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 26, 2009
Commission File Number: 001-09249
GRACO INC.
(Exact name of registrant as specified in its charter)
Minnesota
41-0285640
(State of incorporation)
(I.R.S. Employer Identification Number)
88 - 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).
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
Accelerated Filer
Non-accelerated Filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
59,924,000 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of July 16, 2009.
GRACO INC. AND SUBSIDIARIES
INDEX
Page Number
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Statements of Earnings
3
Consolidated Balance Sheets
4
Consolidated Statements of Cash Flows
5
Notes to Consolidated Financial Statements
6
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
14
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
19
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
Item 1A.
Risk Factors
20
Unregistered Sales of Equity Securities and Use of Proceeds
Submission of Matters to a Vote of Security Holders
21
Item 6.
Exhibits
SIGNATURES
EXHIBITS
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share amounts)
Thirteen Weeks Ended
Twenty-six Weeks Ended
June 26,
June 27,
2009
2008
Net Sales
$ 147,712
$ 239,230
$ 285,592
$ 443,350
Cost of products sold
74,704
110,467
148,256
202,734
Gross Profit
73,008
128,763
137,336
240,616
Product development
9,781
9,039
19,832
16,979
Selling, marketing and distribution
28,292
35,842
60,225
69,663
General and administrative
16,489
16,819
32,704
34,557
Operating Earnings
18,446
67,063
24,575
119,417
Interest expense
1,221
1,906
2,587
3,509
Other expense (income), net
91
98
686
(17)
Earnings Before Income Taxes
17,134
65,059
21,302
115,925
Income taxes
5,500
22,600
6,900
37,900
Net Earnings
$ 11,634
$ 42,459
$ 14,402
$ 78,025
Basic Net Earnings
per Common Share
$ 0.19
$ 0.70
$ 0.24
$ 1.28
Diluted Net Earnings
$ 0.69
$ 1.27
Cash Dividends Declared
$ 0.38
$ 0.37
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 26,
ASSETS
Current Assets
Cash and cash equivalents
$ 13,909
$ 12,119
Accounts receivable, less allowances of
$6,600 and $6,600
112,370
127,505
Inventories
68,536
91,604
Deferred income taxes
20,942
23,007
Other current assets
5,046
6,360
Total current assets
220,803
260,595
Property, Plant and Equipment
Cost
333,778
326,729
Accumulated depreciation
(186,184)
(176,975)
Property, plant and equipment, net
147,594
149,754
Goodwill
91,740
Other Intangible Assets, net
46,406
52,231
Deferred Income Taxes
19,780
18,919
Other Assets
8,196
6,611
Total Assets
$ 534,519
$ 579,850
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to banks
$ 14,664
$ 18,311
Trade accounts payable
15,452
18,834
Salaries, wages and commissions
11,148
17,179
Dividends payable
11,386
11,312
Other current liabilities
50,685
55,524
Total current liabilities
103,335
121,160
Long-term Debt
143,915
180,000
Retirement Benefits and Deferred Compensation
111,125
108,656
Uncertain Tax Positions
2,700
2,400
Shareholders' Equity
Common stock
59,910
59,516
Additional paid-in-capital
184,642
174,161
Retained earnings
(30)
8,445
Accumulated other comprehensive income (loss)
(71,078)
(74,488)
Total shareholders' equity
173,444
167,634
Total Liabilities and Shareholders' Equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
Cash Flows From Operating Activities
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization
16,953
15,737
(696)
(4,243)
Share-based compensation
5,209
5,081
Excess tax benefit related to share-based
payment arrangements
(300)
(2,923)
Change in
Accounts receivable
15,370
(22,217)
22,691
(13,060)
(3,218)
3,580
(6,015)
(3,647)
Retirement benefits and deferred compensation
7,215
(1,018)
Other accrued liabilities
(2,135)
(607)
Other
16
315
Net cash provided by operating activities
69,492
55,023
Cash Flows From Investing Activities
Property, plant and equipment additions
(9,129)
(12,944)
Proceeds from sale of property, plant and equipment
495
1,517
Investment in life insurance
(1,499)
Capitalized software and other intangible asset additions
(200)
(726)
Acquisitions of businesses, net of cash acquired
-
(35,266)
Net cash used in investing activities
(10,333)
(48,918)
Cash Flows From Financing Activities
Net borrowings (payments) on short-term lines of credit
(3,621)
(660)
Borrowings on long-term line of credit
68,126
162,235
Payments on long-term line of credit
(104,211)
(80,395)
300
2,923
Common stock issued
5,289
13,176
Common stock retired
(141)
(80,130)
Cash dividends paid
(22,686)
(22,582)
Net cash provided by (used in) financing activities
(56,944)
(5,433)
Effect of exchange rate changes on cash
(425)
(705)
Net increase (decrease) in cash and cash equivalents
1,790
(33)
Beginning of year
12,119
4,922
End of period
$ 4,889
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
The consolidated balance sheet of Graco Inc. and Subsidiaries (the Company) as of June 26, 2009 and the related statements of earnings for the thirteen and twenty-six weeks ended June 26, 2009 and June 27, 2008, and cash flows for the twenty-six weeks ended June 26, 2009 and June 27, 2008 have been prepared by the Company and have not been audited.
