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
September 25,
2009
Commission
File Number:
001-09249
|
GRACO
INC.
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|
|
(Exact
name of registrant as specified in its charter)
|
|
|
Minnesota
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|
41-0285640
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|
(State
of incorporation)
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|
(I.R.S.
Employer Identification Number)
|
88
- 11
th
Avenue N.E.
Minneapolis,
Minnesota
|
|
55413
|
(Address
of principal executive offices)
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|
(Zip
Code)
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(612)
623-6000
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|
(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or such shorter period that the registrant was required to submit and
post such files).
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).
59,972,000
shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of
October 15, 2009.
Explanatory
Note
The sole
purpose of this Amendment No.1 to our Quarterly Report on Form 10-Q for the
period ended September 25, 2009, as filed with the Securities and Exchange
Commission on October 21, 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, which, although affixed to
the manually signed originals, was 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
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Item
1.
|
Financial
Statements
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Consolidated
Statements of Earnings
|
3
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Consolidated
Balance Sheets
|
4
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Consolidated
Statements of Cash Flows
|
5
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Notes
to Consolidated Financial Statements
|
6
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Item
2.
|
Management's
Discussion and Analysis
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of
Financial Condition and Results of Operations
|
14
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Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
19
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Item
4.
|
Controls
and Procedures
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19
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PART
II
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OTHER
INFORMATION
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Item
1A.
|
Risk
Factors
|
20
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Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
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Item
4.
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Submission
of Matters to a Vote of Security Holders
|
21
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Item
6.
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Exhibits
|
21
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SIGNATURES
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EXHIBITS
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|
PART
I
Item
1.
GRACO
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
(Unaudited)
(In
thousands except per share amounts)
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
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|
Sep
26,
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|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
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|
2008
|
|
|
|
|
|
|
|
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|
Net
Sales
|
|
$
|
147,308
|
|
|
$
|
207,231
|
|
|
$
|
432,900
|
|
|
$
|
650,581
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
Cost
of products sold
|
|
|
69,167
|
|
|
|
97,071
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|
|
|
217,423
|
|
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|
299,805
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
Gross
Profit
|
|
|
78,141
|
|
|
|
110,160
|
|
|
|
215,477
|
|
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|
350,776
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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Product
development
|
|
|
8,752
|
|
|
|
9,626
|
|
|
|
28,584
|
|
|
|
26,605
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|
Selling,
marketing and distribution
|
|
|
26,589
|
|
|
|
32,420
|
|
|
|
86,814
|
|
|
|
102,083
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|
General
and administrative
|
|
|
16,613
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|
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|
15,585
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|
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|
49,317
|
|
|
|
50,142
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|
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|
|
|
|
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|
|
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|
|
|
|
|
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Operating
Earnings
|
|
|
26,187
|
|
|
|
52,529
|
|
|
|
50,762
|
|
|
|
171,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Interest
expense
|
|
|
1,148
|
|
|
|
1,934
|
|
|
|
3,735
|
|
|
|
5,443
|
|
Other
expense, net
|
|
|
203
|
|
|
|
623
|
|
|
|
889
|
|
|
|
606
|
|
|
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|
|
|
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Earnings
Before Income Taxes
|
|
|
24,836
|
|
|
|
49,972
|
|
|
|
46,138
|
|
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|
165,897
|
|
|
|
|
|
|
|
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Income
taxes
|
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7,500
|
|
|
|
17,200
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|
|
|
14,400
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|
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|
55,100
|
|
|
|
|
|
|
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|
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|
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Net
Earnings
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|
$
|
17,336
|
|
|
$
|
32,772
|
|
|
$
|
31,738
|
|
|
$
|
110,797
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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Basic
Net Earnings
|
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|
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|
|
|
|
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per
Common Share
|
|
$
|
0.29
|
|
|
$
|
0.55
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|
|
$
|
0.53
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
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Diluted
Net Earnings
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|
|
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per
Common Share
|
|
$
|
0.29
|
|
|
$
|
0.54
|
|
|
$
|
0.53
|
|
|
$
|
1.81
|
|
|
|
|
|
|
|
|
|
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Cash
Dividends Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
Common Share
|
|
$
|
0.19
|
|
|
$
|
0.19
|
|
|
$
|
0.57
|
|
|
$
|
0.55
|
|
See notes
to consolidated financial statements.
