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GRACO INC - Quarter Report: 2013 June (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 June 28, 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    

61,364,000 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of July 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     Twenty-six Weeks Ended  
    Jun 28,
2013
    Jun 29,
2012
    Jun 28,
2013
    Jun 29,
2012
 

Net Sales

    $ 286,020       $ 268,184       $ 555,066       $ 502,306  

Cost of products sold

    127,281       128,654       245,683       230,597  
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

        158,739           139,530       309,383       271,709  

Product development

    12,467       12,502       24,888       24,140  

Selling, marketing and distribution

    44,556       42,547       87,910       80,573  

General and administrative

    26,499       32,006       49,871       56,552  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating Earnings

    75,217       52,475       146,714       110,444  

Interest expense

    4,625       5,359       9,387       9,048  

Other expense (income), net

    (10,851     (3,236     (15,246     (2,937
 

 

 

   

 

 

   

 

 

   

 

 

 

Earnings Before Income Taxes

    81,443       50,352           152,573           104,333  

Income taxes

    23,600       16,000       42,600       34,600  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings

    $ 57,843       $ 34,352       $ 109,973       $ 69,733  
 

 

 

   

 

 

   

 

 

   

 

 

 

Per Common Share

       

Basic net earnings

    $ 0.94       $ 0.57       $ 1.80       $ 1.16  

Diluted net earnings

    $ 0.92       $ 0.56       $ 1.76       $ 1.13  

Cash dividends declared

    $ 0.25       $ 0.23        $ 0.50       $ 0.45   

 

See notes to consolidated financial statements.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)

 

 
    Thirteen Weeks Ended     Twenty-six Weeks Ended  
    Jun 28,
2013
    Jun 29,
2012
    Jun 28,
2013
    Jun 29,
2012
 

Net Earnings

    $ 57,843       $ 34,352       $ 109,973       $ 69,733  

Other comprehensive income (loss)

       

Cumulative translation adjustment

    2,632       (9,458     (5,855     (9,458

Pension and postretirement medical liability adjustment

    2,330       2,470       4,786       4,809  

Income taxes

       

Pension and postretirement medical liability adjustment

    (842     (888     (1,720     (1,731
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

    4,120       (7,876     (2,789     (6,380
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income

    $ 61,963       $ 26,476       $ 107,184       $ 63,353  
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

     Jun 28,
2013
    Dec 28,
2012
 

ASSETS

    

Current Assets

    

Cash and cash equivalents

     $ 27,569       $ 31,120  

Accounts receivable, less allowances of $6,100 and $6,600

     196,679       172,143  

Inventories

     133,304       121,549  

Deferred income taxes

     19,478       17,742  

Investment in businesses held separate

     425,978       426,813  

Other current assets

     7,568       7,629  
  

 

 

   

 

 

 

Total current assets

     810,576       776,996  

Property, Plant and Equipment

    

Cost

     396,313       389,067  

Accumulated depreciation

     (247,283     (237,523
  

 

 

   

 

 

 

Property, plant and equipment, net

     149,030       151,544  

Goodwill

     178,211       181,228  

Other Intangible Assets, net

     141,521       151,773  

Deferred Income Taxes

     39,505       38,550  

Other Assets

     21,657       21,643  
  

 

 

   

 

 

 

Total Assets

     $ 1,340,500       $ 1,321,734  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current Liabilities

    

Notes payable to banks

     $ 7,798       $ 8,133  

Trade accounts payable

     34,312       28,938  

Salaries and incentives

     28,668       34,001  

Dividends payable

     15,416       15,206  

Other current liabilities

     68,677       65,393  
  

 

 

   

 

 

 

Total current liabilities

     154,871       151,671  

Long-term Debt

     465,790       556,480  

Retirement Benefits and Deferred Compensation

     138,764       137,779  

Deferred Income Taxes

     20,958       21,690  

Shareholders’ Equity

    

Common stock

     61,390       60,767  

Additional paid-in-capital

     323,317       287,795  

Retained earnings

     261,944       189,297  

Accumulated other comprehensive income (loss)

     (86,534     (83,745
  

 

 

   

 

 

 

Total shareholders’ equity

     560,117       454,114  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

     $     1,340,500       $     1,321,734  
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

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Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)

     Twenty-six Weeks Ended  
     Jun 28,
2013
    Jun 29,
2012
 

Cash Flows From Operating Activities

    