In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position of Graco Inc. and Subsidiaries
as of June 26, 2009, and the results of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. Therefore, these statements
should be read in conjunction with the financial statements and notes thereto included in the Company’s 2008
Annual Report on Form 10-K.
The results of operations for interim periods are not necessarily indicative of results that will be realized for the
full fiscal year.
2.
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
Net earnings available to
common shareholders
Weighted average shares
outstanding for basic
earnings per share
59,903
60,540
59,770
60,897
Dilutive effect of stock
options computed using the
treasury stock method and
the average market price
280
682
273
672
outstanding for diluted
60,183
61,222
60,043
61,569
Basic earnings per share
Diluted earnings per share
Stock options to purchase 3,920,000 and 1,889,000 shares were not included in the 2009 and 2008 computations
of diluted earnings per share, respectively, because they would have been anti-dilutive.
3.
Information on option shares outstanding and option activity for the twenty-six weeks ended June 26, 2009 is shown below (in thousands, except per share amounts):
Weighted
Average
Option
Exercise
Options
Shares
Price
Exercisable
Outstanding, December 26, 2008
3,955
$ 30.77
2,186
$ 24.98
Granted
1,180
20.74
Exercised
(80)
7.82
Canceled
(69)
33.62
Outstanding, June 26, 2009
4,986
$ 28.73
2,525
$ 27.92
The aggregate intrinsic value of exercisable option shares was $6.5 million as of June 26, 2009, with a weighted
average contractual term of 4.5 years. There were approximately 4.9 million share options vested and expected to
vest as of June 26, 2009, with an aggregate intrinsic value of $7.4 million, a weighted average exercise price of
$28.73 and a weighted average contractual term of 6.7 years.
Information related to options exercised in the first six months of 2009 and 2008 follows (in thousands):
Cash received
$ 622
$ 6,605
Aggregate intrinsic value
1,015
8,359
Tax benefit realized
400
3,000
As of June 26, 2009, there was $9.7 million of unrecognized compensation cost related to unvested options, expected
to be recognized over a weighted average period of 2.4 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions and results:
Expected life in years
6.0
Interest rate
2.1%
3.2%
Volatility
30.1%
25.0%
Dividend yield
3.7%
Weighted average fair value per share
$ 4.27
$ 8.43
Under the Company’s Employee Stock Purchase Plan, the Company issued 312,000 shares in 2009 and 216,000
shares in 2008. The fair value of the employees’ purchase rights under this Plan was estimated on the date of grant.
The benefit of the 15 percent discount from the lesser of the fair market value per common share on the first day and
the last day of the plan year was added to the fair value of the employees’ purchase rights determined using the
Black-Scholes option-pricing model with the following assumptions and results:
1.0
0.7%
1.5%
51.5%
27.1%
4.5%
$ 5.60
$ 8.14
4.
The components of net periodic benefit cost (credit) for retirement benefit plans were as follows
(in thousands):
Pension Benefits
Service cost
$
1,141
2,420
2,803
Interest cost
3,115
3,144
6,335
6,290
Expected return on assets
(2,850
)
(5,550
(9,700
Amortization and other
2,313
144
4,727
296
Net periodic benefit cost (credit)
3,719
7,932
Postretirement Medical
100
250
375
650
750
Amortization
Net periodic benefit cost
900
The Company paid $1.5 million in June 2009 and $1.5 million in June 2008 for contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans. These insurance contracts will be used to fund the non-qualified pension and deferred compensation arrangements. The insurance contracts are held in a trust and are available to general creditors in the event
of the Company’s insolvency. Cash surrender value of $4.1 million and $2.7 million is included in other assets
in the consolidated balance sheet as of June 26, 2009 and December 28, 2008, respectively.