GRACO
INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(Unaudited)
|
|
(In
thousands)
|
|
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|
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|
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Sep
25,
|
|
|
Dec
26,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
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Current
Assets
|
|
|
|
|
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Cash
and cash equivalents
|
|
$
|
5,064
|
|
|
$
|
12,119
|
|
Accounts
receivable, less allowances of
|
|
|
|
|
|
|
|
|
$6,400
and $6,600
|
|
|
106,890
|
|
|
|
127,505
|
|
Inventories
|
|
|
60,581
|
|
|
|
91,604
|
|
Deferred
income taxes
|
|
|
19,982
|
|
|
|
23,007
|
|
Other
current assets
|
|
|
4,532
|
|
|
|
6,360
|
|
Total
current assets
|
|
|
197,049
|
|
|
|
260,595
|
|
|
|
|
|
|
|
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|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
Cost
|
|
|
333,792
|
|
|
|
326,729
|
|
Accumulated
depreciation
|
|
|
(191,167
|
)
|
|
|
(176,975
|
)
|
Property,
plant and equipment, net
|
|
|
142,625
|
|
|
|
149,754
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
91,740
|
|
|
|
91,740
|
|
Other
Intangible Assets, net
|
|
|
43,010
|
|
|
|
52,231
|
|
Deferred
Income Taxes
|
|
|
14,425
|
|
|
|
18,919
|
|
Other
Assets
|
|
|
8,223
|
|
|
|
6,611
|
|
Total
Assets
|
|
$
|
497,072
|
|
|
$
|
579,850
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
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|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Notes
payable to banks
|
|
$
|
13,866
|
|
|
$
|
18,311
|
|
Trade
accounts payable
|
|
|
16,663
|
|
|
|
18,834
|
|
Salaries,
wages and commissions
|
|
|
13,477
|
|
|
|
17,179
|
|
Dividends
payable
|
|
|
11,398
|
|
|
|
11,312
|
|
Other
current liabilities
|
|
|
50,070
|
|
|
|
55,524
|
|
Total
current liabilities
|
|
|
105,474
|
|
|
|
121,160
|
|
|
|
|
|
|
|
|
|
|
Long-term
Debt
|
|
|
107,364
|
|
|
|
180,000
|
|
Retirement
Benefits and Deferred Compensation
|
|
|
97,077
|
|
|
|
108,656
|
|
Uncertain
Tax Positions
|
|
|
2,800
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
59,965
|
|
|
|
59,516
|
|
Additional
paid-in-capital
|
|
|
187,846
|
|
|
|
174,161
|
|
Retained
earnings
|
|
|
5,900
|
|
|
|
8,445
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(69,354
|
)
|
|
|
(74,488
|
)
|
Total shareholder's equity
|
|
|
184,357
|
|
|
|
167,634
|
|
Total Liabilities and Shareholders' Equity
|
|
$
|
497,072
|
|
|
$
|
579,850
|
|
See notes
to consolidated financial statements.
