UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
Amendment
No. 2
Quarterly
Report Pursuant to Section 13 or 15 (d) of the
Securities
Exchange Act of 1934
For the
quarterly period ended
June 26,
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 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).
59,924,000
shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of
July 16, 2009.
Explanatory
Note
The sole
purpose of this Amendment No. 2 to our Quarterly Report on Form 10-Q for the
period ended June 26, 2009, as originally filed with the Securities and Exchange
Commission on July 22, 2009, is to include the certifications required
under Rule 13a-14(a) and Section 1350 currently dated and signed by our
principal executive officer and principal financial officer.
No other
changes have been made to the Form 10-Q other than those described
above. This Amendment No. 2 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
|
|
|
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
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|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
19
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|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
19
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|
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
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SIGNATURES
|
|
|
|
EXHIBITS
|
|
PART
I
Item
1.
GRACO
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
(Unaudited)
(In
thousands except per share amounts)
|
|
Thirteen
Weeks Ended
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
147,712
|
|
|
$
|
239,230
|
|
|
$
|
285,592
|
|
|
$
|
443,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
74,704
|
|
|
|
110,467
|
|
|
|
148,256
|
|
|
|
202,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
73,008
|
|
|
|
128,763
|
|
|
|
137,336
|
|
|
|
240,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
development
|
|
|
9,781
|
|
|
|
9,039
|
|
|
|
19,832
|
|
|
|
16,979
|
|
Selling,
marketing and distribution
|
|
|
28,292
|
|
|
|
35,842
|
|
|
|
60,225
|
|
|
|
69,663
|
|
General
and administrative
|
|
|
16,489
|
|
|
|
16,819
|
|
|
|
32,704
|
|
|
|
34,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Earnings
|
|
|
18,446
|
|
|
|
67,063
|
|
|
|
24,575
|
|
|
|
119,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,221
|
|
|
|
1,906
|
|
|
|
2,587
|
|
|
|
3,509
|
|
Other
expense (income), net
|
|
|
91
|
|
|
|
98
|
|
|
|
686
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
Before Income Taxes
|
|
|
17,134
|
|
|
|
65,059
|
|
|
|
21,302
|
|
|
|
115,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
5,500
|
|
|
|
22,600
|
|
|
|
6,900
|
|
|
|
37,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
11,634
|
|
|
$
|
42,459
|
|
|
$
|
14,402
|
|
|
$
|
78,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
Common Share
|
|
$
|
0.19
|
|
|
$
|
0.70
|
|
|
$
|
0.24
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
Common Share
|
|
$
|
0.19
|
|
|
$
|
0.69
|
|
|
$
|
0.24
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
Common Share
|
|
$
|
0.19
|
|
|
$
|
0.19
|
|
|
$
|
0.38
|
|
|
$
|
0.37
|
|
See notes
to consolidated financial statements.
GRACO
INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
June
26,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
13,909
|
|
|
$
|
12,119
|
|
Accounts
receivable, less allowances of
|
|
|
|
|
|
|
|
|
$6,600
and $6,600
|
|
|
112,370
|
|
|
|
127,505
|
|
Inventories
|
|
|
68,536
|
|
|
|
91,604
|
|
Deferred
income taxes
|
|
|
20,942
|
|
|
|
23,007
|
|
Other
current assets
|
|
|
5,046
|
|
|
|
6,360
|
|
Total
current assets
|
|
|
220,803
|
|
|
|
260,595
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
Cost
|
|
|
333,778
|
|
|
|
326,729
|
|
Accumulated
depreciation
|
|
|
(186,184
|
)
|
|
|
(176,975
|
)
|
Property,
plant and equipment, net
|
|
|
147,594
|
|
|
|
149,754
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
