GRACO INC - FORM 8-K - EX-99.1

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8-K - FORM 8-K - GRACO INC	c62731e8vk.htm

Exhibit 99.1


		GRACO INC. P.O. Box 1441 Minneapolis, MN 55440-1441 NYSE: GGG


FOR IMMEDIATE RELEASE:		FOR FURTHER INFORMATION:
Monday, January 31, 2011		James A. Graner (612) 623-6635

GRACO REPORTS FOURTH QUARTER AND ANNUAL SALES AND EARNINGS
STRONG SALES GROWTH IN ALL SEGMENTS AND REGIONS

MINNEAPOLIS, MN (January 31, 2011) - Graco Inc. (NYSE: GGG) today announced results for the quarter and year ended December 31, 2010.

Summary

$ in millions except per share amounts


	Quarter Ended							Year Ended
	Dec 31,		Dec 25,		%			Dec 31,		Dec 25,		%
	2010		2009		Change			2010		2009		Change

Net Sales	$	197.3	$	146.3		35	%	$	744.1	$	579.2		28	%
Net Earnings		27.0		17.2		57	%		102.8		49.0		110	%
Diluted Net Earnings per Common Share	$	0.44	$	0.28		57	%	$	1.69	$	0.81		109	%

	•		Sales growth in all segments and regions exceeded 30 percent for the quarter and 20 percent for the year.

	•		Sales in the Lubrication segment grew 52 percent for the quarter and 35 percent for the year.

	•		Gross margin rate was 1¹/2 percentage points higher for the quarter and 3¹/2 points higher for the year.

	•		Operating expenses as a percentage of sales for the quarter were 1 percentage point lower than last year. For the year, operating expenses as a percentage of sales were 4 percentage points lower than last year.

	•		Return on sales was 14 percent for both the quarter and the year, up from 12 percent for the quarter and 8¹/2 percent for the year in 2009.

“The global industrial recovery, along with our investments in new products, innovative technologies and commercial capabilities to support geographic expansion, led to improved results in 2010,” said Patrick J. McHale, President and Chief Executive Officer. “Sales growth was strong in all divisions and regions, including a 46 percent increase in Asia Pacific.”

Consolidated Results

For the quarter, sales increased 35 percent in the Americas, 33 percent in Europe (42 percent at consistent translation rates), and 37 percent in Asia Pacific (33 percent at consistent translation rates). For the year, sales increased 24 percent in the Americas, 25 percent in Europe (29 percent at consistent translation rates) and 46 percent in Asia Pacific (41 percent at consistent translation rates). There were 53 weeks in our fiscal 2010, including 14 weeks in the fourth quarter. There were 52 weeks in fiscal 2009, with 13 weeks in the fourth quarter. Translation rates did not have a significant impact on the total sales increase of 35 percent for the quarter and 28 percent for the year.

Gross profit margin, expressed as a percentage of sales, was 54¹/2 percent for the quarter and 54 percent for the year. Last year, gross profit margin rate was 53 percent for the quarter and 50¹/2 percent for the year. Improvement in both the quarter and the year is mainly from higher production volumes. Other factors contributing to improvement

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in the gross margin rate included selling price increases and lower pension costs in 2010, and costs related to workforce reductions that lowered the 2009 rate.

Total operating expenses increased $16 million for the quarter and $32 million for the year due to higher levels of business activity and improved results. Higher incentives expense accounted for approximately half of the increase for the quarter and two-thirds of the increase for the year. Operating expenses as a percentage of sales decreased to 35¹/2 percent from 36¹/2 percent for the quarter and decreased to 33¹/2 percent from 37¹/2 percent for the year.

The effective income tax rate was 26 percent for the quarter and 31 percent for the year, compared to 23¹/2 percent and 29 percent for the comparable periods last year. In both 2010 and 2009, the effective rate for the quarter was lower than the annual rate because the federal R&D tax credit was not renewed until the fourth quarter and no credits were included in the first three quarters. The effect of the federal R&D tax credit in 2010 was lower as a percentage of pre-tax earnings compared to last year.

Segment Results

Certain measurements of segment operations are summarized below:


	Quarter Ended						Year Ended
	Industrial		Contractor		Lubrication		Industrial		Contractor		Lubrication

Net sales (in millions)	$	113.1	$	61.6	$	22.6	$	409.6	$	256.6	$	77.9
Net sales percentage change from last year		31 %		36 %		52 %		31 %		23 %		35 %
Operating earnings as a percentage of net sales
2010		31 %		8 %		11 %		31 %		14 %		11 %
2009		27 %		10 %		3 %		22 %		14 %		(5) %

Industrial segment sales increased 31 percent for both the quarter and the year. Sales growth for the quarter was consistent across regions. For the year, sales increased 49 percent in Asia Pacific (44 percent at consistent translation rates), 26 percent in the Americas and 24 percent in Europe (27 percent at consistent translation rates). Higher sales and the resulting increase in production volume led to improvement in operating earnings as a percentage of sales.