5.
Total comprehensive income was as follows (in thousands):
Net earnings
Cumulative translation
adjustment
(26)
234
(31)
Pension and postretirement
medical liability adjustment
2,422
65
4,751
189
Gain (loss) on interest
rate hedge contracts
364
2,352
291
(423)
(1,030)
(893)
(1,866)
84
Comprehensive income
$ 13,390
$ 43,957
$ 17,812
$ 77,844
Pension and postretirement medical liability adjustment
$ (67,329)
$ (70,322)
Gain (loss) on interest rate hedge contracts
(2,926)
(3,109)
Cumulative translation adjustment
(823)
(1,057)
Total
$ (71,078)
$ (74,488)
6.
The Company has three reportable segments: Industrial, Contractor and Lubrication. The Company
does not track assets by segment. Sales and operating earnings by segment for the thirteen and
twenty-six weeks ended June 26, 2009 and June 27, 2008 were as follows (in thousands):
Industrial
$ 73,334
$ 133,092
$ 148,566
$ 247,343
Contractor
60,386
82,061
107,834
148,241
Lubrication
13,992
24,077
29,192
47,766
Consolidated
$ 13,435
$ 44,075
$ 24,930
$ 81,973
12,043
20,741
13,282
34,437
(1,745)
4,607
(3,181)
8,924
Unallocated corporate (expense)
(5,287)
(2,360)
(10,456)
(5,917)
$ 18,446
$ 67,063
$ 24,575
$ 119,417
7.
Major components of inventories were as follows (in thousands):
Finished products and components
$ 42,981
$ 50,703
Products and components in various
stages of completion
26,305
24,938
Raw materials and purchased components
33,917
51,348
103,203
126,989
Reduction to LIFO cost
(34,667)
(35,385)
$ 68,536
$ 91,604
8.
Information related to other intangible assets follows (dollars in thousands):
Estimated
Foreign
Life
Original
Accumulated
Currency
Book
(years)
Translation
Value
June 26, 2009
Customer relationships
3 - 8
$ 41,075
$ (15,562)
$ (181)
$ 25,332
Patents, proprietary technology
and product documentation
3 - 15
22,737
(12,026)
(87)
10,624
Trademarks, trade names
and other
3 - 10
4,304
(1,384)
2,920
68,116
(28,972)
(268)
38,876
Not Subject to Amortization:
Brand names
7,530
$ 75,646
$ (28,972)
$ (268)
$ 46,406
December 26, 2008
$ (12,470)
$ 28,424
23,780
(11,290)
12,403
5,514
(3,908)
(12)
1,594
70,369
(27,668)
(280)
42,421
9,810
$ 80,179
$ (27,668)
$ (280)
$ 52,231
In the second quarter of 2009, the useful life of certain brand names was determined to be no longer indefinite. The original cost of such brand names, totaling $2.3 million, is being amortized over a three-year period beginning April 1, 2009. Amortization of intangibles was $3.0 million in the second quarter of 2009 and $5.8 million year-to-date. Estimated annual amortization expense is as follows: $11.2 million in 2009, $10.5 million in 2010, $9.4 million in 2011, $7.9 million in 2012, $4.1 million in 2013 and $1.6 million thereafter.
9.
Components of other current liabilities were (in thousands):
Accrued self-insurance retentions
$ 7,978
$ 7,896
Accrued warranty and service liabilities
7,613
8,033
Accrued trade promotions
4,235
9,001
Payable for employee stock purchases
2,207
5,473
Income taxes payable
4,555
904
24,097
24,217
$ 50,685
$ 55,524
A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors including evaluating specific product warranty issues. Following is a summary of activity in accrued warranty and service liabilities (in thousands):
Twenty-six
Weeks Ended
Year Ended
Balance, beginning of year
$ 8,033
$ 7,084
Charged to expense
2,416
6,793
Margin on parts sales reversed
1,477
3,698
Reductions for claims settled
(4,313)
(9,542)
Balance, end of period
$ 7,613
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.
rate swaps to manage known market exposures. Terms of derivative instruments are structured to match the terms
of the risk being managed and are generally held to maturity. The Company does not hold or issue derivative financial
instruments for trading purposes. All other contracts that contain provisions meeting the definition of a derivative also
meet the requirements of, and have been designated as, normal purchases or sales. The Company’s policy is to not
enter into contracts with terms that cannot be designated as normal purchases or sales.