GRACO
INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
(In thousands)
|
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
31,738
|
|
|
$
|
110,797
|
|
Adjustments
to reconcile net earnings to
|
|
|
|
|
|
|
|
|
net
cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation,
amortization and impairment
|
|
|
26,200
|
|
|
|
23,310
|
|
Deferred
income taxes
|
|
|
4,671
|
|
|
|
(3,850
|
)
|
Share-based
compensation
|
|
|
7,441
|
|
|
|
7,072
|
|
Excess
tax benefit related to share-based
|
|
|
|
|
|
|
|
|
payment
arrangements
|
|
|
(300
|
)
|
|
|
(2,923
|
)
|
Change
in
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
22,434
|
|
|
|
(4,989
|
)
|
Inventories
|
|
|
30,745
|
|
|
|
(16,466
|
)
|
Trade
accounts payable
|
|
|
(2,050
|
)
|
|
|
(775
|
)
|
Salaries,
wages and commissions
|
|
|
(3,853
|
)
|
|
|
(1,236
|
)
|
Retirement
benefits and deferred compensation
|
|
|
(4,741
|
)
|
|
|
(2,141
|
)
|
Other
accrued liabilities
|
|
|
(2,437
|
)
|
|
|
788
|
|
Other
|
|
|
313
|
|
|
|
1,114
|
|
Net
cash provided by operating activities
|
|
|
110,161
|
|
|
|
110,701
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Property,
plant and equipment additions
|
|
|
(9,375
|
)
|
|
|
(20,778
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
615
|
|
|
|
1,633
|
|
Investment
in life insurance
|
|
|
(1,499
|
)
|
|
|
(1,499
|
)
|
Capitalized
software and other intangible asset additions
|
|
|
(501
|
)
|
|
|
(1,130
|
)
|
Acquisitions
of businesses, net of cash acquired
|
|
|
-
|
|
|
|
(39,780
|
)
|
Net
cash used in investing activities
|
|
|
(10,760
|
)
|
|
|
(61,554
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Net
borrowings (payments) on short-term lines of credit
|
|
|
(4,700
|
)
|
|
|
(2,779
|
)
|
Borrowings
on long-term line of credit
|
|
|
75,491
|
|
|
|
188,869
|
|
Payments
on long-term line of credit
|
|
|
(148,127
|
)
|
|
|
(104,074
|
)
|
Excess
tax benefit related to share-based
|
|
|
|
|
|
|
|
|
payment
arrangements
|
|
|
300
|
|
|
|
2,923
|
|
Common
stock issued
|
|
|
6,119
|
|
|
|
13,528
|
|
Common
stock retired
|
|
|
(157
|
)
|
|
|
(114,341
|
)
|
Cash
dividends paid
|
|
|
(34,069
|
)
|
|
|
(33,693
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(105,143
|
)
|
|
|
(49,567
|
)
|
Effect
of exchange rate changes on cash
|
|
|
(1,313
|
)
|
|
|
748
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(7,055
|
)
|
|
|
328
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
12,119
|
|
|
|
4,922
|
|
End
of period
|
|
$
|
5,064
|
|
|
$
|
5,250
|
|
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 September 25, 2009 and the related statements of earnings for the
thirteen and thirty-nine weeks ended September 25, 2009 and September 26,
2008, and cash flows for the thirty-nine weeks ended September 25, 2009
and September 26, 2008 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 September 25, 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
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings available to
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$
|
17,336
|
|
|
$
|
32,772
|
|
|
$
|
31,738
|
|
|
$
|
110,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
for basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings
per share
|
|
|
59,940
|
|
|
|
59,769
|
|
|
|
59,827
|
|
|
|
60,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
computed using the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
treasury
stock method and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
average market price
|
|
|
374
|
|
|
|
596
|
|
|
|
306
|
|
|
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
for diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings
per share
|
|
|
60,314
|
|
|
|
60,365
|
|
|
|
60,133
|
|
|
|
61,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.55
|
|
|
$
|
0.53
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.54
|
|
|
$
|
0.53
|
|
|
$
|
1.81
|
|
Stock
options to purchase 2,834,000 and 2,114,000 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 thirty-nine weeks
ended September 25, 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
|
|
|
1,180
|
|
|
|
20.74
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(131
|
)
|
|
|
10.41
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(127
|
)
|
|
|
31.69
|
|
|
|
|
|
|
|
|
|
Outstanding,
September 25, 2009
|
|
|
4,877
|
|
|
$
|
28.87
|
|
|
|
2,465
|
|
|
$
|
28.16
|
|
The
aggregate intrinsic value of exercisable option shares was $12.2 million as of
September 25, 2009, with a weighted average contractual term of 4.4
years. There were approximately 4.8 million share options vested and
expected to vest as of September 25, 2009, with an aggregate intrinsic value of
$20.9 million, a weighted average exercise price of $28.87 and a weighted
average contractual term of 6.5 years.