Contractor segment sales increased 36 percent for the quarter and 23 percent for the year. Sales for the quarter increased 35 percent in the Americas, 42 percent in Europe (52 percent at consistent translation rates) and 28 percent in Asia Pacific (24 percent at consistent translation rates). For the year, sales increased 22 percent in the Americas and 24 percent in both Europe and Asia Pacific (29 percent in Europe and 18 percent in Asia Pacific at consistent translation rates). Operating margin percentages in this segment were held down by costs and expenses related to new product introductions and expanding distribution.

Lubrication segment sales increased 52 percent for the quarter and 35 percent for the year. Sales for the quarter increased 43 percent in the Americas, 63 percent in Europe and 92 percent in Asia Pacific. For the year, sales increased 23 percent in the Americas, 56 percent in Europe and doubled in Asia Pacific. Sales of industrial lubrication products contributed significantly to the strong growth for the segment. For both the quarter and the year, higher sales and the resulting increase in production volume led to improved operating earnings as a percentage of sales.

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Outlook

“We expect to build on momentum created in 2010,” said Patrick J. McHale, President and Chief Executive Officer. “In 2011, we intend to expand our capital resources, make additional share repurchases and continue to evaluate acquisition prospects. We will continue to pursue our growth strategies including product development, international expansion, entering new markets and strategic acquisitions.”

Cautionary Statement Regarding Forward-Looking Statements

A forward-looking statement is any statement made in this earnings release and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press releases, analyst briefings, conference calls and the Company’s Annual Report to shareholders, which reflects the Company’s current thinking on market trends and the Company’s future financial performance at the time it is made. All forecasts and projections are forward-looking statements. The Company undertakes no obligation to update these statements in light of new information or future events.

The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will actually be achieved. Future results could differ materially from those expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to: economic conditions in the United States and other major world economies, currency fluctuations, political instability, changes in laws and regulations, and changes in product demand. Please refer to Item 1A of, and Exhibit 99 to, the Company’s Annual Report on Form 10-K for fiscal year 2009 (and most recent Form 10-Q, if applicable) for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com and the Securities and Exchange Commission’s website at www.sec.gov.

Conference Call

Graco management will hold a conference call, including slides via webcast, with analysts and institutional investors on Tuesday, February 1, 2011, at 11:00 a.m. ET, to discuss Graco’s fourth quarter and year-end results.

A real-time Webcast of the conference call will be broadcast live over the Internet. Individuals wanting to listen and view slides can access the call at the Company’s website at www.graco.com. Listeners should go to the website at least 15 minutes prior to the live conference call to install any necessary audio software.

For those unable to listen to the live event, a replay will be available soon after the conference call at Graco’s website, or by telephone beginning at approximately 2:00 p.m. ET on February 1, 2011, by dialing 800.406.7325, Conference ID #4399746, if calling within the U.S. or Canada. The dial-in number for international participants is 303.590.3030, with the same Conference ID #. The replay by telephone will be available through February 4, 2011.

Graco Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries. For additional information about Graco Inc., please visit us at www.graco.com.

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GRACO INC. AND SUBSIDIARIES

Consolidated Statement of Earnings (Unaudited)


	Quarter Ended				Year Ended
	Dec 31,		Dec 25,		Dec 31,		Dec 25,
	2010		2009		2010		2009
Net Sales	$	197,293	$	146,312	$	744,065	$	579,212
Cost of products sold		89,621		68,973		340,620		286,396

Gross Profit		107,672		77,339		403,445		292,816
Product development		9,490		8,954		37,699		37,538
Selling, marketing and distribution		40,816		28,736		135,903		115,550
General and administrative		19,563		15,944		76,702		65,261

Operating Earnings		37,803		23,705		153,141		74,467
Interest expense		1,025		1,119		4,184		4,854
Other expense, net		270		57		417		946

Earnings Before Income Taxes		36,508		22,529		148,540		68,667
Income taxes		9,500		5,300		45,700		19,700

Net Earnings	$	27,008	$	17,229	$	102,840	$	48,967


Net Earnings per Common Share
Basic	$	0.45	$	0.29	$	1.71	$	0.82
Diluted	$	0.44	$	0.28	$	1.69	$	0.81

