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GRACO INC - Quarter Report: 2013 September (Form 10-Q)

Form 10_Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934

For the quarterly period ended September 27, 2013

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 - 11th 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.

Yes        X                 No                

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).

Yes        X                 No                

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).

Yes                             No        X    

61,233,000 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of October 17, 2013.


Table of Contents

INDEX

 

        Page Number
PART I   

FINANCIAL INFORMATION

   Item 1.   Financial Statements   
     Consolidated Statements of Earnings    3
     Consolidated Statements of Comprehensive Income    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    17
   Item 3.   Quantitative and Qualitative Disclosures About Market Risk    24
   Item 4.   Controls and Procedures    24
PART II    

OTHER INFORMATION

   Item 1A.   Risk Factors    25
   Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds    25
   Item 6.   Exhibits    26
SIGNATURES   
EXHIBITS   

 

2


Table of Contents
Item 1.   PART I                

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited) (In thousands except per share amounts)

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
     Sep 27,
2013
     Sep 28,
2012
     Sep 27,
2013
     Sep 28,
2012
 

Net Sales

   $ 277,035       $ 256,472       $ 832,101       $ 758,778   

Cost of products sold

     126,162         116,539         371,845         347,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

     150,873         139,933         460,256         411,642   

Product development

     12,508         12,485         37,396         36,625   

Selling, marketing and distribution

     44,297         41,230         132,207         121,803   

General and administrative

     24,342         29,887         74,213         86,439   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Earnings

     69,726         56,331         216,440         166,775   

Interest expense

     4,450         5,233         13,837         14,281   

Other expense (income), net

     (8,425)         (3,233)         (23,671)         (6,170)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings Before Income Taxes

     73,701         54,331         226,274         158,664   

Income taxes

     17,600         17,200         60,200         51,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Earnings

   $ 56,101       $ 37,131       $ 166,074       $ 106,864   
  

 

 

    

 

 

    

 

 

    

 

 

 

Per Common Share

           

Basic net earnings

   $ 0.91       $ 0.61       $ 2.71       $ 1.77   

Diluted net earnings

   $ 0.89       $ 0.60       $ 2.65       $ 1.73   

Cash dividends declared

   $ 0.25       $ 0.23       $ 0.75       $ 0.68   

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
     Sep 27,
2013
     Sep 28,
2012
     Sep 27,
2013
     Sep 28,
2012
 

Net Earnings

   $ 56,101       $ 37,131       $ 166,074       $ 106,864   

Other comprehensive income (loss)

           

Cumulative translation adjustment

     8,866         3,440         3,011         (6,018)   

Pension and postretirement medical liability adjustment

     2,304         2,394         7,090         7,203   

Income taxes

           

Pension and postretirement medical liability adjustment

     (835)         (862)         (2,555)         (2,593)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income (loss)

     10,335         4,972         7,546         (1,408)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive Income

   $ 66,436       $ 42,103       $ 173,620       $ 105,456   
  

 

 

    

 

 

    

 

 

    

 

 

 

See notes to consolidated financial statements.

 

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GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

         Sep 27,    
2013
         Dec 28,    
2012
 

ASSETS

     

Current Assets

     

Cash and cash equivalents

   $ 17,267       $ 31,120   

Accounts receivable, less allowances of $6,300 and $6,600

     194,859         172,143   

Inventories

     132,745         121,549   

Deferred income taxes

     19,292         17,742   

Investment in businesses held separate

     422,297         426,813   

Other current assets

     8,315         7,629   
  

 

 

    

 

 

 

Total current assets

     794,775         776,996   

Property, Plant and Equipment

     

Cost

     400,454         389,067   

Accumulated depreciation

     (250,868)         (237,523)   
  

 

 

    

 

 

 

Property, plant and equipment, net

     149,586         151,544   

Goodwill

     181,543         181,228   

Other Intangible Assets, net

     143,713         151,773   

Deferred Income Taxes

     39,456         38,550   

Other Assets

     22,827         21,643   
  

 

 

    

 

 

 

Total Assets

   $ 1,331,900       $ 1,321,734   
  

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current Liabilities

     

Notes payable to banks

   $ 9,463       $ 8,133   

Trade accounts payable

     32,930         28,938   

Salaries and incentives

     35,235         34,001   

Dividends payable

     15,422         15,206   

Other current liabilities

     70,742         65,393   
  

 

 

    

 

 

 

Total current liabilities

     163,792         151,671   

Long-term Debt

     404,315         556,480   

Retirement Benefits and Deferred Compensation

     140,735         137,779   

Deferred Income Taxes

     21,764         21,690   

Shareholders’ Equity

     

Common stock

     61,280         60,767   

Additional paid-in-capital

     333,959         287,795   

Retained earnings

     282,254         189,297   

Accumulated other comprehensive income (loss)

     (76,199)         (83,745)   
  

 

 

    

 

 

 

Total shareholders’ equity

     601,294         454,114   
  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 1,331,900       $ 1,321,734   
  

 

 

    

 

 

 

See notes to consolidated financial statements.