Information
related to options exercised in the first nine months of 2009 and 2008 follows
(in thousands):
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
received
|
|
$
|
1,363
|
|
|
$
|
6,864
|
|
Aggregate
intrinsic value
|
|
|
1,595
|
|
|
|
8,645
|
|
Tax
benefit realized
|
|
|
600
|
|
|
|
3,100
|
|
The
Company recognized year-to-date share-based compensation of $7.7 million in 2009
and $7.1 million in 2008. As of September 25, 2009, there was $8.2
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:
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
Expected
life in years
|
|
|
6.0
|
|
|
|
6.0
|
|
Interest
rate
|
|
|
2.1
|
%
|
|
|
3.2
|
%
|
Volatility
|
|
|
30.1
|
%
|
|
|
25.0
|
%
|
Dividend
yield
|
|
|
3.7
|
%
|
|
|
2.1
|
%
|
Weighted
average fair value per share
|
|
$
|
4.27
|
|
|
$
|
8.43
|
|
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:
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
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
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Pension
Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,078
|
|
|
$
|
920
|
|
|
$
|
3,498
|
|
|
$
|
3,724
|
|
Interest
cost
|
|
|
2,926
|
|
|
|
2,896
|
|
|
|
9,261
|
|
|
|
9,186
|
|
Expected
return on assets
|
|
|
(2,593
|
)
|
|
|
(4,536
|
)
|
|
|
(8,143
|
)
|
|
|
(14,236
|
)
|
Amortization
and other
|
|
|
2,034
|
|
|
|
233
|
|
|
|
6,761
|
|
|
|
528
|
|
Net
periodic benefit cost (credit)
|
|
$
|
3,445
|
|
|
$
|
(487
|
)
|
|
$
|
11,377
|
|
|
$
|
(798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
174
|
|
|
$
|
168
|
|
|
$
|
424
|
|
|
$
|
418
|
|
Interest
cost
|
|
|
335
|
|
|
|
286
|
|
|
|
985
|
|
|
|
1,036
|
|
Amortization
|
|
|
(45
|
)
|
|
|
(13
|
)
|
|
|
(45
|
)
|
|
|
(13
|
)
|
Net
periodic benefit cost (credit)
|
|
$
|
464
|
|
|
$
|
441
|
|
|
$
|
1,364
|
|
|
$
|
1,441
|
|
In the
third quarter of 2009, the Company made a voluntary $15 million tax-deductible
contribution to its funded defined benefit pension plan.
The
Company paid $1.5 million in June 2009 and $1.5 million in June 2008 for
contracts insuring the lives of certain employees who are eligible to
participate in certain non-qualified pension and deferred compensation
plans. These insurance contracts will be used to fund the
non-qualified pension and deferred compensation arrangements. The
insurance contracts are held in a trust and are available to general creditors
in the event of the Company’s insolvency. Cash surrender value of
$4.3 million and $2.7 million is included in other assets in the consolidated
balance sheet as of September 25, 2009 and December 28, 2008,
respectively.
5.
|
Total
comprehensive income was as follows (in
thousands):
|
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
17,336
|
|
|
$
|
32,772
|
|
|
$
|
31,738
|
|
|
$
|
110,797
|
|
Cumulative
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
-
|
|
|
|
(346
|
)
|
|
|
234
|
|
|
|
(377
|
)
|
Pension
and postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
medical
liability adjustment
|
|
|
2,432
|
|
|
|
164
|
|
|
|
7,183
|
|
|
|
353
|
|
Gain
(loss) on interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
hedge contracts
|
|
|
303
|
|
|
|
(211
|
)
|
|
|
594
|
|
|
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(1,011
|
)
|
|
|
23
|
|
|
|
(2,877
|
)
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
19,060
|
|
|
$
|
32,402
|
|
|
$
|
36,872
|
