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| Minnesota | 41-0285640 | |
| (State of incorporation) | (I.R.S. Employer Identification Number) |
|
88 - 11
th
Avenue N.E.
Minneapolis, Minnesota |
55413 |
|
| (Address of principal executive offices) | (Zip Code) |
|
Large Accelerated Filer
|
X | Accelerated Filer | |||||
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|||||||
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Non-accelerated Filer
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Smaller reporting company | ||||||
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2
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
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||||||||||||||||
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Net Sales
|
$ | 192,088 | $ | 147,712 | $ | 356,809 | $ | 285,592 | ||||||||
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||||||||||||||||
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Cost of products sold
|
90,168 | 74,704 | 165,594 | 148,256 | ||||||||||||
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||||||||||||||||
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||||||||||||||||
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Gross Profit
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101,920 | 73,008 | 191,215 | 137,336 | ||||||||||||
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Product development
|
9,472 | 9,781 | 18,946 | 19,832 | ||||||||||||
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Selling, marketing and distribution
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32,647 | 28,292 | 61,807 | 60,225 | ||||||||||||
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General and administrative
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20,592 | 16,489 | 38,547 | 32,704 | ||||||||||||
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||||||||||||||||
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||||||||||||||||
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Operating Earnings
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39,209 | 18,446 | 71,915 | 24,575 | ||||||||||||
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||||||||||||||||
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Interest expense
|
1,041 | 1,221 | 2,121 | 2,587 | ||||||||||||
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Other expense (income), net
|
(268 | ) | 91 | (107 | ) | 686 | ||||||||||
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||||||||||||||||
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||||||||||||||||
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Earnings Before Income Taxes
|
38,436 | 17,134 | 69,901 | 21,302 | ||||||||||||
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||||||||||||||||
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Income taxes
|
13,600 | 5,500 | 24,500 | 6,900 | ||||||||||||
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||||||||||||||||
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||||||||||||||||
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Net Earnings
|
$ | 24,836 | $ | 11,634 | $ | 45,401 | $ | 14,402 | ||||||||
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||||||||||||||||
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||||||||||||||||
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Basic Net Earnings
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||||||||||||||||
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per Common Share
|
$ | 0.41 | $ | 0.19 | $ | 0.75 | $ | 0.24 | ||||||||
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||||||||||||||||
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Diluted Net Earnings
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||||||||||||||||
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per Common Share
|
$ | 0.41 | $ | 0.19 | $ | 0.74 | $ | 0.24 | ||||||||
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||||||||||||||||
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Cash Dividends Declared
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||||||||||||||||
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per Common Share
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$ | 0.20 | $ | 0.19 | $ | 0.40 | $ | 0.38 | ||||||||
3
| June 25, |
December
25, |
||||||||
| 2010 | 2009 | ||||||||
|
ASSETS
|
|||||||||
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Current Assets
|
|||||||||
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Cash and cash equivalents
|
$ | 4,878 | $ | 5,412 | |||||
|
Accounts receivable, less allowances of $6,400 and $6,500