 

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GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

 

     Thirty-nine Weeks Ended  
       Sep 27,  
2013
       Sep 28,  
2012
 

Cash Flows From Operating Activities

     

Net Earnings

   $ 166,074       $ 106,864   

Adjustments to reconcile net earnings to net cash provided by operating activities

     

Depreciation and amortization

     27,748         28,444   

Deferred income taxes

     (5,873)         (4,663)   

Share-based compensation

     11,178         10,035   

Excess tax benefit related to share-based payment arrangements

     (5,100)         (3,300)   

Change in

     

Accounts receivable

     (23,685)         (5,517)   

Inventories

     (11,012)         6,580   

Trade accounts payable

     2,771         (1,203)   

Salaries and incentives

     114         (6,675)   

Retirement benefits and deferred compensation

     9,819         746   

Other accrued liabilities

     11,189         (781)   

Other

     (2,188)         1,471   
  

 

 

    

 

 

 

Net cash provided by operating activities

     181,035         132,001   
  

 

 

    

 

 

 

Cash Flows From Investing Activities

     

Property, plant and equipment additions

     (15,218)         (13,780)   

Acquisition of businesses, net of cash acquired

             (240,068)   

Investment in businesses held separate

     4,516         (426,813)   

Proceeds from sale of assets

     1,600           

Other

     (770)         (2,116)   
  

 

 

    

 

 

 

Net cash used in investing activities

     (9,872)         (682,777)   
  

 

 

    

 

 

 

Cash Flows From Financing Activities

     

Borrowings (payments) on short-term lines of credit, net

     1,265         (1,116)   

Borrowings on long-term line of credit

     313,560         546,220   

Payments on long-term line of credit

     (465,725)         (256,600)   

Payments of debt issuance costs

             (1,921)   

Excess tax benefit related to share-based payment arrangements

     5,100         3,300   

Common stock issued

     33,598         27,057   

Common stock repurchased

     (28,438)         (682)   

Cash dividends paid

     (45,834)         (40,654)   
  

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     (186,474)         275,604   
  

 

 

    

 

 

 

Effect of exchange rate changes on cash

     1,458         (663)   
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (13,853)         (275,835)   

Cash and cash equivalents

     

Beginning of year

     31,120         303,150   
  

 

 

    

 

 

 

End of period

   $ 17,267       $ 27,315   
  

 

 

    

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

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 27, 2013 and the related statements of earnings for the thirteen and thirty-nine weeks ended September 27, 2013 and September 28, 2012, and cash flows for the thirty-nine weeks ended September 27, 2013 and September 28, 2012 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 the Company as of September 27, 2013, 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 2012 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 27,  
2013
       Sep 28,  
2012
       Sep 27,  
2013
       Sep 28,  
2012
 

Net earnings available to common shareholders

   $ 56,101      $ 37,131      $ 166,074      $ 106,864  

Weighted average shares outstanding for basic earnings per share

     61,333        60,570        61,222        60,369  

Dilutive effect of stock options computed using the treasury stock method and the average market price

     1,663        1,208        1,526        1,271  

Weighted average shares outstanding for diluted earnings per share

     62,996        61,778        62,748        61,640  

Basic earnings per share

   $ 0.91      $ 0.61      $ 2.71      $ 1.77  

Diluted earnings per share

   $ 0.89      $ 0.60      $ 2.65      $ 1.73  

 

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Table of Contents

Stock options to purchase 387,000 and 945,000 shares were not included in the September 27, 2013 and September 28, 2012 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 27, 2013 is shown below (in thousands, except per share amounts):

 

     Option
  Shares  
      Weighted  
Average
Exercise
Price
     Options
Exercisable
       Weighted  
Average
Exercise
Price
 

Outstanding, December 28, 2012

     5,192     $ 34.85        3,194      $ 32.99  

Granted

     563       58.80        

Exercised

     (739     33.39        

Canceled

     (18     39.99        
  

 

 

         

Outstanding, September 27, 2013

     4,998     $ 37.74        3,230      $ 32.80  
  

 

 

         

The Company recognized year-to-date share-based compensation of $11.2 million in 2013 and $10.0 million in 2012. As of September 27, 2013, there was $11.2 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 1.9 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 27,  
2013
       Sep 28,  
2012
 

Expected life in years

     6.5             6.5       

Interest rate

     1.2 %          1.3 %    

Volatility

     36.3 %          36.6 %    

Dividend yield

     1.7 %          1.8 %    

Weighted average fair value per share

   $ 18.29           $ 15.61       

 

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Under the Company’s Employee Stock Purchase Plan, the Company issued 197,000 shares in 2013 and 239,000 shares in 2012. 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 27,  
2013
       Sep 28,  
2012
 

Expected life in years

     1.0             1.0       

Interest rate

     0.2 %          0.2 %    

Volatility

     26.0 %          40.6 %    

Dividend yield

     1.7 %          1.7 %    

Weighted average fair value per share

   $ 14.16           $ 15.58       

In the first quarter of 2013, the Company granted 4,000 Restricted Share Awards to certain key employees that will vest on the fourth anniversary of the date of grant. The Company also granted 1,700 Restricted Share Units to a key employee that will vest on the third anniversary of the date of grant. The market value of the awards and units at the date of grant will be charged to operations over the vesting periods. The expense related to these arrangements is not significant.