Net Earnings

     $ 109,973       $ 69,733  

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

    

Depreciation and amortization

     18,637       18,381  

Deferred income taxes

     (5,073     (8,074

Share-based compensation

     7,762       6,936  

Excess tax benefit related to share-based payment arrangements

     (3,300     (2,000

Change in

    

Accounts receivable

     (27,349     (25,312

Inventories

     (12,393     1,794  

Trade accounts payable

     4,541       2,146  

Salaries and incentives

     (5,635     (11,832

Retirement benefits and deferred compensation

     6,113       7,296  

Other accrued liabilities

     7,646       4,527  

Other

     (761     1,072  
  

 

 

   

 

 

 

Net cash provided by operating activities

       100,161       64,667  
  

 

 

   

 

 

 

Cash Flows From Investing Activities

    

Property, plant and equipment additions

     (9,423     (10,177

Acquisition of businesses, net of cash acquired

     -       (227,323

Investment in businesses held separate

     835       (426,813

Proceeds from sale of assets

     1,600       -  

Other

     (112     (1,783
  

 

 

   

 

 

 

Net cash used in investing activities

     (7,100     (666,096
  

 

 

   

 

 

 

Cash Flows From Financing Activities

    

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

     (172     (2,247

Borrowings on long-term line of credit

     198,645       452,695  

Payments on long-term line of credit

       (289,335       (125,515

Payments of debt issuance costs

     -       (1,921

Excess tax benefit related to share-based payment arrangements

     3,300       2,000  

Common stock issued

     25,975       23,386  

Common stock repurchased

     (6,334     (272

Cash dividends paid

     (30,504     (27,043
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (98,425     321,083  
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     1,813       284  
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (3,551     (280,062

Cash and cash equivalents

    

Beginning of year

     31,120       303,150  
  

 

 

   

 

 

 

End of period

     $         27,569       $         23,088  
  

 

 

   

 

 

 

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 June 28, 2013 and the related statements of earnings for the thirteen and twenty-six weeks ended June 28, 2013 and June 29, 2012, and cash flows for the twenty-six weeks ended June 28, 2013 and June 29, 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 June 28, 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              Twenty-six Weeks Ended      
     Jun 28,
2013
     Jun 29,
2012
     Jun 28,
2013
     Jun 29,
2012
 

Net earnings available to common shareholders

    $ 57,843       $ 34,352       $ 109,973       $ 69,733  

Weighted average shares outstanding for basic earnings per share

     61,371        60,484        61,166        60,268  

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

     1,470        1,319        1,458        1,303  

Weighted average shares outstanding for diluted earnings per share

     62,841        61,803        62,624        61,571  

Basic earnings per share

    $ 0.94        $ 0.57       $ 1.80       $ 1.16  

Diluted earnings per share

    $ 0.92        $ 0.56       $ 1.76       $ 1.13  

 

6


Table of Contents

Stock options to purchase 568,000 and 572,000 shares were not included in the June 28, 2013 and June 29, 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 twenty-six weeks ended June 28, 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

     (534     32.11        

Canceled

     (16     40.03        
  

 

 

         

Outstanding, June 28, 2013

     5,205     $ 37.71        3,429      $ 33.01  
  

 

 

         

The Company recognized year-to-date share-based compensation of $7.8 million in 2013 and $6.9 million in 2012. As of June 28, 2013, there was $13.2 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:

 

       Twenty-six Weeks Ended    
       Jun 28,  
2013
       Jun 29,  
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             $ 15.62     

 

7


Table of Contents

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:

 

       Twenty-six Weeks Ended    
       Jun 28,  
2013
       Jun 29,  
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           Twenty-six Weeks Ended    
     Jun 28,
2013
    Jun 29,
2012
    Jun 28,
2013
    Jun 29,
2012
 

Pension Benefits

        

Service cost

   $ 1,789     $ 1,724     $ 3,590     $ 3,014  

Interest cost

     3,429       3,567       6,998       6,798  

Expected return on assets

     (4,535     (3,859     (9,249     (7,684

Amortization and other

     2,789       3,049       5,292       5,495  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 3,472     $ 4,481     $ 6,631     $ 7,623  
  

 

 

   

 

 

   

 

 

   

 

 

 

Postretirement Medical

        

Service cost

   $ 155     $ 125     $ 310     $ 275  

Interest cost

     247       237       493       500  

Amortization

     (50     (38     (102     (75
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 352     $ 324     $ 701     $ 700  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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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  