91,740
|
|
|
|
91,740
|
|
Other
Intangible Assets, net
|
|
|
46,406
|
|
|
|
52,231
|
|
Deferred
Income Taxes
|
|
|
19,780
|
|
|
|
18,919
|
|
Other
Assets
|
|
|
8,196
|
|
|
|
6,611
|
|
Total
Assets
|
|
$
|
534,519
|
|
|
$
|
579,850
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Notes
payable to banks
|
|
$
|
14,664
|
|
|
$
|
18,311
|
|
Trade
accounts payable
|
|
|
15,452
|
|
|
|
18,834
|
|
Salaries,
wages and commissions
|
|
|
11,148
|
|
|
|
17,179
|
|
Dividends
payable
|
|
|
11,386
|
|
|
|
11,312
|
|
Other
current liabilities
|
|
|
50,685
|
|
|
|
55,524
|
|
Total
current liabilities
|
|
|
103,335
|
|
|
|
121,160
|
|
|
|
|
|
|
|
|
|
|
Long-term
Debt
|
|
|
143,915
|
|
|
|
180,000
|
|
Retirement
Benefits and Deferred Compensation
|
|
|
111,125
|
|
|
|
108,656
|
|
Uncertain
Tax Positions
|
|
|
2,700
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
59,910
|
|
|
|
59,516
|
|
Additional
paid-in-capital
|
|
|
184,642
|
|
|
|
174,161
|
|
Retained
earnings
|
|
|
(30
|
)
|
|
|
8,445
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(71,078
|
)
|
|
|
(74,488
|
)
|
Total
shareholders’ equity
|
|
|
173,444
|
|
|
|
167,634
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
534,519
|
|
|
$
|
579,850
|
|
See notes
to consolidated financial statements.
GRACO
INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Unaudited)
(In thousands)
|
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Net
Earnings
|
|
$
|
14,402
|
|
|
$
|
78,025
|
|
Adjustments
to reconcile net earnings to
|
|
|
|
|
|
|
|
|
net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
16,953
|
|
|
|
15,737
|
|
Deferred
income taxes
|
|
|
(696
|
)
|
|
|
(4,243
|
)
|
Share-based
compensation
|
|
|
5,209
|
|
|
|
5,081
|
|
Excess
tax benefit related to share-based
|
|
|
|
|
|
|
|
|
payment
arrangements
|
|
|
(300
|
)
|
|
|
(2,923
|
)
|
Change
in
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
15,370
|
|
|
|
(22,217
|
)
|
Inventories
|
|
|
22,691
|
|
|
|
(13,060
|
)
|
Trade
accounts payable
|
|
|
(3,218
|
)
|
|
|
3,580
|
|
Salaries,
wages and commissions
|
|
|
(6,015
|
)
|
|
|
(3,647
|
)
|
Retirement
benefits and deferred compensation
|
|
|
7,215
|
|
|
|
(1,018
|
)
|
Other
accrued liabilities
|
|
|
(2,135
|
)
|
|
|
(607
|
)
|
Other
|
|
|
16
|
|
|
|
315
|
|
Net
cash provided by operating activities
|
|
|
69,492
|
|
|
|
55,023
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Property,
plant and equipment additions
|
|
|
(9,129
|
)
|
|
|
(12,944
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
495
|
|
|
|
1,517
|
|
Investment
in life insurance
|
|
|
(1,499
|
)
|
|
|
(1,499
|
)
|
Capitalized
software and other intangible asset additions
|
|
|
(200
|
)
|
|
|
(726
|
)
|
Acquisitions
of businesses, net of cash acquired
|
|
|
-
|
|
|
|
(35,266
|
)
|
Net
cash used in investing activities
|
|
|
(10,333
|
)
|
|
|
(48,918
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Net
borrowings (payments) on short-term lines of credit
|
|
|
(3,621
|
)
|
|
|
(660
|
)
|
Borrowings
on long-term line of credit
|
|
|
68,126
|
|
|
|
162,235
|
|
Payments
on long-term line of credit
|
|
|
(104,211
|
)
|
|
|
(80,395
|
)
|
Excess
tax benefit related to share-based
|
|
|
|
|
|
|
|
|
payment
arrangements
|
|
|
300
|
|
|
|
2,923
|
|
Common
stock issued
|
|
|
5,289
|
|
|
|
13,176
|
|
Common
stock retired
|
|
|
(141
|
)
|
|
|
(80,130
|
)
|
Cash
dividends paid
|
|
|
(22,686
|
)
|
|
|
(22,582
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
(56,944
|
)
|
|
|
(5,433
|
)
|
Effect
of exchange rate changes on cash
|
|
|
(425
|
)
|
|
|
(705
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,790
|
|
|
|
(33
|
)
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
12,119
|
|
|
|
4,922
|
|
End
of period
|
|
$
|
13,909
|
|
|
$
|
4,889
|
|
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 June 26, 2009 and the related statements of earnings for the thirteen