 

4. The components of net periodic benefit cost for retirement benefit plans were as follows (in thousands):

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
         Sep 27,    
2013
         Sep 28,    
2012
         Sep 27,    
2013
         Sep 28,    
2012
 

Pension Benefits

           

Service cost

   $ 1,948       $ 1,565       $ 5,538       $ 4,579   

Interest cost

     3,627          3,458         10,625         10,256   

Expected return on assets

     (4,625)         (4,188)         (13,874)         (11,872)   

Amortization and other

     2,964          2,918         8,256         8,413   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ 3,914        $ 3,753       $ 10,545       $ 11,376   
  

 

 

    

 

 

    

 

 

    

 

 

 

Postretirement Medical

           

Service cost

   $ 160       $ 167       $ 470       $ 442   

Interest cost

     228         240         721         740   

Amortization

     (32)         (122)         (134)         (197)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net periodic benefit cost

   $ 356       $ 285       $ 1,057       $ 985   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
5. Changes in components of accumulated other comprehensive income (loss), net of tax were (in thousands):

 

     Pension
and Post-
  retirement  
Medical
       Cumulative  
Translation
Adjustment
         Total      

Thirteen Weeks Ended September 27, 2013

                    

Beginning balance

   $ (76,650)       $ (9,884)       $ (86,534)   

Other comprehensive income before reclassifications

             8,866         8,866   

Amounts reclassified from accumulated other comprehensive income

     1,469                 1,469   
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (75,181)       $ (1,018)       $ (76,199)   
  

 

 

    

 

 

    

 

 

 

Thirty-nine Weeks Ended September 27, 2013

                    

Beginning balance

   $ (79,716)       $ (4,029)       $ (83,745)   

Other comprehensive income before reclassifications

             3,011         3,011   

Amounts reclassified from accumulated other comprehensive income

     4,535                 4,535   
  

 

 

    

 

 

    

 

 

 

Ending balance

   $ (75,181)       $ (1,018)       $ (76,199)   
  

 

 

    

 

 

    

 

 

 

Amounts related to pension and postretirement medical adjustments are reclassified to pension cost, which is allocated to cost of products sold and operating expenses based on salaries and wages, approximately as follows (in thousands):

 

                    
`        Thirteen    
Weeks
Ended
Sep 27,
2013
       Thirty-nine  
Weeks
Ended
Sep 27,
2013
    

Cost of products sold

   $ 824       $ 2,577      

Product development

     368         1,131      

Selling, marketing and distribution

     663         1,987      

General and administrative

     449         1,395      
  

 

 

    

 

 

    

Total before tax

   $ 2,304       $ 7,090      

Income tax (benefit)

     (835)         (2,555)      
  

 

 

    

 

 

    

Total after tax

   $ 1,469       $ 4,535      
  

 

 

    

 

 

    

 

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6. The Company has three reportable segments: Industrial (which aggregates four operating segments), Contractor and Lubrication. Sales and operating earnings by segment for the thirteen and thirty-nine weeks ended September 27, 2013 and September 28, 2012 were as follows (in thousands):

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
         Sep 27,    
2013
         Sep 28,    
2012
         Sep 27,    
2013
         Sep 28,    
2012
 

Net Sales

           

Industrial

   $ 156,654       $ 154,704       $ 480,500       $ 447,027   

Contractor

     92,942         74,851         269,068         228,943   

Lubrication

     27,439         26,917         82,533         82,808   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 277,035       $ 256,472       $ 832,101       $ 758,778   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Earnings

           

Industrial

   $ 49,429       $ 47,162       $ 156,178       $ 138,646   

Contractor

     21,459         12,835         62,370         43,339   

Lubrication

     5,497         5,356         17,285         16,988   

Unallocated corporate (expense)

     (6,659)         (9,022)         (19,393)         (32,198)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 69,726       $ 56,331       $ 216,440       $ 166,775   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unallocated corporate expenses in 2012 included acquisition-related expenses of $4 million in the third quarter and $15 million for the year-to-date.

Assets by segment were as follows (in thousands):

 

                    
         Sep 27,    
2013
         Dec 28,    
2012
    

Industrial

   $ 573,309       $ 567,879      

Contractor

     166,407         141,094      

Lubrication

     83,761         84,079      

Unallocated corporate

     508,423         528,682      
  

 

 

    

 

 

    

Total

   $ 1,331,900       $ 1,321,734      
  

 

 

    

 

 

    

 

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Geographic information follows (in thousands):

 

       Thirteen Weeks Ended         Thirty-nine Weeks Ended   
     Sep 27,      Sep 28,      Sep 27,      Sep 28,  
     2013      2012      2013      2012  

Net sales

           

(based on customer location)

           

United States

   $ 132,503       $ 111,426       $ 383,756       $ 332,048   

Other countries

     144,532         145,046         448,345         426,730   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $     277,035       $     256,472       $     832,101       $     758,778   
  