Beginning balance

   $ (79,716   $ (4,029   $ (83,745

Other comprehensive income before reclassifications

     -       (5,855     (5,855

Amounts reclassified from accumulated other comprehensive income

     3,066       -       3,066  
  

 

 

   

 

 

   

 

 

 

Ending balance

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

 

 

   

 

 

   

 

 

 

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
Jun 28,
2013
    Twenty-six
Weeks
Ended
Jun 28,
2013
 

Cost of products sold

     $ 844       $ 1,753  

Product development

     370       763  

Selling, marketing and distribution

     658       1,324  

General and administrative

     458       946  
  

 

 

   

 

 

 

Total before tax

     $         2,330       $         4,786  

Income tax (benefit)

     (842     (1,720
  

 

 

   

 

 

 

Total after tax

     $ 1,488       $ 3,066  
  

 

 

   

 

 

 

 

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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 twenty-six weeks ended June 28, 2013 and June 29, 2012 were as follows (in thousands):

 

         Thirteen Weeks Ended             Twenty-six Weeks Ended      
     Jun 28,
2013
    Jun 29,
2012
    Jun 28,
2013
    Jun 29,
2012
 

Net Sales

        

Industrial

   $ 159,671     $ 158,220     $ 323,846     $ 292,323  

Contractor

     98,498       82,106       176,126       154,092  

Lubrication

     27,851       27,858       55,094       55,891  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 286,020     $ 268,184     $ 555,066     $ 502,306  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Earnings

        

Industrial

   $ 51,530     $ 43,171     $ 106,749     $ 91,484  

Contractor

     24,479       17,965       40,911       30,504  

Lubrication

     6,647       5,543       11,788       11,632  

Unallocated corporate (expense)

     (7,439     (14,204     (12,734     (23,176
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 75,217     $ 52,475     $ 146,714     $ 110,444  
  

 

 

   

 

 

   

 

 

   

 

 

 

Unallocated corporate expenses in 2012 included acquisition-related expenses of $7 million in the second quarter and $11 million for the year-to-date.

Assets by segment were as follows (in thousands):

 

    Jun 28,
2013
    Dec 28,
2012
 

Industrial

  $ 566,743     $ 567,879  

Contractor

    169,665       141,094  

Lubrication

    83,856       84,079  

Unallocated corporate

    520,236       528,682  
 

 

 

   

 

 

 

Total

  $     1,340,500     $     1,321,734  
 

 

 

   

 

 

 

 

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Geographic information follows (in thousands):

 

         Thirteen Weeks Ended              Twenty-six Weeks Ended      
     Jun 28,
2013
     Jun 29,
2012
     Jun 28,
2013
     Jun 29,
2012
 

Net sales

(based on customer location)

           

United States

   $ 135,173      $ 116,454      $ 251,254      $ 220,622  

Other countries

     150,847        151,730        303,812        281,684  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 286,020      $ 268,184      $ 555,066      $ 502,306  
  

 

 

    

 

 

    

 

 

    

 

 

 
     Jun 28,
2013
     Dec 28,
2012
        

Long-lived assets

        

United States

   $ 117,255      $ 119,331     

Other countries

     31,775        32,213     
  

 

 

    

 

 

    

Total

   $ 149,030      $ 151,544     
  

 

 

    

 

 

    

 

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

 

    Jun 28,
2013
    Dec 28,
2012
 

Finished products and components

  $ 65,146     $ 58,703  

Products and components in various stages of completion

    43,629       44,001  

Raw materials and purchased components

    65,147       59,190  
 

 

 

   

 

 

 
    173,922       161,894  

Reduction to LIFO cost

    (40,618     (40,345
 

 

 

   

 

 

 

Total

  $       133,304     $       121,549  
 

 

 

   

 

 

 

 

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

 

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

June 28, 2013

         

Customer relationships

    3 - 14      $ 122,995     $ (26,426   $ (3,733   $ 92,836  

Patents, proprietary technology and product documentation

    3 - 11        15,585       (5,316     (397     9,872  

Trademarks, trade names and other

    1 - 5        75       (46     -       29  
   

 

 

   

 

 

   

 

 

   

 

 

 
      138,655       (31,788     (4,130     102,737  

Not Subject to Amortization:

         