|
|
$
|
110,246
|
|
|
Components
of accumulated other comprehensive income (loss) were (in
thousands):
|
|
|
Sep
25,
|
|
|
Dec
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Pension
and postretirement medical liability adjustment
|
|
$
|
(65,796
|
)
|
|
$
|
(70,322
|
)
|
Gain
(loss) on interest rate hedge contracts
|
|
|
(2,735
|
)
|
|
|
(3,109
|
)
|
Cumulative
translation adjustment
|
|
|
(823
|
)
|
|
|
(1,057
|
)
|
Total
|
|
$
|
(69,354
|
)
|
|
$
|
(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 and thirty-nine weeks ended September 25, 2009 and September 26,
2008 were as follows (in
thousands):
|
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
78,242
|
|
|
$
|
117,685
|
|
|
$
|
226,808
|
|
|
$
|
365,028
|
|
Contractor
|
|
|
55,379
|
|
|
|
67,751
|
|
|
|
163,213
|
|
|
|
215,992
|
|
Lubrication
|
|
|
13,687
|
|
|
|
21,795
|
|
|
|
42,879
|
|
|
|
69,561
|
|
Consolidated
|
|
$
|
147,308
|
|
|
$
|
207,231
|
|
|
$
|
432,900
|
|
|
$
|
650,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
20,332
|
|
|
$
|
35,874
|
|
|
$
|
45,262
|
|
|
$
|
117,847
|
|
Contractor
|
|
|
11,138
|
|
|
|
15,226
|
|
|
|
24,420
|
|
|
|
49,663
|
|
Lubrication
|
|
|
(167
|
)
|
|
|
3,409
|
|
|
|
(3,348
|
)
|
|
|
12,333
|
|
Unallocated
corporate (expense)
|
|
|
(5,116
|
)
|
|
|
(1,980
|
)
|
|
|
(15,572
|
)
|
|
|
(7,897
|
)
|
Consolidated
|
|
$
|
26,187
|
|
|
$
|
52,529
|
|
|
$
|
50,762
|
|
|
$
|
171,946
|
|
7.
|
Major
components of inventories were as follows (in
thousands):
|
|
|
Sep
25,
|
|
|
Dec
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Finished
products and components
|
|
$
|
38,209
|
|
|
$
|
50,703
|
|
Products
and components in various
|
|
|
|
|
|
|
|
|
stages
of completion
|
|
|
24,359
|
|
|
|
24,938
|
|
Raw
materials and purchased components
|
|
|
30,952
|
|
|
|
51,348
|
|
|
|
|
93,520
|
|
|
|
126,989
|
|
Reduction
to LIFO cost
|
|
|
(32,939
|
)
|
|
|
(35,385
|
)
|
Total
|
|
$
|
60,581
|
|
|
$
|
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
|
|
September
25, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
|
3 -
8
|
|
|
$
|
41,075
|
|
|
$
|
(17,109
|
)
|
|
$
|
(181
|
)
|
|
$
|
23,785
|
|
Patents,
proprietary technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
product documentation
|
|
|
3 -
15
|
|
|
|
22,737
|
|
|
|
(12,899
|
)
|
|
|
(87
|
)
|
|
|
9,751
|
|
Trademarks,
trade names
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other
|
|
|
3 -
10
|
|
|
|
6,554
|
|
|
|
(1,860
|
)
|
|
|
-
|
|
|
|
4,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,366
|
|
|
|
(31,868
|
)
|
|
|
(268
|
)
|
|
|
38,230
|
|
Not
Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
names
|
|
|
|
|
|
|
4,780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
75,146
|
|
|
$
|
(31,868
|
)
|
|
$
|
(268
|
)
|
|
$
|
43,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
In 2009, the useful
life of certain brand names was determined to be no longer
indefinite. The cost of such brand names, totaling $4.5 million
(after an impairment charge of $0.5 million in the third quarter), is
being amortized over a three-year period.
Amortization
of intangibles was $3.4 million in the third quarter of 2009 and $9.2
million year-to-date. Estimated annual amortization expense is
as follows: $12.1 million in 2009, $11.2 million in 2010, $10.1
million in 2011, $8.3 million in 2012, $4.1 million in 2013 and $1.6
million thereafter.
|
9.