 

 

    

 

 

    

 

 

    

 

 

 
                             
         Sep 27,              Dec 28,             
     2013      2012     

Long-lived assets

        

United States

   $ 117,849       $ 119,331      

Other countries

     31,737         32,213      
  

 

 

    

 

 

    

Total

   $     149,586       $     151,544      
  

 

 

    

 

 

    

 

7. Major components of inventories were as follows (in thousands):

 

                    
         Sep 27,              Dec 28,         
     2013      2012     
        

Finished products and components

   $ 64,767       $ 58,703      

Products and components in various stages of completion

     41,914         44,001      

Raw materials and purchased components

     66,078         59,190      
  

 

 

    

 

 

    
     172,759         161,894      

Reduction to LIFO cost

     (40,014)         (40,345)      
  

 

 

    

 

 

    

Total

   $     132,745       $     121,549      
  

 

 

    

 

 

    

 

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8. Information related to other intangible assets follows (dollars in thousands):

 

    Estimated               Foreign        
    Life         Accumulated     Currency     Book  
      (years)         Cost         Amortization     Translation         Value      

September 27, 2013

         

Customer relationships

  3 - 14   $ 117,805      $ (23,893)      $ (339)      $ 93,573   

Patents, proprietary technology and product documentation

  3 - 11     15,325        (5,455)        (57)        9,813   

Other

  5     25        (5)              20   
   

 

 

   

 

 

   

 

 

   

 

 

 
      133,155        (29,353)        (396)        103,406   

Not Subject to Amortization:

         

Brand names

      40,400               (93)        40,307   
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $     173,555      $     (29,353)      $ (489)      $     143,713   
   

 

 

   

 

 

   

 

 

   

 

 

 

December 28, 2012

         

Customer relationships

  2 - 14   $ 132,245      $ (30,041)      $ (1,510)      $ 100,694   

Patents, proprietary technology and product documentation

  3 - 11     20,830        (9,679)        (147)        11,004   

Trademarks, trade names and other

  1 - 5     85        (27)               58   
   

 

 

   

 

 

   

 

 

   

 

 

 
      153,160        (39,747)        (1,657)        111,756   

Not Subject to Amortization:

         

Brand names

      40,580              (563)        40,017   
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $ 193,740      $ (39,747)      $ (2,220)      $ 151,773   
   

 

 

   

 

 

   

 

 

   

 

 

 

Amortization of intangibles for the quarter was $3.1 million in 2013 and $4.1 million in 2012, and for the year-to-date was $9.6 million in 2013 and $11.0 million in 2012. Estimated annual amortization expense is as follows: $12.5 million in 2013, $9.3 million in 2014, $8.8 million in 2015, $8.5 million in 2016, $8.3 million in 2017 and $65.6 million thereafter.

Changes in the carrying amount of goodwill in 2013 were as follows (in thousands):

 

       Industrial         Contractor        Lubrication           Total      

Beginning balance

   $ 148,999       $     12,732       $ 19,497       $ 181,228   

Foreign currency translation

     1,200                         1,200   

Other

     (885)                         (885)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $     149,314       $ 12,732       $ 19,497       $ 181,543   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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9. Components of other current liabilities were (in thousands):

 

                    
         Sep 27,              Dec 28,         
     2013      2012     

Accrued self-insurance retentions

   $ 6,400       $ 6,952      

Accrued warranty and service liabilities

     7,692         7,943      

Accrued trade promotions

     6,581         5,669      

Payable for employee stock purchases

     5,699         7,203      

Customer advances and deferred revenue

     12,229         10,617      

Income taxes payable

     12,517         4,305      

Other

     19,624         22,704      
  

 

 

    

 

 

    

Total other current liabilities

   $       70,742       $       65,393      
  

 

 

    

 

 

    

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 27,      Dec 28,     
     2013      2012     

Balance, beginning of year

    $ 7,943        $ 6,709      

Assumed in business acquisition

             1,121      

Charged to expense

     4,369         6,182      

Margin on parts sales reversed

     1,857         2,244      

Reductions for claims settled

     (6,477)         (8,313)      
  

 

 

    

 

 

    

Balance, end of period

    $         7,692        $         7,943      
  

 

 

    

 

 

    

 

10. Assets and liabilities measured at fair value on a recurring basis and fair value measurement level were as follows (in thousands):

 

              Sep 27,              Dec 28,      
       Level      2013      2012  

Assets

        

Cash surrender value of life insurance

   2     $ 10,641        $ 9,483   

Forward exchange contracts

   2              491   
     

 

 

    

 

 

 

Total assets at fair value

       $ 10,641        $ 9,974   
     

 

 

    

 

 

 

Liabilities

        

Deferred compensation

   2     $ 3,587        $ 3,016   

Forward exchange contracts

   2      276           
     

 

 

    

 

 

 

Total liabilities at fair value

       $     3,863        $     3,016   
     

 

 

    

 

 

 

 

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Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.