Brand names

      40,400       -       (1,616     38,784  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    $     179,055     $     (31,788   $       (5,746   $     141,521  
   

 

 

   

 

 

   

 

 

   

 

 

 

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 $3.2 million in 2013 and $4.3 million in 2012, and for the year-to-date was $6.6 million in 2013 and $6.8 million in 2012. Estimated annual amortization expense is as follows: $12.4 million in 2013, $9.0 million in 2014, $8.5 million in 2015, $8.2 million in 2016, $8.0 million in 2017 and $63.2 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

    (2,132     -       -       (2,132

Other

    (885     -       -       (885
 

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

  $     145,982     $ 12,732     $ 19,497     $     178,211  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

    Jun 28,
2013
    Dec 28,
2012
 

Accrued self-insurance retentions

  $ 6,593     $ 6,952  

Accrued warranty and service liabilities

    7,670       7,943  

Accrued trade promotions

    5,073       5,669  

Payable for employee stock purchases

    3,591       7,203  

Customer advances and deferred revenue

    12,914       10,617  

Income taxes payable

    12,245       4,305  

Other

    20,591       22,704  
 

 

 

   

 

 

 

Total other current liabilities

  $       68,677     $       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):

 

    Twenty-six
Weeks Ended
Jun 28,
2013
    Year Ended
Dec 28,
2012
 

Balance, beginning of year

    $ 7,943       $ 6,709  

Assumed in business acquisition

    -       1,121  

Charged to expense

    2,825       6,182  

Margin on parts sales reversed

    953       2,244  

Reductions for claims settled

    (4,051     (8,313
 

 

 

   

 

 

 

Balance, end of period

    $       7,670       $       7,943  
 

 

 

   

 

 

 

 

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

 

   

  Level  

  Jun 28,
2013
    Dec 28,
2012
 

Assets

     

Cash surrender value of life insurance

  2     $ 9,958       $ 9,483  

Forward exchange contracts

  2     285       491  
   

 

 

   

 

 

 

Total assets at fair value

      $       10,243       $         9,974  
   

 

 

   

 

 

 

Liabilities

     

Deferred compensation

  2     $ 3,371       $ 3,016  
   

 

 

   

 

 

 

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

 

13


Table of Contents

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 June 28, 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 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 June 28, 2013 totaled $21 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):

 

   

Balance Sheet

Classification

  Jun 28,
        2013        
    Dec 28,
        2012        
 

Gain (loss) on foreign currency forward contracts

     

Gains

    $ 436     $ 553  

Losses

      (151     (62
   

 

 

   

 

 

 

Net

  Accounts receivable           $ 285     $ 491  
   

 

 

   

 

 

 

 

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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 $62 million of sales and $9 million of operating earnings in the first half of 2013 and $31 million of sales and $0.2 million of net operating loss in the first half 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 current earnings of Liquid Finishing. Dividends of $11 million received in the second quarter of 2013 and $15 million received year-to-date, along with $4 million received in the second quarter of 2012, are included in other expense (income) on the Consolidated Statements of Earnings. Also in the first quarter of 2013, ITW reimbursed Graco approximately $1 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 June 28, 2013, the Company evaluated its investment in Liquid Finishing and determined that there was no impairment.

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

 

         Thirteen Weeks Ended              Twenty-six Weeks Ended      
     Jun 28,
2013
     Jun 29,
2012
     Jun 28,
2013
     Jun 29,
2012
 

Net Sales

   $ 71,845      $ 66,608      $ 135,043      $ 133,758  

Operating Earnings

     16,398        12,801        29,978        24,384  

 

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Table of Contents

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            Twenty-six Weeks Ended    
     Jun 28,
2013
     Jun 29,
2012
     Jun 28,
2013
     Jun 29,
2012
 

Net Sales

   $ 286,020      $ 268,184      $ 555,066      $ 532,551  

Operating Earnings

     75,217        66,896        146,714        131,089  

Net Earnings

     57,843        43,847        109,973        82,768  

Basic earnings per share

     0.94        0.72        1.80        1.37  

Diluted earnings per share

     0.92        0.71        1.76        1.34  

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 $7 million for the second quarter and $11 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 second quarter and year-to-date 2012 pro forma results.