In 2007, the Company entered into interest rate swap contracts that effectively fix the rates paid on a total of $80 million
of variable rate borrowings. One contract fixed the rate on $40 million of borrowings at 4.7 percent plus the applicable
spread (depending on cash flow leverage ratio) until December 2010. The second contract fixed an additional $40 million
of borrowings at 4.6 percent plus the applicable spread until January 2011. Both contracts have been designated as cash
flow hedges against interest rate volatility. Consequently, changes in the fair market value are recorded in accumulated
other comprehensive income (loss) (AOCI). Amounts included in AOCI will be reclassified to earnings as interest rates
increase and as the swap contracts approach their expiration dates. Net amounts paid or payable under terms of the
contracts were charged to interest expense and totaled $1.3 million in the first half of 2009.
The Company periodically evaluates its monetary asset and liability positions denominated in foreign currencies.
The Company enters into forward contracts or options, or borrows in various currencies, in order to hedge its net
monetary positions. These instruments are recorded at current market values and the gains and losses are
included in other expense (income), net. There were seven contracts outstanding as of June 26, 2009, with
notional amounts totaling $13 million. There were 33 contracts outstanding during all or part of the first half
of 2009, with net losses of $0.4 million included in other expense (income), net. The Company believes it
uses strong financial counterparts in these transactions and that the resulting credit risk under these hedging
strategies is not significant.
The Company uses significant other observable inputs to value the derivative instruments used to hedge
interest rate volatility and net monetary positions. The fair market value and balance sheet classification of such
instruments follows (in thousands):
Balance Sheet
Classification
$ (4,645)
$ (4,936)
Gain (loss) on foreign
currency forward contracts
Gains
$ 352
$ 1,868
Losses
(428)
(670)
Net
$ 1,198
Other current liabilites
$ (76)
11.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” This statement establishes a consistent framework for measuring fair value and expands disclosures on fair market value measurements. SFAS No. 157 was effective for the Company starting in fiscal 2008 for financial assets and liabilities. With respect to non-financial assets and liabilities, the statement was effective for the Company starting in fiscal 2009. The adoption of this statement as it pertains to non-financial assets and liabilities had no significant impact on the consolidated financial statements.
12.
The Company has evaluated subsequent events through the time the financial statements were approved for issuance on July 22, 2009.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray
fluid materials. Management classifies the Company’s business into three reportable segments: Industrial, Contractor and
Lubrication. Key strategies include development of new products, expansion of distribution and new market penetration.
The following Management’s Discussion and Analysis reviews significant factors affecting the Company’s results of
operations and financial condition. This discussion should be read in conjunction with the financial statements and the
accompanying notes to the financial statements.
Results of Operations
Net sales, net earnings and earnings per share were as follows (in millions except per share amounts and percentages):
%
Change
$ 147.7
$ 239.2
(38)%
$ 285.6
$ 443.4
(36)%
$ 11.6
$ 42.5
(73)%
$ 14.4
$ 78.0
(82)%
(72)%
(81)%
Weak economic conditions worldwide continued to affect the Company’s operating results. Sales and orders decreased
in all segments and regions. Currency translation had an unfavorable effect on sales ($5 million for the quarter and $11 million
year-to-date) and net earnings ($2 million for the quarter and $4 million year-to-date). Year-to-date, the Company has recorded
$5 million of cost related to workforce reductions, mostly in the first quarter. The resulting decrease in cost structure contributed
to an improvement in second quarter net earnings compared to the first quarter.
Consolidated Results
Sales by geographic area were as follows (in millions):
Americas 1
$ 88.3
$ 131.9
$ 168.5
$ 247.8
Europe 2
34.6
72.0
70.4
131.6
Asia Pacific
24.8
35.3
46.7
64.0
1 North and South America, including the U.S.
2 Europe, Africa and Middle East
Sales for the quarter are down 33 percent in the Americas, 52 percent in Europe (46 percent at consistent
translation rates) and 29 percent in Asia Pacific. Year-to-date sales are down 32 percent in the Americas,
47 percent in Europe (40 percent at consistent translation rates) and 27 percent in Asia Pacific. Consolidated
sales are down 38 percent for the quarter (36 percent at consistent translation rates) and 36 percent
year-to-date (33 percent at consistent translation rates).
Gross profit margin, expressed as a percentage of sales, was 49.4 percent for the quarter and 48.1 percent
year-to-date, down from 53.8 percent and 54.3 percent, respectively, for the comparable periods last year.