Long-term notes payable with fixed interest rates have a carrying amount of $300 million and an estimated fair value of $320 million as of September 27, 2013 and $330 million as of December 28, 2012. The fair value of variable rate borrowings approximates carrying value. The Company uses significant other observable inputs to estimate fair value (level 2 of the fair value hierarchy) based on the present value of future cash flows and rates that would be available for issuance of debt with similar terms and remaining maturities.

 

11. 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.

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. The notional amount of contracts outstanding as of September 27, 2013 totaled $23 million. 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 (level 2 in the fair value hierarchy) to value the derivative instruments used to hedge and net monetary positions, including reference to market prices and financial models that incorporate relevant market assumptions. The fair market value and balance sheet classification of such instruments follows (in thousands):

 

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Table of Contents
     Balance Sheet        Sep 27,              Dec 28,      
    

Classification

   2013      2012  

Gain (loss) on foreign currency forward contracts

        

Gains

      $ 38       $ 553   

Losses

        (314)         (62)   
     

 

 

    

 

 

 

Net

   Other current liabilities    $ (276)      
     

 

 

    
  

Accounts receivable

      $ 491  
        

 

 

 

 

12. On April 2, 2012, the Company completed the purchase of the finishing businesses of Illinois Tool Works Inc. (“ITW”). The acquisition included powder finishing and liquid finishing equipment operations, technologies and brands (separately, the “Powder Finishing” and “Liquid Finishing” businesses). Results of the Powder Finishing businesses have been included in the Industrial segment since the date of acquisition, including $96 million of sales and $14 million of operating earnings in the first nine months of 2013 and $62 million of sales and $4 million of operating earnings in the comparable period of 2012 (starting in the second quarter).

In May 2012, the United States Federal Trade Commission (“FTC”) issued a proposed decision and order which requires Graco to sell the Liquid Finishing business assets no later than 180 days from the date the order becomes final. The FTC has not yet issued its final decision and order.

The Company has retained the services of an investment bank to help it market the Liquid Finishing businesses and identify potential buyers. While it seeks a buyer, Graco must hold the Liquid Finishing business assets separate from its other businesses and maintain them as viable and competitive.

The Company does not have a controlling interest in the Liquid Finishing businesses, nor is it able to exert significant influence over those businesses. Consequently, the Company’s investment in the shares of the Liquid Finishing businesses has been reflected as a cost-method investment on the Consolidated Balance Sheets, and its results of operations have not been consolidated with those of the Company.

As a cost-method investment, income is recognized based on dividends received from after-tax earnings of Liquid Finishing and included in other expense (income) on the Consolidated Statements of Earnings. Dividends received in 2013 totaled $9 million in the third quarter and $24 million year-to-date. Dividends received in 2012 totaled $4 million in the third quarter and $8 million year-to-date (starting in the second quarter). Once the FTC issues its final decision and order, and the Company completes the sale of its investment, there will be no further dividends from Liquid Finishing.

Also in 2013, ITW reimbursed Graco approximately $4.5 million for payments of pre-acquisition tax liabilities paid by Liquid Finishing businesses after the acquisition date. This reimbursement was recorded as a reduction of the cost-method investment on the Consolidated Balance Sheet.

The Company evaluates its cost-method investment for other-than-temporary impairment at each reporting period. As of September 27, 2013, the Company evaluated its investment in Liquid Finishing and determined that there was no impairment.

 

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Table of Contents

Sales and operating earnings of the Liquid Finishing businesses were as follows (in thousands):

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
     Sep 27,      Sep 28,      Sep 27,      Sep 28,  
     2013      2012      2013      2012  

Net Sales

   $ 75,879       $ 69,554       $ 210,922       $ 206,061   

Operating Earnings

     16,734         15,379         46,712         40,314   

The following pro forma information reflects the combined results of Graco and Powder Finishing operations as if the acquisition had occurred at the beginning of 2011 (in thousands, except per share amounts):

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
         Sep 27,              Sep 28,              Sep 27,              Sep 28,      
     2013      2012      2013      2012  

Net Sales

   $ 277,035       $ 256,472       $ 832,101       $ 789,023   

Operating Earnings

     69,726         59,916         216,440         191,005   

Net Earnings

     56,101         39,425         166,074         122,193   

Basic earnings per share

     0.91         0.65         2.71         2.02   

Diluted earnings per share

     0.89         0.64         2.65         1.98   

Pro forma results for the 2012 year-to-date period reflect additional depreciation and amortization of $2 million, as if the acquisition of Powder Finishing had occurred at the beginning of 2011. Non-recurring acquisition expenses of $4 million for the third quarter and $15 million year-to-date were eliminated from the 2012 pro forma results. Purchase accounting effects of $7 million related to inventory were removed from the year-to-date 2012 pro forma results.

 

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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 and coating materials. Management classifies the Company’s business into three reportable segments: Industrial, Contractor and Lubrication. Key strategies include developing and marketing new products, expanding distribution globally, opening new markets with technology and channel expansion and completing strategic acquisitions.

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.

Acquisition

On April 2, 2012, the Company completed the purchase of the finishing businesses of ITW. The acquisition included Powder Finishing and Liquid Finishing equipment operations, technologies and brands. Results of the Powder Finishing business have been included in the Industrial segment since the date of acquisition.