and twenty-six weeks ended June 26, 2009 and June 27, 2008, and cash flows
for the twenty-six weeks ended June 26, 2009 and June 27, 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 June 26, 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
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings available to
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$
|
11,634
|
|
|
$
|
42,459
|
|
|
$
|
14,402
|
|
|
$
|
78,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
for basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings
per share
|
|
|
59,903
|
|
|
|
60,540
|
|
|
|
59,770
|
|
|
|
60,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
computed using the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
treasury
stock method and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
average market price
|
|
|
280
|
|
|
|
682
|
|
|
|
273
|
|
|
|
672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
for diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings
per share
|
|
|
60,183
|
|
|
|
61,222
|
|
|
|
60,043
|
|
|
|
61,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$
|
0.19
|
|
|
$
|
0.70
|
|
|
$
|
0.24
|
|
|
$
|
1.28
|
|
Diluted
earnings per share
|
|
$
|
0.19
|
|
|
$
|
0.69
|
|
|
$
|
0.24
|
|
|
$
|
1.27
|
|
Stock
options to purchase 3,920,000 and 1,889,000 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 twenty-six weeks
ended June 26, 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
|
|
|
(80
|
)
|
|
|
7.82
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(69
|
)
|
|
|
33.62
|
|
|
|
|
|
|
|
|
|
Outstanding,
June 26, 2009
|
|
|
4,986
|
|
|
$
|
28.73
|
|
|
|
2,525
|
|
|
$
|
27.92
|
|
The
aggregate intrinsic value of exercisable option shares was $6.5 million as of
June 26, 2009, with a weighted average contractual term of 4.5
years. There were approximately 4.9 million share options vested and
expected to vest as of June 26, 2009, with an aggregate intrinsic value of $7.4
million, a weighted average exercise price of $28.73 and a weighted average
contractual term of 6.7 years.
Information
related to options exercised in the first six months of 2009 and 2008 follows
(in thousands):
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
received
|
|
$
|
622
|
|
|
$
|
6,605
|
|
Aggregate
intrinsic value
|
|
|
1,015
|
|
|
|
8,359
|
|
Tax
benefit realized
|
|
|
400
|
|
|
|
3,000
|
|
The
Company recognized year-to-date share-based compensation of $5.2 million in 2009
and $5.1 million in 2008. As of June 26, 2009, there was $9.7 million
of unrecognized compensation cost related to unvested options, expected to be
recognized over a weighted average period of 2.4 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:
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
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:
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
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
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Pension
Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
1,141
|
|
|
$
|
1,412
|
|
|
$
|
2,420
|
|
|
$
|
2,803
|
|
Interest
cost
|
|
|
3,115
|
|
|
|
3,144
|
|
|
|
6,335
|
|
|
|
6,290
|
|
Expected
return on assets
|
|
|
(2,850
|
)
|
|
|
(4,850
|
)
|
|
|
(5,550
|
)
|
|
|
(9,700
|
)
|
Amortization
and other
|
|
|
2,313
|
|
|
|
144
|
|
|
|
4,727
|
|
|
|
296
|
|
Net
periodic benefit cost (credit)
|
|
$
|
3,719
|
|
|
$
|
(150
|
)
|
|
$
|
7,932
|
|
|
$
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
100
|
|
|
$
|
125
|
|
|
$
|
250
|
|
|
$
|
250
|
|
Interest
cost
|
|
|
300
|
|
|
|
375
|
|
|
|
650
|
|
|
|
750
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
periodic benefit cost (credit)
|
|
$
|
400
|
|
|
$
|
500
|
|
|
$
|
900
|
|
|
$
|
1,000
|
|
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
$4.1 million and $2.7 million is included in other assets in the consolidated
balance sheet as of June 26, 2009 and December 28, 2008,
respectively.