 

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Table of Contents

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 current earnings of Liquid Finishing. Dividends of $11 million received in the second quarter of 2013 and $15 million received year-to-date, along with $4 million received in the second quarter of 2012, are included in other expense (income) on the Consolidated Statements of Earnings. Also in the first quarter of 2013, ITW reimbursed Graco approximately $1 million for payments

 

17


Table of Contents

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 June 28, 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      Twenty-six Weeks Ended  
     Jun 28,
2013
     Jun 29,
2012
     %
Change
     Jun 28,
2013
     Jun 29,
2012
     %
Change
 

Net Sales

   $     286.0      $     268.2        7%       $     555.1      $     502.3        11%   

Net Earnings

   $ 57.8      $ 34.4        68%       $ 110.0      $ 69.7        58%   

Diluted Net Earnings per Common Share

   $ 0.92      $ 0.56        64%       $ 1.76      $ 1.13        56%   

Sales for the quarter increased 7 percent from last year, driven by strong sales in the Contractor segment. Year-to-date sales increased 11 percent, including 6 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 quarterly or year-to-date operating results.

 

18


Table of Contents

The following table presents components of changes in sales:

 

     Quarter  
     Segment      Region         
      Industrial       Contractor      Lubrication      Americas          EMEA          Asia
Pacific
         Total      

Volume and Price

     1%         20%         -%         14%         1%         (5)%         7%   

Currency

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1%         20%         -%         14%         2%         (6)%         7%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

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

Volume and Price

     1%         14%         (1)%         10%         (1)%         (1)%         5%   

Acquisitions

     10%         -%         -%         2%         13%         7%         6%   

Currency

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     11%         14%         (1)%         12%         13%         4%         11%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

    Thirteen Weeks Ended     Twenty-six Weeks Ended  
    Jun 28,
2013
    Jun 29,
2012
    Jun 28,
2013
    Jun 29,
2012
 

Americas

  $ 160.7     $ 140.6     $ 298.9     $ 266.6  

EMEA

    70.9       69.4       139.8       124.1  

Asia Pacific

    54.4       58.2       116.4       111.6  
 

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated

  $ 286.0     $ 268.2     $ 555.1     $ 502.3  
 

 

 

   

 

 

   

 

 

   

 

 

 

North and South America, including the U.S.

Europe, Middle East and Africa

Sales for the quarter increased 7 percent, including increases of 14 percent in the Americas and 2 percent in EMEA. Sales decreased 6 percent in Asia Pacific. Year-to-date sales increased 11 percent, including increases of 12 percent in the Americas, 13 percent in EMEA and 4 percent in Asia Pacific. The first quarter impact of the Powder Finishing operations acquired in April 2012 contributed approximately 6 percentage points of the total year-to-date growth and accounted for all of the growth in EMEA and Asia Pacific.

Gross profit margin, expressed as a percentage of sales, was 55 12 percent for both the quarter and year-to date, up from 52 percent and 54 percent for the quarter and year-to-date last year, respectively. Non-recurring purchase accounting effects totaling $7 million related to inventory reduced last year’s gross margin rate by approximately 3 percentage points for the quarter and 1 12 points year-to-date.

Total operating expenses for the quarter decreased by $4 million, including a $7 million drop in acquisition and divestiture costs. Year-to-date operating expenses were $1 million higher than last

 

19


Table of Contents

year, with higher expenses from acquired operations and other volume-related increases mostly offset by a $10 million decrease in acquisition and divestiture costs.

Other expense (income) included dividends of $11 million for the quarter and $15 million year-to-date received from the Liquid Finishing businesses that are held separate from the Company’s other businesses. The Company received the first of such dividends in the second quarter of 2012, in the amount of $4 million.

The effective income tax rate of 29 percent for the quarter and the year-to-date rate of 28 percent were lower than the comparable periods last year. This year’s rate includes 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 rate in 2013 also reflects the effect of higher after-tax dividend income received from the Liquid Finishing businesses held separate.

Segment Results

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

Industrial

         Thirteen Weeks Ended          Twenty-six Weeks Ended  
     Jun 28,
2013
     Jun 29,
2012
     Jun 28,
2013
     Jun 29,
2012
 

Net sales (in millions)

           

Americas

   $ 70.2      $ 65.6      $ 136.4      $ 125.0  

EMEA

     49.8        49.9        100.1        86.7  

Asia Pacific

     39.7        42.7        87.3        80.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 159.7      $ 158.2      $ 323.8      $ 292.3  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating earnings as a percentage of net sales

     32%         27%         33%         31%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Industrial segment sales for the quarter increased 1 percent, with a 7 percent increase in the Americas mostly offset by a decrease in Asia Pacific. Year-to-date sales increased 11 percent, with 10 percentage points of the increase from Powder Finishing operations acquired in April 2012. Operating margin rate for the Industrial segment improved compared to last year, which included the effects of purchase accounting related to inventory that reduced the rate for the second quarter of 2012 by approximately 4 percentage points.