Pursuant to a March 2012 order, the Liquid Finishing businesses were to be held separate from the rest of Graco’s businesses while the United States Federal Trade Commission (“FTC”) considered a settlement with Graco and determined which portions of the Liquid Finishing businesses Graco must divest.

In May 2012, the FTC issued a proposed decision and order which requires Graco to sell the Liquid Finishing business assets, including certain business activities related to the development, manufacture, and sale of products under the Binks®, DeVilbiss®, Ransburg® and BGK® brand names, no later than 180 days from the date the order becomes final. The FTC has not yet issued its final decision and order.

The Company has retained the services of an investment bank to help it market the Liquid Finishing businesses and identify potential buyers. While it seeks a buyer, Graco must continue to hold the Liquid Finishing business assets separate from its other businesses and maintain them as viable and competitive.

The Company does not control the Liquid Finishing businesses, nor is it able to exert influence over those businesses. Consequently, the Company’s investment in the shares of the Liquid Finishing businesses has been reflected as a cost-method investment, and its financial results have not been consolidated with those of the Company.

As a cost-method investment, income is recognized based on dividends received from after-tax earnings of Liquid Finishing and included in other expense (income) on the Consolidated Statements of Earnings. Dividends received in 2013 totaled $9 million in the third quarter and $24 million year-to-date. Dividends received in 2012 totaled $4 million in the third quarter and $8 million year-to-date (starting in the second quarter). Once the FTC issues its final decision

 

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and order, and the Company completes the sale of its investment, there will be no further dividends from Liquid Finishing.

Also in 2013, ITW reimbursed Graco approximately $4.5 million for payments of pre-acquisition tax liabilities paid by Liquid Finishing businesses after the acquisition date. This reimbursement was recorded as a reduction of the cost-method investment on the Consolidated Balance Sheet.

The Company evaluates its cost-method investment for other-than-temporary impairment at each reporting period. As of September 27, 2013, the Company evaluated its investment in Liquid Finishing and determined that there was no impairment.

Consolidated Results

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 27,  
2013
       Sep 28,  
2012
     %
 Change 
       Sep 27,  
2013
       Sep 28,  
2012
     %
 Change 
 

Net Sales

   $ 277.0       $ 256.5         8%        $ 832.1       $ 758.8         10%    

Net Earnings

   $ 56.1       $ 37.1         51%        $ 166.1       $ 106.9         55%    

Diluted Net Earnings per Common Share

   $ 0.89       $ 0.60         48%        $ 2.65       $ 1.73         53%    

Sales for the quarter increased 8 percent from last year, driven by strong sales in the Contractor segment, along with modest increases in the Industrial and Lubrication segments. Year-to-date sales increased 10 percent, including 4 percentage points from the full-year impact of the Powder Finishing operations acquired in April 2012, and strong growth in Contractor segment sales.

Higher sales and strong gross margin rates, decreases in acquisition-related expenses, higher investment income from Liquid Finishing businesses held separate, and favorable changes in the income tax provision all contributed to significant growth in net earnings for both the quarter and the year-to-date.

Changes in currency translation rates did not have a significant effect on consolidated operating results, but had a more notable impact on regional results. Favorable effects of rate changes in EMEA were offset by unfavorable effects in Asia Pacific.

 

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The following table presents components of changes in sales:

 

     Quarter  
     Segment      Region         
     Industrial      Contractor      Lubrication      Americas      EMEA      Asia
Pacific
     Total  

Volume and Price

     1 %          24 %          3 %          15 %          4 %          (6)%          8 %    

Currency

     - %          - %          (1) %          - %          4 %          (3)%          - %    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1 %          24 %          2 %          15 %          8 %          (9)%          8 %    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Year-to-Date  
     Segment      Region         
     Industrial      Contractor      Lubrication      Americas      EMEA      Asia
Pacific
     Total  

Volume and Price

     - %          17 %          - %          11 %          1 %          (3)%          6 %    

Acquisitions

     8 %          - %          - %          2 %          8 %          5%          4 %    

Currency

     (1)%          1 %          - %          - %          2 %          (2)%          - %    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7 %          18 %          - %          13 %          11 %          - %          10%    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Sales by geographic area were as follows (in millions):

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
     Sep 27,
2013
     Sep 28,
2012
     Sep 27,
2013
     Sep 28,
2012
 

Americas

   $ 156.1       $ 135.8       $ 455.0       $ 402.4   

EMEA

     70.3         65.2         210.1         189.3   

Asia Pacific

     50.6         55.5         167.0         167.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated

   $ 277.0       $ 256.5       $ 832.1       $ 758.8   
  

 

 

    

 

 

    

 

 

    

 

 

 
           

North and South America, including the U.S.