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138,279 | 100,824 | |||||||
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Inventories
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76,198 | 58,658 | |||||||
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Deferred income taxes
|
20,408 | 20,380 | |||||||
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Other current assets
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3,535 | 3,719 | |||||||
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|||||||||
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Total current assets
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243,298 | 188,993 | |||||||
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|||||||||
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Property, Plant and Equipment
|
|||||||||
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Cost
|
337,848 | 334,440 | |||||||
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Accumulated depreciation
|
(204,041 | ) | (195,387 | ) | |||||
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|||||||||
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Property, plant and equipment, net
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133,807 | 139,053 | |||||||
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|||||||||
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Goodwill
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91,740 | 91,740 | |||||||
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Other Intangible Assets, net
|
34,229 | 40,170 | |||||||
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Deferred Income Taxes
|
11,776 | 8,372 | |||||||
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Other Assets
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8,273 | 8,106 | |||||||
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|||||||||
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Total Assets
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$ | 523,123 | $ | 476,434 | |||||
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|||||||||
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|||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|||||||||
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Current Liabilities
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|||||||||
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Notes payable to banks
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$ | 13,599 | $ | 12,028 | |||||
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Trade accounts payable
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33,780 | 17,983 | |||||||
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Salaries and incentives
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21,611 | 14,428 | |||||||
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Dividends payable
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12,053 | 12,003 | |||||||
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Other current liabilities
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45,338 | 47,373 | |||||||
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|||||||||
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Total current liabilities
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126,381 | 103,815 | |||||||
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|||||||||
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Long-term debt
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80,000 | 86,260 | |||||||
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Retirement Benefits and Deferred Compensation
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74,651 | 73,705 | |||||||
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Uncertain Tax Positions
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3,000 | 3,000 | |||||||
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|||||||||
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Shareholders’ Equity
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|||||||||
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Common stock
|
60,314 | 59,999 | |||||||
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Additional paid-in-capital
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203,716 | 190,261 | |||||||
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Retained earnings
|
23,892 | 11,121 | |||||||
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Accumulated other comprehensive income (loss)
|
(48,831 | ) | (51,727 | ) | |||||
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|||||||||