 

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Contractor

 

       Thirteen Weeks Ended        Twenty-six Weeks Ended   
       Jun 28,  
2013
      Jun 29,  
2012
      Jun 28,  
2013
      Jun 29,  
2012
 

Net sales (in millions)

        

Americas

   $ 69.9      $ 54.6      $ 121.4      $ 100.8   

EMEA

     18.0        17.2        34.1        33.2   

Asia Pacific

     10.6        10.3        20.6        20.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 98.5      $ 82.1      $ 176.1      $ 154.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating earnings as a percentage of net sales

     25%        22%        23%        20%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Contractor segment sales for the quarter increased 20 percent, including increases of 28 percent in the Americas, 5 percent in EMEA and 2 percent in Asia Pacific. Year-to-date sales were up 14 percent, driven by increases in the Americas. Initial stocking of expanded product offerings in the home centers channel and the recovery in the U.S. housing market contributed to higher sales in this segment. Higher sales volume, improved gross margin rate and expense leverage led to higher operating margin rates in the Contractor segment.

Lubrication

 

       Thirteen Weeks Ended        Twenty-six Weeks Ended   
       Jun 28,  
2013
      Jun 29,  
2012
      Jun 28,  
2013
      Jun 29,  
2012
 

Net sales (in millions)

        

Americas

   $ 20.6      $ 20.5      $ 41.1      $ 40.8   

EMEA

     3.0        2.3        5.5        4.2   

Asia Pacific

     4.3        5.1        8.5        10.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 27.9      $ 27.9      $ 55.1      $ 55.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating earnings as a percentage of net sales

     24%        20%        21%        21%   
  

 

 

   

 

 

   

 

 

   

 

 

 

Lubrication segment sales were flat for the quarter and down 1 percent year-to-date. Increases in the Americas and EMEA were offset by a decrease in Asia Pacific, where several large industrial lubrication transactions in 2012 were not repeated in 2013. Improved manufacturing performance and limited spending increases led to higher operating margin rates in this segment.

 

21


Table of Contents

Liquidity and Capital Resources

Net cash provided by operating activities was $100 million in 2013 and $65 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 first half 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 $426 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 half of 2013, the Company received $15 million of dividends from current earnings of the Liquid Finishing businesses.

At June 28, 2013, the Company had various lines of credit totaling $500 million, of which $328 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 are well positioned for the remainder of the year and believe that our strategies will deliver full-year sales growth in every region. While macroeconomic conditions in EMEA and Asia Pacific are not expected to improve, comparables to the prior year are somewhat easier in these regions in the second half of 2013. When combined with our strategic initiatives, we continue to expect modest full-year growth from the EMEA and Asia Pacific regions. In the United States, the continued housing recovery should result in a sustained tailwind.

 

22


Table of Contents

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:

 

Period

   Total
Number
of Shares
 Purchased 
     Average
Price
    Paid per    
Share
     Total
Number
of Shares
Purchased
as Part of
Publicly
 Announced 
Plans or
Programs
     Maximum
Number of
  Shares that  
May Yet Be
Purchased
Under the
Plans  or
Programs
(at end of
period)
 

Mar 30, 2013 – Apr 26, 2013

     -        -        -        5,999,600  

Apr 27, 2013 – May 24, 2013

     -        -        -        5,999,600  

May 25, 2013 – Jun 28, 2013

     114,928        63.27        114,928        5,884,672  

 

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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 Second Quarter Earnings dated July 24, 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:      July 24, 2013     By:      /s/ Patrick J. McHale
        Patrick J. McHale
        President and Chief Executive Officer
        (Principal Executive Officer)
Date:      July 24, 2013     By:      /s/ James A. Graner
        James A. Graner
        Chief Financial Officer
        (Principal Financial Officer)
Date:      July 24, 2013     By:      /s/ Caroline M. Chambers
        Caroline M. Chambers
        Vice President and Corporate Controller
        (Principal Accounting Officer)