5.
|
Total
comprehensive income was as follows (in
thousands):
|
|
|
Thirteen
Weeks Ended
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
11,634
|
|
|
$
|
42,459
|
|
|
$
|
14,402
|
|
|
$
|
78,025
|
|
Cumulative
translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
-
|
|
|
|
(26
|
)
|
|
|
234
|
|
|
|
(31
|
)
|
Pension
and postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
medical
liability adjustment
|
|
|
2,422
|
|
|
|
65
|
|
|
|
4,751
|
|
|
|
189
|
|
Gain
(loss) on interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
hedge contracts
|
|
|
364
|
|
|
|
2,352
|
|
|
|
291
|
|
|
|
(423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
(1,030
|
)
|
|
|
(893
|
)
|
|
|
(1,866
|
)
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
13,390
|
|
|
$
|
43,957
|
|
|
$
|
17,812
|
|
|
$
|
77,844
|
|
|
Components
of accumulated other comprehensive income (loss) were (in
thousands):
|
|
|
June
26,
|
|
|
December
26,
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Pension
and postretirement medical liability adjustment
|
$
|
(67,329)
|
|
$
|
(70,322)
|
Gain
(loss) on interest rate hedge contracts
|
|
(2,926)
|
|
|
(3,109)
|
Cumulative
translation adjustment
|
|
(823)
|
|
|
(1,057)
|
Total
|
$
|
(71,078)
|
|
$
|
(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 twenty-six weeks ended June 26, 2009 and June 27, 2008 were
as follows (in thousands):
|
|
|
Thirteen
Weeks Ended
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
73,334
|
|
|
$
|
133,092
|
|
|
$
|
148,566
|
|
|
$
|
247,343
|
|
Contractor
|
|
|
60,386
|
|
|
|
82,061
|
|
|
|
107,834
|
|
|
|
148,241
|
|
Lubrication
|
|
|
13,992
|
|
|
|
24,077
|
|
|
|
29,192
|
|
|
|
47,766
|
|
Consolidated
|
|
$
|
147,712
|
|
|
$
|
239,230
|
|
|
$
|
285,592
|
|
|
$
|
443,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
$
|
13,435
|
|
|
$
|
44,075
|
|
|
$
|
24,930
|
|
|
$
|
81,973
|
|
Contractor
|
|
|
12,043
|
|
|
|
20,741
|
|
|
|
13,282
|
|
|
|
34,437
|
|
Lubrication
|
|
|
(1,745
|
)
|
|
|
4,607
|
|
|
|
(3,181
|
)
|
|
|
8,924
|
|
Unallocated
corporate (expense)
|
|
|
(5,287
|
)
|
|
|
(2,360
|
)
|
|
|
(10,456
|
)
|
|
|
(5,917
|
)
|
Consolidated
|
|
$
|
18,446
|
|
|
$
|
67,063
|
|
|
$
|
24,575
|
|
|
$
|
119,417
|
|
7.
|
Major
components of inventories were as follows (in
thousands):
|
|
|
June
26,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Finished
products and components
|
|
$
|
42,981
|
|
|
$
|
50,703
|
|
Products
and components in various
|
|
|
|
|
|
|
|
|
stages
of completion
|
|
|
26,305
|
|
|
|
24,938
|
|
Raw
materials and purchased components
|
|
|
33,917
|
|
|
|
51,348
|
|
|
|
|
103,203
|
|
|
|
126,989
|
|
Reduction
to LIFO cost
|
|
|
(34,667
|
)
|
|
|
(35,385
|
)
|
Total
|
|
$
|
68,536
|
|
|
$
|
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
|
|
June
26, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
|
3 -
8
|
|
|
$
|
41,075
|
|
|
$
|
(15,562
|
)
|
|
$
|
(181
|
)
|
|
$
|
25,332
|
|
Patents,
proprietary technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
product documentation
|
|
|
3 -
15
|
|
|
|
22,737
|
|
|
|
(12,026
|
)
|
|
|
(87
|
)
|
|
|
10,624
|
|
Trademarks,
trade names
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
other
|
|
|
3 -
10
|
|
|
|
4,304
|
|
|
|
(1,384
|
)
|
|
|
-
|
|
|
|
2,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,116
|
|
|
|
(28,972
|
)
|
|
|
(268
|
)
|
|
|
38,876
|
|
Not
Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brand
names
|
|
|
|
|
|
|
7,530
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
75,646
|
|
|
$
|
(28,972
|
)
|
|
$
|
(268
|
)
|
|
$
|
46,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 the second quarter of
2009, the useful life of certain brand names was determined to be no longer
indefinite. The original cost of such brand names, totaling $2.3
million, is being amortized over a three-year period beginning April 1,
2009.