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Total shareholders’ equity
|
239,091 | 209,654 | |||||||
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|||||||||
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Total Liabilities and Shareholders’ Equity
|
$ | 523,123 | $ | 476,434 | |||||
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|||||||||
4
| Twenty-six Weeks Ended | ||||||||
| June 25, | June 26, | |||||||
| 2010 | 2009 | |||||||
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Cash Flows From Operating Activities
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||||||||
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Net Earnings
|
$ | 45,401 | $ | 14,402 | ||||
|
Adjustments to reconcile net earnings to
net cash provided by operating activities
|
||||||||
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Depreciation and amortization
|
17,319 | 16,953 | ||||||
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Deferred income taxes
|
(5,247 | ) | (696 | ) | ||||
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Share-based compensation
|
5,127 | 5,209 | ||||||
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Excess tax benefit related to share-based
payment arrangements
|
(900 | ) | (300 | ) | ||||
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Change in
|
||||||||
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Accounts receivable
|
(40,392 | ) | 15,370 | |||||
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Inventories
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(17,742 | ) | 22,691 | |||||
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Trade accounts payable
|
9,552 | (3,218 | ) | |||||
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Salaries and incentives
|
7,624 | (6,015 | ) | |||||
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Retirement benefits and deferred compensation
|
4,996 | 7,215 | ||||||
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Other accrued liabilities
|
1,287 | (2,135 | ) | |||||
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Other
|
1,020 | 16 | ||||||
|
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||||||||
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Net cash provided by operating activities
|
28,045 | 69,492 | ||||||
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||||||||
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Cash Flows From Investing Activities
|
||||||||
|
Property, plant and equipment additions
|
(5,932 | ) | (9,129 | ) | ||||
|
Proceeds from sale of property, plant and equipment
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123 | 495 | ||||||
|
Investment in life insurance
|
(1,499 | ) | (1,499 | ) | ||||
|
Capitalized software and other intangible asset additions
|
(193 | ) | (200 | ) | ||||
|
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||||||||
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Net cash used in investing activities
|
(7,501 | ) | (10,333 | ) | ||||
|
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||||||||
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Cash Flows From Financing Activities
|
||||||||
|
Net borrowings (payments) on short-term lines of credit
|
3,004 | (3,621 | ) | |||||
|
Borrowings on long-term line of credit
|
- | 68,126 | ||||||
|
Payments on long-term line of credit
|
(6,260 | ) | (104,211 | ) | ||||
|
Excess tax benefit related to share-based
payment arrangements
|
900 | 300 | ||||||
|
Common stock issued
|
8,815 | 5,289 | ||||||
|
Common stock retired
|
(3,462 | ) | (141 | ) | ||||
|
Cash dividends paid
|
(24,122 | ) | (22,686 | ) | ||||
|
|
||||||||
|
Net cash provided by (used in) financing activities
|
(21,125 | ) | (56,944 | ) | ||||
|
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||||||||
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Effect of exchange rate changes on cash
|
47 | (425 | ) | |||||
|
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||||||||
|
Net increase (decrease) in cash and cash equivalents
|
(534 | ) | 1,790 | |||||
|
Cash and cash equivalents:
|
||||||||
|
Beginning of year
|
5,412 | 12,119 | ||||||
|
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||||||||
|
End of period
|
$ | 4,878 | $ | 13,909 | ||||
|
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||||||||
5
| 1. | The consolidated balance sheet of Graco Inc. and Subsidiaries (the Company) as of June 25, 2010 and the related statements of earnings for the thirteen and twenty-six weeks ended June 25, 2010 and June 26, 2009, and cash flows for the twenty-six weeks ended June 25, 2010 and June 26, 2009 have been prepared by the Company and have not been audited. | |