Decreases in both the quarter and year-to-date are due to lower production volumes (approximately 4
percentage points), unfavorable currency translation rates (approximately 1½ percentage points) and
increased pension cost (approximately 1 percentage point). Decreases were offset somewhat by
favorable material costs (approximately 1 percentage point). Workforce reduction costs in the
first quarter affected the year-to-date margin rate by approximately 1 percentage point.
Total operating expenses for the quarter and year-to-date are down 12 percent and 7 percent, respectively.
Decreases from translation effects ($2 million for the quarter, $4 million year-to-date), lower incentive and
bonus provisions and spending reductions are partially offset by higher product development and pension
expenses. Increases in product development expense reflect the Company’s commitment to continued
development of new and improved products as a key component of its strategy for future growth.
Year-to-date operating expenses include approximately $2 million related to workforce reductions made
primarily in the first quarter.
The effective income tax rate was 32.1 percent for the quarter compared to 34.7 percent for the second
quarter of 2008. The rate was higher in 2008 because the R&D tax credit was not renewed until the
fourth quarter and no credit was included in the second quarter provision.
Segment Results
Certain measurements of segment operations compared to last year are summarized below:
Net sales (in millions)
Americas
$ 35.5
$ 61.6
$ 71.3
$ 114.9
Europe
19.8
46.1
43.7
85.8
18.0
25.4
33.6
46.6
$ 73.3
$ 133.1
$ 148.6
$ 247.3
Operating earnings as a
percentage of net sales
18%
33%
17%
For the quarter, Industrial segment sales decreased 42 percent in the Americas, 57 percent in Europe
(52 percent at consistent translation rates) and 29 percent in Asia Pacific. Year-to-date sales decreased
38 percent in the Americas, 49 percent in Europe (43 percent at consistent translation rates) and 28 percent
in Asia Pacific.
In the second quarter, the impacts of low volume and currency translation on operating earnings were
partially offset by the impacts of lower selling-related expenses and spending reductions initiated in
prior quarters. Low volume, workforce reduction costs, currency translation and increased product
development expense affected year-to-date operating earnings as a percentage of sales.
$ 41.0
$ 51.4
$ 72.8
$ 93.7
14.0
24.0
42.0
5.4
6.7
10.2
12.5
$ 60.4
$ 82.1
$ 107.8
$ 148.2
20%
25%
12%
23%
For the quarter, Contractor segment sales decreased 20 percent in the Americas, 42 percent in Europe
(35 percent at consistent translation rates) and 18 percent in Asia Pacific. Year-to-date sales decreased
22 percent in the Americas, 41 percent in Europe (33 percent at consistent translation rates) and
18 percent in Asia Pacific.
In the second quarter, the impacts of low volume and currency translation on operating earnings were partially
offset by the impacts of lower selling-related expenses and spending reductions initiated in prior quarters.
Low volume, workforce reduction costs, currency translation and increased product development expense affected
year-to-date operating earnings as a percentage of sales. Contractor operating results were also affected by sales,
costs and expenses related to the rollout of entry-level paint sprayers to additional paint and home center stores in
both 2009 and 2008.
$ 11.8
$ 19.0
$ 24.4
$ 39.1
0.8
1.9
3.8
1.4
3.2
2.9
4.9
$ 14.0
$ 24.1
$ 29.2
$ 47.8
(12)%
19%
(11)%
In the second quarter, the impact of low volume on operating earnings were partially offset by the impacts
of lower selling-related expenses and spending reductions initiated in prior quarters. Low volume, workforce
reduction costs and increased product development expense affected year-to-date operating earnings as a
percentage of sales. Mix of products sold and costs related to discontinued products contributed to lower
margin rates in the Lubrication segment.
Liquidity and Capital Resources
In the first half of 2009, the Company used cash to reduce the borrowings under its long-term line of
credit by $36 million and paid dividends of $23 million. Significant uses of cash and borrowings in the
first half of 2008 included $80 million for purchases and retirement of Company common stock,
$35 million for a business acquisition and $23 million for payment of dividends.
Since the end of 2008, inventories have been reduced by $23 million. Accounts receivable decreased by
$15 million from continuing collections and lower sales levels.
At June 26, 2009, the Company had various lines of credit totaling $281 million, of which $123 million was
unused. Internally generated funds and unused financing sources are expected to provide the Company
with the flexibility to meet its liquidity needs in 2009.