  

  

Europe, Middle East and Africa

  

  

Sales for the quarter increased 8 percent, including increases of 15 percent in the Americas and 8 percent in EMEA (4 percent at consistent translation rates). Sales for the quarter decreased 9 percent in Asia Pacific (6 percent at consistent translation rates). Year-to-date sales increased 10 percent, including increases of 13 percent in the Americas and 11 percent in EMEA (9 percent at consistent translation rates). Year-to-date sales were flat in Asia Pacific (up 2 percent at consistent translation rates). The first quarter impact of the Powder Finishing operations acquired in April 2012 contributed approximately 4 percentage points of the total year-to-date growth and accounted for most of the growth in EMEA (at consistent translation rates).

Gross profit margin, expressed as a percentage of sales, was 54 12 percent for the quarter, consistent with the comparable period last year. Year-to-date gross profit margin rate was 55 percent, up 1 percentage point from last year. Non-recurring inventory-related purchase accounting effects totaling $7 million reduced last year’s year-to-date gross margin rate by approximately 1 percentage point.

 

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Total operating expenses for the quarter and year-to-date were slightly lower than the comparable periods last year. Volume-related increases in selling, marketing and distribution expenses were more than offset by decreases in general and administrative expenses, including acquisition and divestiture cost decreases of $3 million for the quarter and $14 million year-to-date.

Other expense (income) included after-tax dividends received from the Liquid Finishing businesses that are held separate from the Company’s other businesses. Such dividends totaled $9 million for the quarter and $24 million year-to-date, up from $4 million for the quarter and $8 million year-to-date received in the comparable periods last year. On a fully-diluted per share basis, dividends in 2013 were $0.14 for the quarter and $0.38 year-to-date, compared to $0.06 for the quarter and $0.13 year-to-date last year.

The effective income tax rates of 24 percent for the quarter and 27 percent year-to-date were lower than the comparable periods last year. This year’s rates included the impact of the federal R&D credit that was renewed in the first quarter, effective retroactive to the beginning of 2012. There was no R&D credit recognized in 2012. The effective rates in 2013 also reflected the effect of higher after-tax dividend income received from the Liquid Finishing businesses held separate, and the effect of more foreign earnings that are taxed at lower rates than in the United States. The effective rate for the quarter also included the impact of additional benefit from U.S. business credits and deductions.

Segment Results

Certain measurements of segment operations compared to last year are summarized below:

Industrial

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
         Sep 27,    
2013
         Sep 28,    
2012
         Sep 27,    
2013
         Sep 28,    
2012
 

Net sales (in millions)

           

Americas

   $ 69.0       $ 67.0       $ 205.4       $ 192.0   

EMEA

     51.5         47.0         151.6         133.7   

Asia Pacific

     36.2         40.7         123.5         121.3   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 156.7       $ 154.7       $ 480.5       $ 447.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating earnings as a percentage of net sales

     32 %          30 %          33 %          31 %    
  

 

 

    

 

 

    

 

 

    

 

 

 

Industrial segment sales for the quarter increased 1 percent, with increases of 3 percent in the Americas and 10 percent in EMEA (6 percent at consistent translation rates), mostly offset by an 11 percent decrease in Asia Pacific (9 percent at consistent translation rates). Year-to-date sales increased 7 percent, mostly from Powder Finishing operations acquired in April 2012. Operating margin rate for the Industrial segment increased compared to last year, driven by improved gross margin rates. The effects of purchase accounting related to inventory reduced the 2012 year-to-date operating margin rate by approximately 2 percentage points.

 

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Contractor

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
         Sep 27,              Sep 28,              Sep 27,              Sep 28,      
     2013      2012      2013      2012  

Net sales (in millions)

           

Americas

   $ 67.1       $ 48.7       $ 188.5       $ 149.5   

EMEA

     16.6         16.1         50.8         49.2   

Asia Pacific

     9.2         10.1         29.8         30.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 92.9        $ 74.9       $ 269.1       $ 228.9   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating earnings as a percentage of net sales

     23 %         17 %         23 %         19 %   
  

 

 

    

 

 

    

 

 

    

 

 

 

Contractor segment sales for the quarter increased 24 percent, including increases of 38 percent in the Americas and 4 percent in EMEA (flat at consistent translation rates) and a decrease of 8 percent in Asia Pacific. Year-to-date sales were up 18 percent, driven by increases in the Americas. Higher sales volume and expense leverage led to higher operating margin rates in the Contractor segment.

Lubrication

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
         Sep 27,              Sep 28,          Sep 27,              Sep 28,      
     2013      2012      2013      2012  

Net sales (in millions)

           

Americas

   $ 20.0       $ 20.0       $ 61.1       $ 60.8   

EMEA

     2.1         2.2         7.6         6.4   

Asia Pacific

     5.3         4.7         13.8         15.6   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 27.4       $ 26.9       $ 82.5       $ 82.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating earnings as a percentage of net sales

     20 %         20 %         21 %         21 %   
  

 

 

    

 

 

    

 

 

    

 

 

 

Lubrication segment sales for the quarter increased 2 percent, mostly from increases in Asia Pacific. Year-to-date sales were flat, with increases in Europe offset by decreases in Asia Pacific. Operating margin rates were steady in this segment.

 

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Liquidity and Capital Resources

Net cash provided by operating activities was $181 million in 2013 and $132 million in 2012. The increase mostly reflects the increase in net earnings. Accounts receivable and inventory balances have increased since the end of 2012 due to increases in business activity.