| In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of Graco Inc. and Subsidiaries as of June 25, 2010, 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 2009 Annual Report on Form 10-K. | ||
| The results of operations for interim periods are not necessarily indicative of results that will be realized for the full fiscal year. |
| 2. | The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts): |
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
|
||||||||||||||||
|
Net earnings available to
common shareholders
|
$ | 24,836 | $ | 11,634 | $ | 45,401 | $ | 14,402 | ||||||||
|
|
||||||||||||||||
|
Weighted average shares
outstanding for basic
earnings per share
|
60,597 | 59,903 | 60,402 | 59,770 | ||||||||||||
|
|
||||||||||||||||
|
Dilutive effect of stock
options computed using the
treasury stock method and
the average market price
|
587 | 280 | 546 | 273 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average shares
outstanding for diluted
earnings per share
|
61,184 | 60,183 | 60,948 | 60,043 | ||||||||||||
|
|
||||||||||||||||
|
Basic earnings per share
|
$ | 0.41 | $ | 0.19 | $ | 0.75 | $ | 0.24 | ||||||||
|
|
||||||||||||||||
|
Diluted earnings per share
|
$ | 0.41 | $ | 0.19 | $ | 0.74 | $ | 0.24 | ||||||||
6
| Stock options to purchase 2,987,000 and 3,920,000 shares were not included in the 2010 and 2009 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 25, 2010 is shown below (in thousands, except per share amounts): |
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Option | Exercise | Options | Exercise | |||||||||||||
| Shares | Price | Exercisable | Price | |||||||||||||
|
|
||||||||||||||||
|
Outstanding, December 25, 2009
|
4,813 | $ | 28.98 | 2,445 | $ | 28.38 | ||||||||||
|
|
||||||||||||||||
|
Granted
|
827 | 27.80 | ||||||||||||||
|
|
||||||||||||||||
|
Exercised
|
(203 | ) | 11.67 | |||||||||||||
|
|
||||||||||||||||
|
Canceled
|
(31 | ) | 32.23 | |||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Outstanding, June 25, 2010
|
5,406 | $ | 29.43 | 2,901 | $ | 30.21 | ||||||||||
|
|
||||||||||||||||
| The Company recognized year-to-date share-based compensation of $5.1 million in 2010 and $5.2 million in 2009. As of June 25, 2010, there was $8.8 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 2.1 years. | ||
| The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results: |
| Twenty-six Weeks Ended | ||||||||
| June 25, | June 26, | |||||||
| 2010 | 2009 | |||||||
|
Expected life in years
|
6.0 | 6.0 | ||||||
|
Interest rate
|
2.7 | % | 2.1 | % | ||||
|
Volatility
|
34.0 | % | 30.1 | % | ||||
|
Dividend yield
|
3.0 | % | 3.7 | % | ||||
|
Weighted average fair value per share
|
$ | 7.38 | $ | 4.27 | ||||
| Under the Company’s Employee Stock Purchase Plan, the Company issued 436,000 shares in 2010 and 312,000 shares in 2009. 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: |
7
| Twenty-six Weeks Ended | |||||||||
| June 25, | June 26, | ||||||||
| 2010 | 2009 | ||||||||
|
Expected life in years
|
1.0 | 1.0 | |||||||
|
Interest rate
|
0.3 | % | 0.7 | % | |||||
|
Volatility
|
42.8 | % | 51.5 | % | |||||
|
Dividend yield
|
2.9 | % | 4.5 | % | |||||
|
Weighted average fair value per share
|
$ | 8.48 | $ | 5.60 | |||||
| 4. | The components of net periodic benefit cost for retirement benefit plans were as follows (in thousands): |
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Pension Benefits
|
||||||||||||||||
|
Service cost
|
$ | 894 | $ | 1,141 | $ | 2,135 | $ | 2,420 | ||||||||
|
Interest cost
|
3,138 | 3,115 | 6,415 | 6,335 | ||||||||||||
|
Expected return on assets
|
(3,325 | ) | (2,850 | ) | (6,800 | ) | (5,550 | ) | ||||||||
|
Amortization and other
|
1,548 | 2,313 | 3,052 | 4,727 | ||||||||||||
|
|
||||||||||||||||
|
Net periodic benefit cost
|
$ | 2,255 | $ | 3,719 | $ | 4,802 | $ | 7,932 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Postretirement Medical
|
||||||||||||||||
|
Service cost
|
$ | 150 | $ | 100 | $ | 275 | $ | 250 | ||||||||
|
Interest cost
|
295 | 300 | 620 | 650 | ||||||||||||
|
Amortization
|
(95 | ) | - | (95 | ) | - | ||||||||||
|
|
||||||||||||||||
|
Net periodic benefit cost
|
$ | 350 | $ | 400 | $ | 800 | $ | 900 | ||||||||
|
|
||||||||||||||||
| The Company paid $1.5 million in June 2010 and $1.5 million in June 2009 for contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans. These insurance contracts will be used to fund the non-qualified pension and deferred compensation arrangements. The insurance contracts are held in a trust and are available to general creditors in the event of the Company’s insolvency. Cash surrender value of $5.9 million and $4.4 million is included in other assets in the consolidated balance sheet as of June 25, 2010 and December 25, 2009, respectively. |