|
Components
of other current liabilities were (in
thousands):
|
|
|
Sep
25,
|
|
|
Dec
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Accrued
self-insurance retentions
|
|
$
|
7,901
|
|
|
$
|
7,896
|
|
Accrued
warranty and service liabilities
|
|
|
7,644
|
|
|
|
8,033
|
|
Accrued
trade promotions
|
|
|
3,625
|
|
|
|
9,001
|
|
Payable
for employee stock purchases
|
|
|
3,659
|
|
|
|
5,473
|
|
Income
taxes payable
|
|
|
3,549
|
|
|
|
904
|
|
Other
|
|
|
23,692
|
|
|
|
24,217
|
|
Total
|
|
$
|
50,070
|
|
|
$
|
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):
|
|
Thirty-nine
|
|
|
|
|
|
|
Weeks
Ended
|
|
|
Year
Ended
|
|
|
|
Sep
25,
|
|
|
Dec
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
8,033
|
|
|
$
|
7,084
|
|
Charged
to expense
|
|
|
3,519
|
|
|
|
6,793
|
|
Margin
on parts sales reversed
|
|
|
2,235
|
|
|
|
3,698
|
|
Reductions
for claims settled
|
|
|
(6,143
|
)
|
|
|
(9,542
|
)
|
Balance,
end of period
|
|
$
|
7,644
|
|
|
$
|
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 $2.2 million in the first nine months 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 September
25, 2009, with notional amounts totaling $16 million. There were 50
contracts outstanding during all or part of the first nine months of 2009, with
net losses of $1.4 million offsetting $0.8 million of exchange gains 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 (in thousands):
|
Balance
Sheet
|
|
Sep
25,
|
|
|
Dec
26,
|
|
|
Classification
|
|
2009
|
|
|
2008
|
|
Gain
(loss) on interest
|
|
|
|
|
|
|
|
rate
hedge contracts
|
Other
current liabilities
|
|
$
|
(4,342
|
)
|
|
$
|
(4,936
|
)
|
Gain
(loss) on foreign
|
|
|
|
|
|
|
|
|
|
currency
forward contracts
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
$
|
113
|
|
|
$
|
1,868
|
|
Losses
|
|
|
|
(282
|
)
|
|
|
(670
|
)
|
Net
|
Accounts
receivable
|
|
|
|
|
|
$
|
1,198
|
|
Other
current liabilites
|
|
$
|
(169
|
)
|
|
|
|
|
11.
|
In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements.” This accounting standard establishes a
consistent framework for measuring fair value and expands disclosures on
fair market value measurements. It was effective for the
Company starting in fiscal 2008 for financial assets and
liabilities. With respect to non-financial assets and
liabilities, it was effective for the Company starting in fiscal
2009. The adoption of this standard as it pertains to
non-financial assets and liabilities had no significant impact on the
consolidated financial statements.
|
12.
|
The
Company has evaluated subsequent events through the time the financial
statements were approved for issuance on October 21,
2009.
|
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
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
%
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
147.3
|
|
|
$
|
207.2
|
|
|
|
(29
|
)%
|
|
$
|
432.9
|
|
|
$
|
650.6
|
|
|
|
(33
|
)%
|
Net
Earnings
|
|
$
|
17.3
|
|
|
$
|
32.8
|
|
|
|
(47
|
)%
|
|
$
|
31.7
|
|
|
$
|
110.8
|
|
|
|
(71
|
)%
|
Diluted
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
Common Share
|
|
$
|
0.29
|
|
|
$
|
0.54
|
|
|
|
(46
|
)%
|
|
$
|
0.53
|
|
|
$
|
1.81
|
|
|
|
(71
|
)%
|
Weak
economic conditions worldwide continued to affect the Company’s operating
results. Sales and orders decreased in all segments and
regions. Currency translation had an unfavorable effect on sales ($2
million for the quarter and $14 million year-to-date) and net earnings ($1
million for the quarter and $5 million year-to-date). Year-to-date,
the Company has recorded $5 million of cost related to workforce reductions,
mostly in the first quarter. The resulting decrease in cost structure
contributed to improvements in second and third quarter net earnings compared to
the first quarter.
Consolidated
Results
Sales by
geographic area were as follows (in millions):
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
1
|
|
$
|
84.1
|
|
|
$
|
112.8
|
|
|
$
|
252.6
|
|
|
$
|
360.5
|
|
Europe
2
|
|
|
35.6
|
|
|
|
57.8
|
|
|
|
105.9
|
|
|
|
189.4
|
|
Asia
Pacific
|
|
|
27.6
|
|
|
|
36.6
|
|
|
|
74.4
|
|
|
|
100.7
|
|
Consolidated
|
|
$
|
147.3
|
|
|
$
|
207.2
|
|
|
$
|
432.9
|
|
|
$
|
650.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
North and South America, including the U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
Europe, Africa and Middle East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales for
the quarter were down 25 percent in the Americas, 39 percent in Europe (36
percent at consistent translation rates) and 25 percent in Asia
Pacific. Year-to-date sales were down 30 percent in the Americas, 44
percent in Europe (38 percent at consistent translation rates) and 26 percent in
Asia Pacific. Consolidated sales were down 29 percent for the quarter
and 33 percent year-to-date.