In May 2012, the FTC issued a proposed decision and order which requires Graco to sell the Liquid Finishing business assets, including certain business activities related to the development, manufacture, and sale of products under the Binks, DeVilbiss, Ransburg and BGK brand names, no later than 180 days from the date the order becomes final. The FTC has not yet issued its final decision and order.

The Company has retained the services of an investment bank to help it market the Liquid Finishing businesses and identify potential buyers. The Company believes its investment in the Liquid Finishing businesses, carried at a cost of $422 million, is not impaired.

Under terms of the FTC’s hold separate order, the Company is required to provide sufficient resources to maintain the viability, competitiveness and marketability of the Liquid Finishing businesses, including general funds, capital, working capital and reimbursement of losses. To the extent that the Liquid Finishing businesses generate funds in excess of financial resources needed, the Company has access to such funds consistent with practices in place prior to the acquisition. In the first nine months of 2013, the Company received $24 million of dividends from current earnings of the Liquid Finishing businesses.

At September 27, 2013, the Company had various lines of credit totaling $502 million, of which $389 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 2013, including the needs of the Powder Finishing and Liquid Finishing businesses acquired in April 2012.

Outlook

We expect to achieve growth in every region in the fourth quarter of 2013. The housing recovery and a marginally favorable economic environment in the U.S. should continue to provide a tailwind for growth in our Contractor and Industrial segments in the Americas. We don’t see a catalyst to advance the weak macroeconomic environments in Asia Pacific or EMEA in the near term, but we expect modest growth in the fourth quarter. As we finish out 2013 and look toward 2014, Graco’s global team remains focused on our strategic growth initiatives of expanding our distribution channels, developing innovative new products, conversion of end users from manual painting techniques to using spray equipment, and continuing our efforts to expand into adjacent new markets.

 

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SAFE HARBOR CAUTIONARY STATEMENT

The Company desires to take advantage of the “safe harbor” provisions regarding forward-looking statements of the Private Securities Litigation Reform Act of 1995 and is filing this Cautionary Statement in order to do so. From time to time various forms filed by our Company with the Securities and Exchange Commission, including our Form 10-K, our Form 10-Qs and Form 8-Ks, and other disclosures, including our 2012 Overview report, press releases, earnings releases, analyst briefings, conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ materially from those expressed in these statements. The Company undertakes no obligation to update these statements in light of new information or future events.

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: changes in laws and regulations; economic conditions in the United States and other major world economies; whether we are able to locate, complete and effectively integrate acquisitions; whether we are able to effectively and timely complete a divestiture of the acquired Liquid Finishing businesses, which has not been completed and remains subject to FTC approval; risks incident to conducting business internationally, including currency fluctuations and political instability; supply interruptions or delays; the ability to meet our customers’ needs, and changes in product demand; new entrants who copy our products or infringe on our intellectual property; results of and costs associated with, litigation, administrative proceedings and regulatory reviews incident to our business; compliance with anti-corruption laws; the possibility of decline in purchases from few large customers of the Contractor segment; fluctuations in new construction and remodeling activity; natural disasters; and security breaches. Please refer to Item 1A of our Annual Report on Form 10-K for fiscal year 2012 for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com/ir and the Securities and Exchange Commission’s website at www.sec.gov. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

Investors should realize that factors other than those identified above and in Item 1A 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.

 

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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 2012 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, 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.

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.

 

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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 2012 Annual Report on Form 10-K.

Item 2.          Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On September 14, 2012, the Board of Directors authorized the Company to purchase up to 6,000,000 shares of its outstanding common stock, primarily through open-market transactions. The authorization expires on September 30, 2015.

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 29, 2013 – Jul 26, 2013

     95,108       $ 66.95         94,901         5,789,771   

Jul 27, 2013 – Aug 23, 2013

     100,932       $ 71.75         99,853         5,689,918   

Aug 24, 2013 – Sep 27, 2013

     120,000       $ 72.15         120,000         5,569,918   

 

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Item 6.    Exhibits

 

  3.1       Restated Articles of Incorporation as amended April 26, 2013. (Incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 8-K filed April 30, 2013.)
  3.2       Restated Bylaws as amended June 13, 2002. (Incorporated by reference to Exhibit 3 to the Company’s Report on Form 10-Q for the thirteen weeks ended June 28, 2002.)
  31.1       Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).
  31.2       Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
  32       Certification of President and Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Title 18, U.S.C.
  99.1       Press Release Reporting Third Quarter Earnings dated October 23, 2013.
  101       Interactive Data File.

 

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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:     October 23, 2013                             By:  

    /s/ Patrick J. McHale

            Patrick J. McHale
            President and Chief Executive Officer
            (Principal Executive Officer)
Date:     October 23, 2013                             By:  

    /s/ James A. Graner

            James A. Graner
            Chief Financial Officer
            (Principal Financial Officer)
Date:     October 23, 2013                             By:  

    /s/ Caroline M. Chambers

            Caroline M. Chambers
            Vice President and Corporate Controller
            (Principal Accounting Officer)