8
| 5. | Total comprehensive income was as follows (in thousands): |
| Thirteen Weeks Ended | Twenty-six Weeks Ended | ||||||||||||||||
| June 25, | June 26, | June 25, | June 26, | ||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||
|
|
|||||||||||||||||
|
Net earnings
|
$ | 24,836 | $ | 11,634 | $ | 45,401 | $ | 14,402 | |||||||||
|
Cumulative translation
adjustment
|
- | - | - | 234 | |||||||||||||
|
Pension and postretirement
medical liability adjustment
|
1,491 | 2,422 | 2,959 | 4,751 | |||||||||||||
|
Gain (loss) on interest
rate hedge contracts
|
933 | 364 | 1,638 | 291 | |||||||||||||
|
|
|||||||||||||||||
|
Income taxes
|
(896 | ) | (1,030 | ) | (1,701 | ) | (1,866 | ) | |||||||||
|
|
|||||||||||||||||
|
|
|||||||||||||||||
|
Comprehensive income
|
$ | 26,364 | $ | 13,390 | $ | 48,297 | $ | 17,812 | |||||||||
|
|
|||||||||||||||||
| Components of accumulated other comprehensive income (loss) were (in thousands): |
| June 25, | December 25, | ||||||||
| 2010 | 2009 | ||||||||
|
|
|||||||||
|
Pension and postretirement medical
liability adjustment
|
$ | (46,696 | ) | $ | (48,560 | ) | |||
|
Gain (loss) on interest rate hedge contracts
|
(1,312 | ) | (2,344 | ) | |||||
|
Cumulative translation adjustment
|
(823 | ) | (823 | ) | |||||
|
|
|||||||||
|
Total
|
$ | (48,831 | ) | $ | (51,727 | ) | |||
|
|
|||||||||
| 6. | The Company has three reportable segments: Industrial, Contractor and Lubrication. The Company does not track assets by segment. Sales and operating earnings by segment for the thirteen and twenty-six weeks ended June 25, 2010 and June 26, 2009 were as follows (in thousands): |
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||
|
|
||||||||||||||||||
|
Net Sales
|
||||||||||||||||||
|
Industrial
|
$ | 100,461 | $ | 73,334 | $ | 197,253 | $ | 148,566 | ||||||||||
|
Contractor
|
73,782 | 60,386 | 124,579 | 107,834 | ||||||||||||||
|
Lubrication
|
17,845 | 13,992 | 34,977 | 29,192 | ||||||||||||||
|
|
||||||||||||||||||
|
Total
|
$ | 192,088 | $ | 147,712 | $ | 356,809 | $ | 285,592 | ||||||||||
|
|
||||||||||||||||||
|
Operating Earnings
|
||||||||||||||||||
|
Industrial
|
$ | 29,565 | $ | 13,435 | $ | 60,039 | $ | 24,930 | ||||||||||
|
Contractor
|
13,203 | 12,043 | 18,086 | 13,282 | ||||||||||||||
|
Lubrication
|
1,868 | (1,745 | ) | 3,575 | (3,181 | ) | ||||||||||||
|
Unallocated
corporate (expense)
|
(5,427 | ) | (5,287 | ) | (9,785 | ) | (10,456 | ) | ||||||||||
|
|
||||||||||||||||||
|
Total
|
$ | 39,209 | $ | 18,446 | $ | 71,915 | $ | 24,575 | ||||||||||
|
|
||||||||||||||||||
9
| 7. | Major components of inventories were as follows (in thousands): |
| June 25, |
December
25, |
||||||||
| 2010 | 2009 | ||||||||
|
|
|||||||||
|
Finished products and components
|
$ | 42,251 | $ | 36,665 | |||||
|
Products and components in various
stages of completion |
27,270 | 22,646 | |||||||
|
Raw materials and purchased components
|
39,597 | 31,826 | |||||||
|
|
|||||||||
|
|
109,118 | 91,137 | |||||||
|
Reduction to LIFO cost
|
(32,920 | ) | (32,479 | ) | |||||
|
|
|||||||||
|
Total
|
$ | 76,198 | $ | 58,658 | |||||
|
|
|||||||||
| 8. | Information related to other intangible assets follows (dollars in thousands): |
| Estimated | Foreign | |||||||||||||||||
| Life | Original | Accumulated | Currency | Book | ||||||||||||||
| (years) | Cost | Amortization | Translation | Value | ||||||||||||||
| June 25, 2010 | ||||||||||||||||||
|
Customer relationships
|
3 - 8 | $ | 41,075 | $ | (21,748 | ) | $ | (181 | ) | $ | 19,146 | |||||||
|
Patents, proprietary technology
and product documentation |
3 - 10 | 21,072 | (13,548 | ) | (85 | ) | 7,439 | |||||||||||
|
Trademarks, trade names and other
|
3 - 10 | 8,154 | (3,690 | ) | - | 4,464 | ||||||||||||
|
|
||||||||||||||||||
|
|
||||||||||||||||||
|
|
70,301 | (38,986 | ) | (266 | ) | 31,049 | ||||||||||||
|
Not Subject to Amortization:
|
||||||||||||||||||
|
Brand names
|
3,180 | - | - | 3,180 | ||||||||||||||
|
|
||||||||||||||||||
|
|
||||||||||||||||||
|
Total
|
$ | 73,481 | $ | (38,986 | ) | $ | (266 | ) | $ | 34,229 | ||||||||
|
|
||||||||||||||||||
|
|
||||||||||||||||||
|
December 25, 2009
|
||||||||||||||||||
|
Customer relationships
|
3 - 8 | $ | 41,075 | $ | (18,655 | ) | $ | (181 | ) | $ | 22,239 | |||||||
|
Patents, proprietary technology
and product documentation |
3 - 10 | 22,862 | (13,708 | ) | (87 | ) | 9,067 | |||||||||||
|
Trademarks, trade names
and other
|
3 - 10 | 8,154 | (2,470 | ) | - | 5,684 | ||||||||||||
|
|
||||||||||||||||||
|
|
||||||||||||||||||
|
|
72,091 | (34,833 | ) | (268 | ) | 36,990 | ||||||||||||
|
Not Subject to Amortization:
|