Amortization of intangibles was $3.0 million in the
second quarter of 2009 and $5.8 million year-to-date. Estimated
annual amortization expense is as follows: $11.2 million in 2009,
$10.5 million in 2010, $9.4 million in 2011, $7.9 million in 2012, $4.1 million
in 2013 and $1.6 million thereafter.
9.
|
Components
of other current liabilities were (in
thousands):
|
|
|
June
26,
|
|
|
December
26,
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Accrued
self-insurance retentions
|
$
|
7,978
|
|
$
|
7,896
|
Accrued
warranty and service liabilities
|
|
7,613
|
|
|
8,033
|
Accrued
trade promotions
|
|
4,235
|
|
|
9,001
|
Payable
for employee stock purchases
|
|
2,207
|
|
|
5,473
|
Income
taxes payable
|
|
4,555
|
|
|
904
|
Other
|
|
24,097
|
|
|
24,217
|
Total
|
$
|
50,685
|
|
$
|
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):
|
|
Twenty-six
|
|
|
|
|
|
|
Weeks
Ended
|
|
|
Year
Ended
|
|
|
|
June
26,
|
|
|
December
26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
8,033
|
|
|
$
|
7,084
|
|
Charged
to expense
|
|
|
2,416
|
|
|
|
6,793
|
|
Margin
on parts sales reversed
|
|
|
1,477
|
|
|
|
3,698
|
|
Reductions
for claims settled
|
|
|
(4,313
|
)
|
|
|
(9,542
|
)
|
Balance,
end of period
|
|
$
|
7,613
|
|
|
$
|
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 $1.3 million in the first half 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 seven contracts outstanding as of June 26,
2009, with notional amounts totaling $13 million. There were 33
contracts outstanding during all or part of the first half of 2009, with net
losses of $0.4 million 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
|
|
June
26,
|
|
|
December
26,
|
|
|
Classification
|
|
2009
|
|
|
2008
|
|
Gain
(loss) on interest
|
|
|
|
|
|
|
|
rate
hedge contracts
|
Other
current liabilities
|
|
$
|
(4,645
|
)
|
|
$
|
(4,936
|
)
|
Gain
(loss) on foreign
|
|
|
|
|
|
|
|
|
|
currency
forward contracts
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
$
|
352
|
|
|
$
|
1,868
|
|
Losses
|
|
|
|
(428
|
)
|
|
|
(670
|
)
|
Net
|
Accounts
receivable
|
|
|
|
|
|
$
|
1,198
|
|
Other current
liabilites
|
|
$
|
(76
|
)
|
|
|
|
|
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.
|
12.
|
The
Company has evaluated subsequent events through the time the financial
statements were approved for issuance on July 22,
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
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
%
|
|
|
June
26,
|
|
|
June
27,
|
|
|
%
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
147.7
|
|
|
$
|
239.2
|
|
|
|
(38
|
)%
|
|
$
|
285.6
|
|
|
$
|
443.4
|
|
|
|
(36
|
)%
|
Net
Earnings
|
|
$
|
11.6
|
|
|
$
|
42.5
|
|
|
|
(73
|
)%
|
|
$
|
14.4
|
|
|
$
|
78.0
|
|
|
|
(82
|
)%
|
Diluted
Net Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
Common Share
|
|
$
|
0.19
|
|
|
$
|
0.69
|
|
|
|
(72
|
)%
|
|
$
|
0.24
|
|
|
$
|
1.27
|
|
|
|
(81
|
)%
|
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 ($5
million for the quarter and $11 million year-to-date) and net earnings ($2
million for the quarter and $4 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 an improvement in second quarter net earnings compared to the
first quarter.
