26,
|
|
|
Classification
|
|
2009
|
|
|
2008
|
|
Gain
(loss) on interest
|
|
|
|
|
|
|
|
rate
hedge contracts
|
Other
current liabilities
|
|
$
|
(5,009
|
)
|
|
$
|
(4,936
|
)
|
Gain
(loss) on foreign
|
|
|
|
|
|
|
|
|
|
currency
forward contracts
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
$
|
706
|
|
|
$
|
1,868
|
|
Losses
|
|
|
|
(555
|
)
|
|
|
(670
|
)
|
Net
|
Accounts
receivable
|
|
$
|
151
|
|
|
$
|
1,198
|
|
11.
|
In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value
Measurements.” This statement establishes a consistent
framework for measuring fair value and expands disclosures on fair market
value measurements. SFAS No. 157 was effective for the Company
starting in fiscal 2008 for financial assets and
liabilities. With respect to non-financial assets and
liabilities, the statement was effective for the Company starting in
fiscal 2009. The adoption of this statement as it pertains to
non-financial assets and liabilities had no significant impact on the
consolidated financial
statements.
|
Item
2.
|
GRACO
INC. AND SUBSIDIARIES
|
|
|
|
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
|
Overview
The
Company designs, manufactures and markets systems and equipment to move,
measure, control, dispense and spray fluid materials. Management
classifies the Company’s business into three reportable
segments: Industrial, Contractor and Lubrication. Key
strategies include development of new products, expansion of distribution and
new market penetration.
The
following Management’s Discussion and Analysis reviews significant factors
affecting the Company’s results of operations and financial
condition. This discussion should be read in conjunction with the
financial statements and the accompanying notes to the financial
statements.
Results of
Operations
Net
sales, net earnings and earnings per share were as follows (in millions except
per share amounts and percentages):
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
137.9
|
|
|
$
|
204.1
|
|
|
|
(32
|
)%
|
Net
Earnings
|
|
$
|
2.8
|
|
|
$
|
35.6
|
|
|
|
(92
|
)%
|
Diluted
Net Earnings per Common Share
|
|
$
|
0.05
|
|
|
$
|
0.57
|
|
|
|
(91
|
)%
|
Operating
results were severely affected by the depth of the recession and its impact on
the markets served by the Company. Sales and orders decreased in all
segments and regions. Currency translation had an unfavorable effect
on sales ($6 million) and net earnings ($2 million). The Company
recorded $4 million of cost related to an additional workforce reduction in
March, as part of continued efforts to align operations with market and economic
conditions.
Consolidated
Results
Sales by
geographic area were as follows (in millions):
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Americas
1
|
|
$
|
80.2
|
|
|
$
|
115.8
|
|
Europe
2
|
|
|
35.8
|
|
|
|
59.5
|
|
Asia
Pacific
|
|
|
21.9
|
|
|
|
28.8
|
|
Consolidated
|
|
$
|
137.9
|
|
|
$
|
204.1
|
|
|
|
|
|
|
|
|
|
|
1
North and South America, including the U.S.
|
|
|
|
|
|
|
|
|
2
Europe, Africa and Middle East
|
|
|
|
|
|
|
|
|
Consolidated
sales decreased 32 percent (29 percent at consistent exchange
rates). Sales decreased 31 percent in the Americas, 40 percent in
Europe (32 percent at consistent exchange rates) and 24 percent in Asia
Pacific.
Gross
profit margin, expressed as a percentage of sales, was 46.7 percent, down from
54.8 percent last year, due to lower production volumes (approximately 4
percentage points), unfavorable currency translation rates (approximately 2
percentage points), workforce reduction costs (approximately 1½ percentage
points) and increased pension cost (approximately 1 percentage
point).
Total
operating expenses were slightly lower than last year. Product
development expense increased by $2 million as continued investment in new and
improved products is a key component of the Company’s strategy for future
growth. Offsetting this increase was a decrease of $2 million from
translation effects. Increases in pension expense ($3 million) and
severance expense related to the additional workforce reduction in 2009 ($1
million) were offset by the effects of the work force reduction in the fourth
quarter of 2008, lower incentive and bonus provisions and other spending
reductions.