||||||||||||||||||
|
Brand names
|
3,180 | - | - | 3,180 | ||||||||||||||
|
|
||||||||||||||||||
|
|
||||||||||||||||||
|
Total
|
$ | 75,271 | $ | (34,833 | ) | $ | (268 | ) | $ | 40,170 | ||||||||
|
|
||||||||||||||||||
10
| Amortization of intangibles was $2.9 million in the second quarter of 2010 and $5.9 million year-to-date. Estimated annual amortization expense is as follows: $11.2 million in 2010, $10.7 million in 2011, $9.1 million in 2012, $4.3 million in 2013, $0.9 million in 2014 and $0.7 million thereafter. | ||
| 9. | Components of other current liabilities were (in thousands): |
| June 25, |
December
25, |
|||||||
| 2010 | 2009 | |||||||
|
Accrued self-insurance retentions
|
$ | 7,650 | $ | 7,785 | ||||
|
Accrued warranty and service liabilities
|
6,882 | 7,437 | ||||||
|
Accrued trade promotions
|
4,108 | 2,953 | ||||||
|
Payable for employee stock purchases
|
2,420 | 5,115 | ||||||
|
Income taxes payable
|
2,433 | 1,550 | ||||||
|
Other
|
21,845 | 22,533 | ||||||
|
|
||||||||
|
Total other current liabilities
|
$ | 45,338 | $ | 47,373 | ||||
|
|
||||||||
| A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors including evaluating specific product warranty issues. Following is a summary of activity in accrued warranty and service liabilities (in thousands): |
| Twenty-six | ||||||||
| Weeks Ended | Year Ended | |||||||
| June 25, | December 25, | |||||||
| 2010 | 2009 | |||||||
|
Balance, beginning of year
|
$ | 7,437 | $ | 8,033 | ||||
|
Charged to expense
|
1,385 | 4,548 | ||||||
|
Margin on parts sales reversed
|
1,295 | 2,876 | ||||||
|
Reductions for claims settled
|
(3,235 | ) | (8,020 | ) | ||||
|
|
||||||||
|
Balance, end of period
|
$ | 6,882 | $ | 7,437 | ||||
|
|
||||||||
| 10. | The Company accounts for all derivatives, including those embedded in other contracts, as either assets or liabilities and measures those financial instruments at fair value. The accounting for changes in the fair value of derivatives depends on their intended use and designation. | |
| As part of its risk management program, the Company may periodically use forward exchange contracts and interest rate swaps to manage known market exposures. Terms of derivative instruments are structured to match the terms of the risk being managed and are generally held to maturity. The Company does not hold or issue derivative financial instruments for trading purposes. All other contracts that contain provisions meeting the definition of a derivative also meet the requirements of, and have |
11
| been designated as, normal purchases or sales. The Company’s policy is to not enter into contracts with terms that cannot be designated as normal purchases or sales. | ||
| In 2007, the Company entered into interest rate swap contracts that effectively fix the rates paid on a total of $80 million of variable rate borrowings. One contract fixed the rate on $40 million of borrowings at 4.7 percent plus the applicable spread (depending on cash flow leverage ratio) until December 2010. The second contract fixed an additional $40 million of borrowings at 4.6 percent plus the applicable spread until January 2011. Both contracts have been designated as cash flow hedges against interest rate volatility. Consequently, changes in the fair market value are recorded in accumulated other comprehensive income (loss) (AOCI). Amounts included in AOCI will be reclassified to earnings as interest rates increase and as the swap contracts approach their expiration dates. Net amounts paid or payable under terms of the contracts were charged to interest expense and totaled $1.8 million in the first half of 2010. | ||
| The Company periodically evaluates its monetary asset and liability positions denominated in foreign currencies. The Company enters into forward contracts or options, or borrows in various currencies, in order to hedge its net monetary positions. These instruments are recorded at current market values and the gains and losses are included in other expense (income), net. There were seven contracts outstanding as of June 25, 2010, with notional amounts totaling $18 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 to value the derivative instruments used to hedge interest rate volatility and net monetary positions. The fair market value and balance sheet classification of such instruments follows (in thousands): |
| Balance Sheet | June 25, |
December
25, |
||||||||
| Classification | 2010 | 2009 | ||||||||
|
Gain (loss) on interest
rate hedge contracts |
Other current liabilities | $ | (2,084 | ) | $ | (3,722 | ) | |||
|
|
||||||||||
|
|
||||||||||
|
Gain (loss) on foreign
currency forward contracts |
||||||||||
|
Gains
|