Consolidated
Results
Sales by
geographic area were as follows (in millions):
|
|
Thirteen
Weeks Ended
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
1
|
|
$
|
88.3
|
|
|
$
|
131.9
|
|
|
$
|
168.5
|
|
|
$
|
247.8
|
|
Europe
2
|
|
|
34.6
|
|
|
|
72.0
|
|
|
|
70.4
|
|
|
|
131.6
|
|
Asia
Pacific
|
|
|
24.8
|
|
|
|
35.3
|
|
|
|
46.7
|
|
|
|
64.0
|
|
Consolidated
|
|
$
|
147.7
|
|
|
$
|
239.2
|
|
|
$
|
285.6
|
|
|
$
|
443.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
North and South America, including the U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
Europe, Africa and Middle East
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales for
the quarter are down 33 percent in the Americas, 52 percent in Europe (46
percent at consistent translation rates) and 29 percent in Asia
Pacific. Year-to-date sales are down 32 percent in the Americas, 47
percent in Europe (40 percent at consistent translation rates) and 27 percent in
Asia Pacific. Consolidated sales are down 38 percent for the quarter
(36 percent at consistent translation rates) and 36 percent year-to-date (33
percent at consistent translation rates).
Gross
profit margin, expressed as a percentage of sales, was 49.4 percent for the
quarter and 48.1 percent year-to-date, down from 53.8 percent and 54.3 percent,
respectively, for the comparable periods last year. Decreases in both
the quarter and year-to-date are due to lower production volumes (approximately
4 percentage points), unfavorable currency translation rates (approximately 1½
percentage points) and increased pension cost (approximately 1 percentage
point). Decreases were offset somewhat by favorable material costs
(approximately 1 percentage point). Workforce reduction costs in the
first quarter affected the year-to-date margin rate by approximately 1
percentage point.
Total
operating expenses for the quarter and year-to-date are down 12 percent and 7
percent, respectively. Decreases from translation effects ($2 million
for the quarter, $4 million year-to-date), lower incentive and bonus provisions
and spending reductions are partially offset by higher product development and
pension expenses. Increases in product development expense reflect
the Company’s commitment to continued development of new and improved products
as a key component of its strategy for future growth. Year-to-date
operating expenses include approximately $2 million related to workforce
reductions made primarily in the first quarter.
The
effective income tax rate was 32.1 percent for the quarter compared to 34.7
percent for the second quarter of 2008. The rate was higher in 2008
because the R&D tax credit was not renewed until the fourth quarter and no
credit was included in the second quarter provision.
Segment
Results
Certain
measurements of segment operations compared to last year are summarized
below:
Industrial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
35.5
|
|
|
$
|
61.6
|
|
|
$
|
71.3
|
|
|
$
|
114.9
|
|
Europe
|
|
|
19.8
|
|
|
|
46.1
|
|
|
|
43.7
|
|
|
|
85.8
|
|
Asia
Pacific
|
|
|
18.0
|
|
|
|
25.4
|
|
|
|
33.6
|
|
|
|
46.6
|
|
Total
|
|
$
|
73.3
|
|
|
$
|
133.1
|
|
|
$
|
148.6
|
|
|
$
|
247.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of net sales
|
|
|
18
|
%
|
|
|
33
|
%
|
|
|
17
|
%
|
|
|
33
|
%
|
For the
quarter, Industrial segment sales decreased 42 percent in the Americas, 57
percent in Europe (52 percent at consistent translation rates) and 29 percent in
Asia Pacific. Year-to-date sales decreased 38 percent in the
Americas, 49 percent in Europe (43 percent at consistent translation rates) and
28 percent in Asia Pacific.
In the
second quarter, the impacts of low volume and currency translation on operating
earnings were 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 increased product
development expense affected year-to-date operating earnings as a percentage of
sales.
Contractor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
Weeks Ended
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
41.0
|
|
|
$
|
51.4
|
|
|
$
|
72.8
|
|
|
$
|
93.7
|
|
Europe
|
|
|
14.0
|
|
|
|
24.0
|
|
|
|
24.8
|
|
|
|
42.0
|
|
Asia
Pacific
|
|
|
5.4
|
|
|
|
6.7
|
|
|
|
10.2
|
|
|
|
12.5
|
|
Total
|
|
$
|
60.4
|
|
|
$
|
82.1
|
|
|
$
|
107.8
|
|
|
$
|
148.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of net sales
|
|
|
20
|
%
|
|
|
25
|
%
|
|
|
12
|
%
|
|
|
23
|
%
|
For the
quarter, Contractor segment sales decreased 20 percent in the Americas, 42
percent in Europe (35 percent at consistent translation rates) and 18 percent in
Asia Pacific. Year-to-date sales decreased 22 percent in the
Americas, 41 percent in Europe (33 percent at consistent translation rates) and
18 percent in Asia Pacific.