The
effective tax rate of 34 percent for the first quarter was higher than last
year’s first quarter rate of 30 percent due to the settlement of the examination
of the Company’s income tax returns in the first quarter of 2008.
Segment
Results
Certain
measurements of segment operations compared to last year are summarized
below:
Industrial
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
Americas
|
|
$
|
35.8
|
|
|
$
|
53.4
|
|
Europe
|
|
|
23.8
|
|
|
|
39.7
|
|
Asia
Pacific
|
|
|
15.6
|
|
|
|
21.2
|
|
Total
|
|
$
|
75.2
|
|
|
$
|
114.3
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a percentage of net sales
|
|
|
15
|
%
|
|
|
33
|
%
|
Industrial
segment sales decreased 33 percent in the Americas, 40 percent in Europe (32
percent at consistent translation rates) and 27 percent in Asia
Pacific.
The
impacts of low factory volume, workforce reduction costs, currency translation
and increased product development spending contributed to the decrease in
operating earnings as a percentage of sales.
Contractor
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
Americas
|
|
$
|
31.7
|
|
|
$
|
42.4
|
|
Europe
|
|
|
10.9
|
|
|
|
18.0
|
|
Asia
Pacific
|
|
|
4.8
|
|
|
|
5.8
|
|
Total
|
|
$
|
47.4
|
|
|
$
|
66.2
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a percentage of net sales
|
|
|
3
|
%
|
|
|
21
|
%
|
Contractor
segment sales decreased 25 percent in the Americas, 40 percent in Europe (31
percent at consistent translation rates) and 17 percent in Asia
Pacific.
The
impacts of low factory volume, channel sales mix, workforce reduction costs,
currency translation and increased product development spending contributed to
the decrease in operating earnings as a percentage of sales. This
segment continued to incur expenses related to the rollout of entry-level paint
sprayers to additional paint and home center stores in 2009.
Lubrication
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
|
March
27,
|
|
|
March
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
Americas
|
|
$
|
12.6
|
|
|
$
|
20.1
|
|
Europe
|
|
|
1.1
|
|
|
|
1.9
|
|
Asia
Pacific
|
|
|
1.5
|
|
|
|
1.7
|
|
Total
|
|
$
|
15.2
|
|
|
$
|
23.7
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a percentage of net sales
|
|
|
(9
|
)%
|
|
|
18
|
%
|
Lubrication
segment sales decreased 37 percent in the Americas, 43 percent in Europe (39
percent at consistent translation rates) and 15 percent in Asia
Pacific.
The
impacts of low factory volume, product sales mix, workforce reduction costs,
increased product development spending and costs related to discontinued
products contributed to the decrease in operating earnings as a percentage of
sales.
Liquidity and Capital
Resources
In the
first quarter of 2009, the Company used cash to reduce the borrowings under its
long-term line of credit by $13 million and paid dividends of $11
million. Significant uses of cash and borrowings in the first quarter
of 2008 included $60 million for purchases and retirement of Company common
stock, $35 million for a business acquisition and $11 million for payment of
dividends.
Since the
end of 2008, inventories have been reduced by $6 million. Accounts
receivable decreased by $21 million from continuing collections and lower sales
levels.
At March
27, 2009, the Company had various lines of credit totaling $279 million, of
which $98 million was unused. Internally generated funds and unused
financing sources are expected to provide the Company with the flexibility to
meet its liquidity needs in 2009.
Outlook
Management
expects that global economic conditions will continue to present a challenging
operating environment in the near term. Workforce reductions
initiated in 2008 and the further reduction announced in March of 2009 were made
to align operations with market conditions and are expected to yield $18 million
in annualized savings. To the extent permitted by working capital
resources, management intends to protect its human capital and continue making
targeted investments in strategic operating and growth initiatives, including
new product development, improving manufacturing efficiencies, expanding
distribution and entering new markets.