$ | 84 | $ | 207 | ||||||
|
Losses
|
(431 | ) | (249 | ) | ||||||
|
|
||||||||||
|
Net
|
Other current liabilities | $ | (347 | ) | $ | (42 | ) | |||
|
|
||||||||||
12
| Item 2. | GRACO INC. AND SUBSIDIARIES |
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||||||||||
| June 25, | June 26, | % | June 25, | June 26, | % | |||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Net Sales
|
$ | 192.1 | $ | 147.7 | 30% | $ | 356.8 | $ | 285.6 | 25% | ||||||||||||||
|
Net Earnings
|
$ | 24.8 | $ | 11.6 | 113% | $ | 45.4 | $ | 14.4 | 215% | ||||||||||||||
|
Diluted Net Earnings
|
||||||||||||||||||||||||
|
per Common Share
|
$ | 0.41 | $ | 0.19 | 116% | $ | 0.74 | $ | 0.24 | 208% | ||||||||||||||
13
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Americas
1
|
$ | 110.2 | $ | 88.3 | $ | 196.9 | $ | 168.5 | ||||||||
|
Europe
2
|
44.0 | 34.6 | 85.8 | 70.4 | ||||||||||||
|
Asia Pacific
|
37.9 | 24.8 | 74.1 | 46.7 | ||||||||||||
|
|
||||||||||||||||
|
Consolidated
|
$ | 192.1 | $ | 147.7 | $ | 356.8 | $ | 285.6 | ||||||||
|
|
||||||||||||||||
14
| Industrial | ||||||||||||||||
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Net sales (in millions)
|
||||||||||||||||
|
Americas
|
$ | 45.5 | $ | 35.5 | $ | 87.4 | $ | 71.3 | ||||||||
|
Europe
|
27.1 | 19.8 | 55.0 | 43.7 | ||||||||||||
|
Asia Pacific
|
27.9 | 18.0 | 54.9 | 33.6 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 100.5 | $ | 73.3 | $ | 197.3 | $ | 148.6 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating earnings as a
percentage of net sales |
29 % | 18 % | 30 % | 17 % | ||||||||||||
|
|
||||||||||||||||
| Contractor | ||||||||||||||||
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Net sales (in millions)
|
||||||||||||||||
|
Americas
|
$ | 51.6 | $ | 41.0 | $ | 83.5 | $ | 72.8 | ||||||||
|
Europe
|
15.2 | 14.0 | 27.8 | 24.8 | ||||||||||||
|
Asia Pacific
|
7.0 | 5.4 | 13.3 | 10.2 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 73.8 | $ | 60.4 | $ | 124.6 | $ | 107.8 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating earnings as a
percentage of net sales |
18 % | 20 % | 15 % | 12 % | ||||||||||||
|
|
||||||||||||||||
15
| Lubrication | ||||||||||||||||
| Thirteen Weeks Ended | Twenty-six Weeks Ended | |||||||||||||||
| June 25, | June 26, | June 25, | June 26, | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
|
||||||||||||||||
|
Net sales (in millions)
|
||||||||||||||||
|
Americas
|
$ | 13.2 | $ | 11.8 | $ | 26.0 | $ | 24.4 | ||||||||
|
Europe
|
1.5 | 0.8 | 2.9 | 1.9 | ||||||||||||
|
Asia Pacific
|
3.1 | 1.4 | 6.0 | 2.9 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 17.8 | $ | 14.0 | $ | 34.9 | $ | 29.2 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating earnings as a
percentage of net sales
|
10 % | (12)% | 10 % | (11)% | ||||||||||||
|
|
||||||||||||||||
16
17
18
| Maximum | ||||||||||||||||
| Total | Number of | |||||||||||||||
| Number | Shares that | |||||||||||||||
| of Shares | May Yet Be | |||||||||||||||
| Purchased | Purchased | |||||||||||||||
| as Part of | Under the | |||||||||||||||
| Total | Average | Publicly | Plans or | |||||||||||||
| Number | Price | Announced | Programs | |||||||||||||
| of Shares | Paid per | Plans or | (at end of | |||||||||||||
| Period | Purchased | Share | Programs | period) | ||||||||||||
|
|
||||||||||||||||
|
Mar 27, 2010 – Apr
23, 2010
|
- | $ | - | - | 6,000,000 | |||||||||||
|
|
||||||||||||||||
|
Apr 24, 2010 – May
21, 2010
|
13,891 | $ | 32.80 | 10,000 | 5,990,000 | |||||||||||
|
|
||||||||||||||||
|
May 22, 2010 – Jun
25, 2010
|
313,589 | $ | 29.73 | 313,589 | 5,676,411 | |||||||||||
19
| 10.1 | Executive Officer Stock Holding Policy adopted by the Graco Inc. Board of Directors on April 23, 2010. | ||
| 31.1 | Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a). | ||
| 31.2 | Certification of Chief Financial Officer and Treasurer pursuant to rule 13a-14(a). | ||
| 32 | Certification of President and Chief Executive Officer and Chief Financial Officer and Treasurer pursuant to Section 1350 of Title 18, U.S.C. | ||
| 99.1 | Press Release, Reporting Second Quarter Earnings, dated July 21, 2010. | ||
| 101 | Interactive Data File. |
20
|
|
|
GRACO INC. | ||||||
|
|
||||||||
|
Date:
|
July 21, 2010
|
By: |
/s/ Patrick J. McHale
President and Chief Executive Officer (Principal Executive Officer) |
|||||
|
|
||||||||
|
Date:
|
July 21, 2010
|
By: |
/s/ James A. Graner
|
|||||
|
|
Chief Financial Officer and Treasurer
(Principal Financial Officer) |
|||||||
|
|
||||||||
|
Date:
|
July 21, 2010
|
By: |
/s/ Caroline M. Chambers
|
|||||
|
|
Vice President and Controller
(Principal Accounting Officer) |
|||||||
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|