Weighted Average Number of Shares
Basic		59,944		59,980		60,209		59,865
Diluted		60,700		60,518		60,803		60,229

Segment Information (Unaudited)


	Quarter Ended						Year Ended
	Dec 31,			Dec 25,			Dec 31,			Dec 25,
	2010			2009			2010			2009
Net Sales
Industrial	$	113,080		$	86,127		$	409,569		$	312,935
Contractor		61,647			45,331			256,588			208,544
Lubrication		22,566			14,854			77,908			57,733

Total	$	197,293		$	146,312		$	744,065		$	579,212


Operating Earnings
Industrial	$	35,032		$	23,048		$	126,266		$	68,310
Contractor		5,113			4,532			36,952			28,952
Lubrication		2,571			441			8,897			(2,907	)
Unallocated corporate (expense)		(4,913	)		(4,316	)		(18,974	)		(19,888	)

Total	$	37,803		$	23,705		$	153,141		$	74,467

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GRACO INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

(In thousands)


	Dec 31,			Dec 25,
	2010			2009
ASSETS
Current Assets
Cash and cash equivalents	$	9,591		$	5,412
Accounts receivable, less allowances of $5,600 and $6,500		124,593			100,824
Inventories		91,620			58,658
Deferred income taxes		18,647			20,380
Other current assets		7,957			3,719

Total current assets		252,408			188,993

Property, Plant and Equipment
Cost		344,854			334,440
Accumulated depreciation		(210,669	)		(195,387	)

Property, plant and equipment, net		134,185			139,053

Goodwill		91,740			91,740
Other Intangible Assets, net		28,338			40,170
Deferred Income Taxes		14,696			8,372
Other Assets		9,107			8,106

Total Assets	$	530,474		$	476,434


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Notes payable to banks	$	8,183		$	12,028
Trade accounts payable		19,669			17,983
Salaries and incentives		34,907			14,428
Dividends payable		12,610			12,003
Other current liabilities		44,385			47,373

Total current liabilities		119,754			103,815

Long-term debt		70,255			86,260
Retirement Benefits and Deferred Compensation		76,351			73,705
Uncertain Tax Positions		-			3,000

Shareholders’ Equity
Common stock		60,048			59,999
Additional paid-in-capital		212,073			190,261
Retained earnings		44,436			11,121
Accumulated other comprehensive income (loss)		(52,443	)		(51,727	)

Total shareholders’ equity		264,114			209,654

Total Liabilities and Shareholders’ Equity	$	530,474		$	476,434

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GRACO INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Year Ended
	Dec 31,			Dec 25,
	2010			2009
Cash Flows From Operating Activities
Net Earnings	$	102,840		$	48,967
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization		33,973			35,140
Deferred income taxes		(4,248	)		(69	)
Share-based compensation		10,024			9,369
Excess tax benefit related to share-based payment arrangements		(1,988	)		(375	)
Change in
Accounts receivable		(23,285	)		28,420
Inventories		(32,997	)		32,663
Trade accounts payable		1,670			(701	)
Salaries and incentives		20,453			(2,893	)
Retirement benefits and deferred compensation		(1,428	)		(848	)
Other accrued liabilities		(18	)		(2,838	)
Other		(3,873	)		(303	)

Net cash provided by operating activities		101,123			146,532

Cash Flows From Investing Activities
Property, plant and equipment additions		(16,620	)		(11,463	)
Proceeds from sale of property, plant and equipment		257			770
Investment in life insurance		(1,499	)		(1,499	)
Capitalized software and other intangible asset additions		(907	)		(602	)

Net cash used in investing activities		(18,769	)		(12,794	)

Cash Flows From Financing Activities
Borrowings on short-term lines of credit		10,584			10,824
Payments on short-term lines of credit		(13,789	)		(17,209	)
Borrowings on long-term line of credit		140,540			270,715
Payments on long-term line of credit		(156,545	)		(364,455	)
Excess tax benefit related to share-based payment arrangements		1,988			375
Common stock issued		12,794			6,571
Common stock repurchased		(24,218	)		(187	)
Cash dividends paid		(48,146	)		(45,444	)

Net cash provided by (used in) financing activities		(76,792	)		(138,810	)

Effect of exchange rate changes on cash		(1,383	)		(1,635	)

Net increase (decrease) in cash and cash equivalents		4,179			(6,707	)
Cash and cash equivalents:
Beginning of year		5,412			12,119

End of year	$	9,591		$	5,412

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