In the
second quarter, the impacts of low volume and currency translation on operating
earnings were 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 increased product
development expense affected year-to-date operating earnings as a percentage of
sales. Contractor 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
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June
26,
|
|
|
June
27,
|
|
|
June
26,
|
|
|
June
27,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
11.8
|
|
|
$
|
19.0
|
|
|
$
|
24.4
|
|
|
$
|
39.1
|
|
Europe
|
|
|
0.8
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
3.8
|
|
Asia
Pacific
|
|
|
1.4
|
|
|
|
3.2
|
|
|
|
2.9
|
|
|
|
4.9
|
|
Total
|
|
$
|
14.0
|
|
|
$
|
24.1
|
|
|
$
|
29.2
|
|
|
$
|
47.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
earnings as a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
percentage
of net sales
|
|
|
(12
|
)%
|
|
|
19
|
%
|
|
|
(11
|
)%
|
|
|
19
|
%
|
For the
quarter, Lubrication segment sales decreased 38 percent in the Americas, 58
percent in Europe (54 percent at consistent translation rates) and 56 percent in
Asia Pacific. Year-to-date sales decreased 37 percent in the
Americas, 50 percent in Europe (46 percent at consistent translation rates) and
41 percent in Asia Pacific.
In the
second quarter, the impact of low volume on operating earnings were 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 half of 2009, the Company used cash to reduce the borrowings under its
long-term line of credit by $36 million and paid dividends of $23
million. Significant uses of cash and borrowings in the first half of
2008 included $80 million for purchases and retirement of Company common stock,
$35 million for a business acquisition and $23 million for payment of
dividends.
Since the
end of 2008, inventories have been reduced by $23 million. Accounts
receivable decreased by $15 million from continuing collections and lower sales
levels.
At June
26, 2009, the Company had various lines of credit totaling $281 million, of
which $123 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 for at least the rest of the year. To the
extent permitted by working capital resources, management intends to 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 further reduce inventory and continue its
focus on collection of receivables over their normal cycle. Given the
uncertainty in world economies and the possibility of continued weakness in
markets served, management has contingency plans to appropriately respond to
conditions as they develop.
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.
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar
28, 2009 – Apr 24, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
3,068,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr
25, 2009 – May 22, 2009
|
|
|
6,290
|
|
|
$
|
22.57
|
|
|
|
-
|
|
|
|
3,068,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
23, 2009 – Jun 26, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
3,068,234
|
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
At the
Annual Meeting of Shareholders held on April 24, 2009, three directors were
elected to the Board of Directors with the following votes:
|
|
|
For
|
|
Withheld
|
|
|
|
|
|
|
William
J. Carroll
|
|
51,744,263
|
|
1,246,050
|
Jack
W. Eugster
|
|
51,737,026
|
|
1,253,287
|
R.
William Van Sant
|
|
51,760,317
|
|
1,229,997
|
At the
same meeting, the appointment of Deloitte & Touche LLP as the Independent
Registered Public Accounting Firm was ratified, with the following
votes:
For
|
|
Against
|
|
Abstentions
|
52,101,637
|
|
842,984
|
|
45,691
|
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
22, 2009
|
By:
|
/s/Patrick
J. McHale
|
|
|
|
Patrick
J. McHale
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
December
22, 2009
|
By:
|
/s/James
A. Graner
|
|
|
|
James
A. Graner
|
|
|
|
Chief
Financial Officer and Treasurer
|
|
|
|
(Principal
Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
|
December
22, 2009
|
By:
|
/s/Caroline
M. Chambers
|
|
|
|
Caroline
M. Chambers
|
|
|
|
Vice
President and Controller
|
|
|
|
(Principal
Accounting Officer)
|
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