Gross
profit margin, expressed as a percentage of sales, was 53 percent for the
quarter and 50 percent year-to-date, compared to 53 percent and 54 percent,
respectively, for the comparable periods last year. For the quarter,
the favorable effects of pricing, material costs and cost reduction actions were
offset by decreases from lower production volume and increased pension
cost. Decreases in the year-to-date rate were due to lower production
volumes (approximately 5 percentage points), unfavorable currency translation
rates (approximately 1 percentage point) and increased pension cost
(approximately 1 percentage point). Decreases were offset somewhat by
the effects of favorable material costs and pricing.
Total operating expenses
for the quarter and year-to-date were down 10 percent and 8 percent,
respectively.
For both the quarter and year-to-date, the
effects of spending reductions and lower volume were partially offset by higher
pension expenses. Year-to-date, a $4 million decrease from
translation effects was partially offset by $2 million related to workforce
reductions.
Effective
income tax rates were 30 percent for the quarter and 31 percent year-to-date,
down from last year’s rates of 34 percent for the quarter and 33 percent
year-to-date. A higher-than-expected benefit upon filing of prior
year tax returns contributed to lower rates in 2009. Effective rates
were higher in 2008 because the R&D tax credit was not renewed until the
fourth quarter and no credit was included in the provisions for the first three
quarters.
Segment
Results
Certain
measurements of segment operations compared to last year are summarized
below:
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
37.0
|
|
|
$
|
54.1
|
|
|
$
|
108.3
|
|
|
$
|
169.0
|
|
Europe
|
|
|
22.0
|
|
|
|
36.4
|
|
|
|
65.7
|
|
|
|
122.2
|
|
Asia
Pacific
|
|
|
19.2
|
|
|
|
27.2
|
|
|
|
52.8
|
|
|
|
73.8
|
|
Total
|
|
$
|
78.2
|
|
|
$
|
117.7
|
|
|
$
|
226.8
|
|
|
$
|
365.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of net sales
|
|
|
26
|
%
|
|
|
30
|
%
|
|
|
20
|
%
|
|
|
32
|
%
|
For the
quarter, Industrial segment sales decreased 32 percent in the Americas, 40
percent in Europe (37 percent at consistent translation rates) and 29 percent in
Asia Pacific. Year-to-date sales decreased 36 percent in the
Americas, 46 percent in Europe (41 percent at consistent translation rates) and
28 percent in Asia Pacific.
In the
third quarter, the impact of low volume on operating earnings was partially
offset by the impacts of lower selling-related expenses and spending reductions
initiated in prior quarters. Low volume, workforce reduction costs
and currency translation affected year-to-date operating earnings as a
percentage of sales.
Contractor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
36.2
|
|
|
$
|
41.7
|
|
|
$
|
109.0
|
|
|
$
|
135.5
|
|
Europe
|
|
|
12.5
|
|
|
|
19.4
|
|
|
|
37.3
|
|
|
|
61.3
|
|
Asia
Pacific
|
|
|
6.7
|
|
|
|
6.7
|
|
|
|
16.9
|
|
|
|
19.2
|
|
Total
|
|
$
|
55.4
|
|
|
$
|
67.8
|
|
|
$
|
163.2
|
|
|
$
|
216.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of net sales
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
15
|
%
|
|
|
23
|
%
|
For the
quarter, Contractor segment sales decreased 13 percent in the Americas and 35
percent in Europe (32 percent at consistent translation
rates). Year-to-date sales decreased 20 percent in the Americas, 39
percent in Europe (33 percent at consistent translation rates) and 12 percent in
Asia Pacific.