Working
capital management will continue to be a high priority for the remainder of
2009. The Company plans to reduce inventory by an additional $25
million. Additional focus will be on collection of receivables over
their normal cycle. Given the uncertainty in world economies and the
possibility of continued weakness in markets served, the Company is considering
cost-effective alternative liquidity options.
SAFE
HARBOR CAUTIONARY STATEMENT
A
forward-looking statement is any statement made in this report and other reports
that the Company files periodically with the Securities and Exchange Commission,
or in press or earnings releases, analyst briefings and conference calls, which
reflects the Company’s current thinking on market trends and the Company’s
future financial performance at the time they are made. All forecasts
and projections are forward-looking statements.
The
Company desires to take advantage of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995 by making cautionary statements
concerning any forward-looking statements made by or on behalf of the
Company. The Company cannot give any assurance that the results
forecasted in any forward-looking statement will actually be
achieved. Future results could differ materially from those
expressed, due to the impact of changes in various factors. These
risk factors include, but are not limited to: economic conditions in the United
States and other major world economies, currency fluctuations, political
instability, changes in laws and regulations, and changes in product
demand. Please refer to Item 1A of, and Exhibit 99 to, the Company’s
Annual Report on Form 10-K for fiscal year 2008 for a more comprehensive
discussion of these and other risk factors.
Investors
should realize that factors other than those identified above and in Item 1A and
Exhibit 99 might prove important to the Company’s future results. It
is not possible for management to identify each and every factor that may have
an impact on the Company’s operations in the future as new factors can develop
from time to time.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
There
have been no material changes related to market risk from the disclosures made
in the Company’s 2008 Annual Report on Form 10-K.
|
|
Item
4.
|
Controls
and Procedures
|
Evaluation of disclosure
controls and procedures
As of the
end of the fiscal quarter covered by this report, the Company carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures. This evaluation was done under the
supervision and with the participation of the Company's President and Chief
Executive Officer, the Chief Financial Officer and Treasurer, the Vice President
and Controller, and the Vice President, General Counsel and
Secretary. Based upon that evaluation, they concluded that the
Company's disclosure controls and procedures are effective in gathering,
analyzing and disclosing information needed to satisfy the Company's disclosure
obligations under the Exchange Act.
Changes in internal
controls
During
the quarter, there was no change in the Company's internal control over
financial reporting that has materially affected or is reasonably likely to
materially affect the Company’s internal control over financial
reporting.
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
There
have been no material changes to the Company’s risk factors from those disclosed
in the Company’s 2008 Annual Report on Form 10-K.
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Issuer Purchases of Equity
Securities
On
September 28, 2007, the Board of Directors authorized the Company to purchase up
to 7,000,000 shares of its outstanding common stock, primarily through
open-market transactions. This authorization expires on September 30,
2009.
In
addition to shares purchased under the Board authorizations, the Company
purchases shares of common stock held by employees who wish to tender owned
shares to satisfy the exercise price or tax withholding on option
exercises.
No shares
were purchased in the first quarter of 2009. As of March 27, 2009,
there were 3,068,234 shares that may yet be purchased under the Board
authorization.
Item
6.
|
Exhibits
|
|
|
|
|
31.1
|
Certification
of President and Chief Executive Officer pursuant to Rule
13a-14(a).
|
|
|
|
|
31.2
|
Certification
of Chief Financial Officer and Treasurer pursuant to Rule
13a-14(a).
|
|
|
|
|
32
|
Certification
of the President and Chief Executive Officer and the Chief Financial
Officer and Treasurer pursuant to Section 1350 of Title 18,
U.S.C.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
GRACO INC.
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
December
2, 2009
|
By:
|
/s/Patrick
J. McHale
|
|
|
|
Patrick
J. McHale
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
December
2, 2009
|
By:
|
/s/James
A. Graner
|
|
|
|
James
A. Graner
|
|
|
|
Chief
Financial Officer and Treasurer
|
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
December
2, 2009
|
By:
|
/s/Caroline
M. Chambers
|
|
|
|
Caroline
M. Chambers
|
|
|
|
Vice
President and Controller
|
|
|
|
(Principal
Accounting Officer)
|
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