Outlook
Management expects that global economic conditions will continue to present a challenging operating
environment for at least the rest of the year. To the extent permitted by working capital resources, management
intends to continue making targeted investments in strategic operating and growth initiatives, including new
product development, improving manufacturing efficiencies, expanding distribution and entering new markets.
Working capital management will continue to be a high priority for the remainder of 2009. The Company plans to
further reduce inventory and continue its focus on collection of receivables over their normal cycle.
Given the uncertainty in world economies and the possibility of continued weakness in markets
served, management has contingency plans to appropriately respond to conditions as they develop.
SAFE HARBOR CAUTIONARY STATEMENT
A forward-looking statement is any statement made in this report and other reports that the Company
files periodically with the Securities and Exchange Commission, or in press or earnings releases, analyst
briefings and conference calls, which reflects the Company’s current thinking on market trends and the
Company’s future financial performance at the time they are made. All forecasts and projections
are forward-looking statements.
The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by
or on behalf of the Company. The Company cannot give any assurance that the results forecasted in
any forward-looking statement will actually be achieved. Future results could differ materially from those
expressed, due to the impact of changes in various factors. These risk factors include, but are not limited to:
economic conditions in the United States and other major world economies, currency fluctuations, political
instability, changes in laws and regulations, and changes in product demand. Please refer to Item 1A of,
and Exhibit 99 to, the Company’s Annual Report on Form 10-K for fiscal year 2008 for a more comprehensive
discussion of these and other risk factors.
Investors should realize that factors other than those identified above and in Item 1A and Exhibit 99 might
prove important to the Company’s future results. It is not possible for management to identify each and
every factor that may have an impact on the Company’s operations in the future as new factors can develop
from time to time.
There have been no material changes related to market risk from the disclosures made in the Company’s
2008 Annual Report on Form 10-K.
Evaluation of disclosure controls and procedures
As of the end of the fiscal quarter covered by this report, the Company carried out an evaluation of the effectiveness of the
design and operation of its disclosure controls and procedures. This evaluation was done under the supervision
and with the participation of the Company’s President and Chief Executive Officer, the Chief Financial Officer and
Treasurer, the Vice President and Controller, and the Vice President, General Counsel and Secretary.
Based upon that evaluation, they concluded that the Company’s disclosure controls and procedures are effective
in gathering, analyzing and disclosing information needed to satisfy the Company’s disclosure obligations under
the Exchange Act.
Changes in internal controls
During the quarter, there was no change in the Company’s internal control over financial reporting that has materially
affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
There have been no material changes to the Company’s risk factors from those disclosed in the Company’s 2008 Annual
Report on Form 10-K.
Issuer Purchases of Equity Securities
On September 28, 2007, the Board of Directors authorized the Company to purchase up to 7,000,000 shares of its
outstanding common stock, primarily through open-market transactions. This authorization expires on September 30, 2009.
In addition to shares purchased under the Board authorizations, the Company purchases shares of common stock held
by employees who wish to tender owned shares to satisfy the exercise price or tax withholding on option exercises.
Information on issuer purchases of equity securities follows:
Maximum
Number of
Number
Shares that
of Shares
May Yet Be
Purchased
as Part of
Under the
Publicly
Plans or
Announced
Programs
Paid per
(at end of
Period
Share
period)
Mar 28, 2009 – Apr 24, 2009
$ -
3,068,234
Apr 25, 2009 – May 22, 2009
$ 22.57
May 23, 2009 – Jun 26, 2009
At the Annual Meeting of Shareholders held on April 24, 2009, three directors were elected to the
Board of Directors with the following votes:
For
Withheld
William J. Carroll
51,744,263
1,246,050
Jack W. Eugster
51,737,026
1,253,287
R. William Van Sant
51,760,317
1,229,997
At the same meeting, the appointment of Deloitte & Touche LLP as the Independent Registered Public Accounting
Firm was ratified, with the following votes:
Against
Abstentions
52,101,637
842,984
45,691
31.1
Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).
31.2
Certification of Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a).
32
Certification of the President and Chief Executive Officer and the Chief Financial Officer and Treasurer pursuant to Section 1350 of Title 18, U.S.C.
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.
Date:
By:
/s/Patrick J. McHale
Patrick J. McHale
President and Chief Executive Officer
(Principal Executive Officer)
/s/James A. Graner
James A. Graner
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/Caroline M. Chambers
Caroline M. Chambers
Vice President and Controller
(Principal Accounting Officer)