In the
third quarter, the impact of low volume on operating earnings was partially
offset by the impacts of lower selling-related expenses and spending reductions
initiated in prior quarters. Low volume, workforce reduction costs,
currency translation and sustained product development spending affected
year-to-date operating earnings as a percentage of sales. Contractor
year-to-date operating results were also affected by sales, costs and expenses
related to the rollout of entry-level paint sprayers to additional paint and
home center stores in both 2009 and 2008.
Lubrication
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
Thirty-nine
Weeks Ended
|
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
Sep
25,
|
|
|
Sep
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
10.9
|
|
|
$
|
17.0
|
|
|
$
|
35.4
|
|
|
$
|
56.1
|
|
Europe
|
|
|
1.1
|
|
|
|
2.1
|
|
|
|
2.9
|
|
|
|
5.8
|
|
Asia
Pacific
|
|
|
1.7
|
|
|
|
2.7
|
|
|
|
4.6
|
|
|
|
7.7
|
|
Total
|
|
$
|
13.7
|
|
|
$
|
21.8
|
|
|
$
|
42.9
|
|
|
$
|
69.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of net sales
|
|
|
(1
|
)%
|
|
|
16
|
%
|
|
|
(8
|
)%
|
|
|
18
|
%
|
For the
quarter, Lubrication segment sales decreased 35 percent in the Americas, 49
percent in Europe (47 percent at consistent translation rates) and 39 percent in
Asia Pacific. Year-to-date sales decreased 37 percent in the
Americas, 50 percent in Europe (47 percent at consistent translation rates) and
41 percent in Asia Pacific.
In the
third quarter, the impact of low volume on operating earnings was partially
offset by the impacts of lower selling-related expenses and spending reductions
initiated in prior quarters. Low volume, workforce reduction costs
and increased product development expense affected year-to-date operating
earnings as a percentage of sales. Mix of products sold and costs
related to discontinued products contributed to lower margin rates in the
Lubrication segment.
Liquidity and Capital
Resources
In the
first nine months of 2009, the Company used cash to reduce the borrowings under
its long-term line of credit by $73 million and paid dividends of $34
million. The Company also made a $15 million voluntary contribution
to a funded defined benefit pension plan. Significant uses of cash
and borrowings in the first nine months of 2008 included $114 million for
purchases and retirement of Company common stock, $40 million for business
acquisitions and $34 million for payment of dividends.
Since the
end of 2008, inventories have been reduced by $31 million. Accounts
receivable decreased by $21 million from continuing collections and lower sales
levels.
At
September 25, 2009, the Company had various lines of credit totaling $282
million, of which $162 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
While
economic conditions continue to create headwinds for the business, management is
encouraged by improved profitablility in each of the last two quarters,
resulting from efforts to improve production costs and control
expenses. While management is cautious about predicting stronger
sales and further improvement in profitability in the near-term, it expects to
continue investing in growth initiatives including product development,
international expansion and entering new markets. Management remains
confident that the Company will emerge from the recession with strong,
profitable growth.
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 expired on September 30,
2009.
On
September 18, 2009, the Board of Directors authorized the Company to purchase up
to an additional 6,000,000 shares. The new authorization expires on
September 30, 2012.
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.
Information
on issuer purchases of equity securities follows:
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Shares
that
|
|
|
|
|
|
|
|
|
|
|
of
Shares
|
|
|
May
Yet Be
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
Purchased
|
|
|
|
|
|
|
|
|
|
|
as
Part of
|
|
|
Under
the
|
|
|
|
|
Total
|
|
|
Average
|
|
|
Publicly
|
|
|
Plans
or
|
|
|
|
|
Number
|
|
|
Price
|
|
|
Announced
|
|
|
Programs
|
|
|
|
|
of
Shares
|
|
|
Paid
per
|
|
|
Plans
or
|
|
|
(at
end of
|
|
|
Period
|
|
Purchased
|
|
|
Share
|
|
|
Programs
|
|
|
period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun
27, 2009 – Jul 24, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
3,068,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jul
25, 2009 – Aug 21, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
3,068,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aug
22, 2009 – Sep 25, 2009
|
|
|
577
|
|
|
$
|
25.28
|
|
|
|
-
|
|
|
|
9,068,234
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
Authorization for purchases of up to 3,068,234 shares expired on September
30, 2009.
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
None
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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