November
11, 2009
Securities
and Exchange Commission
Attention: Mr.
Daniel Morris, Special Counsel
Division
of Corporation Finance
100 F
Street N.E.
Washington,
D.C. 20549
VIA
EDGAR
|
Re:
|
Graco
Inc. — SEC File No. 001-09249
|
|
Form
10-K for the fiscal year ended
December
26, 2008
|
|
|
Filed
February 17, 2009
|
Dear Mr.
Morris:
This
letter contains responses of Graco Inc. (the “Company”) to the Staff’s comment
letter dated October 30, 2009. The Staff’s comments have been
reproduced here in italics and the Company’s responses are detailed under each
comment.
Item 1A. Risk Factors, page
8
|
1.
|
We
note that you have disclosed a total of six risk factors on pages 8 and 9
and have not added any risk factors in your subsequent Form 10-Q
filings. Please consider whether it would be appropriate to
disclose, without limitation, material risks, if any, relating to reduced
revenues and earnings in recent quarters, changes in the competitive
environment owing to the present economic climate, your reliance on new
product offerings and/or your adoption of a poison pill
plan. Refer to Item 503(c) of Regulation
S-K.
|
Response:
We
believe that the risk factors identified in our Form 10-K identify all the
material risks to our business. As the comment notes, the present
economic climate has impacted our revenues and earnings. We believe
that the first risk factor disclosed in Item 1A, titled “Economic Environment –
Demand for our products depends on the level of commercial and industrial
activity worldwide”, identified the risks that we, in fact, experienced over the
last year and a half. With respect to a potential risk
regarding changes in the competitive environment suggested by the comment, we
believe that the current economic conditions have affected our competitors in a
manner similar to us and thus there has not been any change in our position
relative to our competitors. While new product development is a core
strategy of ours, we do not believe it is a risk to our business in that we are
not dependent on any one new development. Finally, while it is true
that we have, for several years, had a poison pill in place, we do not believe
that the existence of the poison pill creates a material risk to our business
performance or stock price. Our Company’s disclosure committee
reviews our risk factors quarterly and we will include any updates or additions
to our risk factors in future filings as appropriate.
Item 11. Executive
Compensation, page 49
|
2.
|
We
note from your disclosure under “Benchmarking” that you have incorporated
by reference from page 12 of your proxy statement that you target base
salaries for your named executive officers at the median of peer companies
with similar sales volume. In future filings, as applicable,
please include a brief analysis of where actual base salaries fall within
the targeted range. If any of your named executive officers are
compensated at levels that are materially different from the targeted
levels of base salary, please also provide discussions and analysis as to
why. Also, to the extent that you set targets for total
compensation, annual incentives and/or long-term incentives based on peer
company data, please include similar analysis in your future filings as
applicable.
|
Response:
As
disclosed in the Benchmarking section of our proxy statement, we have
principally relied upon a survey compiled by Hewitt that is based exclusively on
U.S. manufacturing companies with similar sales volume. The Peer
Group Survey is used as a general reference to ensure that our compensation
practices are in alignment with views on competitive pay for named executive
officers in our industry. In future filings, as applicable, we will
include a brief analysis of where actual base salaries fall within the targeted
range of the manufacturing company survey used by the Committee. If
any named executive officer is compensated at levels materially different from
the targeted level of base salary, we will also provide discussion and analysis
as to why. To the extent we set targets for total compensation,
annual incentives and/or long-term incentives based on other survey data, we
will include a similar analysis.
|
3.
|
We
note from your disclosure under “Annual Cash Incentive” on page 15 that
you have an Executive Officer Annual Incentive Bonus Plan that is distinct
from your Executive Officer Bonus Plan. Please confirm that you
will disclose in future filings why you have two annual cash incentive
plans and explain the differences between such plans, including, as
applicable, the financial measures used to assess each executive officer,
the payout targets established, and the amounts paid to executives under
these plans.
|
Response:
As
described on page 15, our Executive Officer Annual Incentive Bonus Plan meets
the requirements under Section 162(m) of the Internal Revenue Code so that
payments made under the plan qualify for the performance-based compensation
exemption from the limits on deductibility under Section 162(m). In
contrast, our Executive Officer Bonus Plan does not meet all such requirements,
such as the requirement that the plan be approved by shareholders, and is used
to make payments to individuals who are not subject to Section 162(m) or whose
compensation is below the deductibility limit under Section 162(m). Our
executives are not paid simultaneously under both plans. In future
filings, we will further clarify any differences between these
plans.
|
4.
|
We
note from your Summary Compensation Table on page 19 that three of your
five named executive officers received stock awards in 2008. In
future filings, as applicable, please disclose why you made these grants,
describe how you determined the grant amounts, and explain the reasons for
any variances between grants paid to the various
officers.
|
Response:
The
amounts shown under the “Stock Awards” column of the Summary Compensation Table
for 2008 on page 19 reports the expense recognized in fiscal 2008 for restricted
stock awards actually granted in December 2007. There were no
restricted stock awards in 2008. Disclosure related to the 2007
restricted stock awards was set forth in the “Stock-based Awards” section of the
2009 proxy statement on page 16. In that section, we disclosed the
reasons for these grants, how the grant amounts were determined and why there
were variances between the grants made to different executive
officers. In future filings, we will continue to disclose similar
information for any stock awards.
Form 10-K for the period
ending December 26, 2009
Financial Statements and
Supplementary Data
Notes to Consolidated
Financial Statements
B. Segment
Information
|
5.
|
Disclosure
of long-lived assets by geographic area should present tangible assets
only and should not include intangibles or investments. Please
revise your disclosures in future filings to comply with paragraph
280-10-55-23 of the FASB Accounting Standards
Codification.
|
Response:
In future
filings, we will not include intangibles or investments in our disclosure of
long-lived assets by geographic area.
J. Retirement
Benefits
|
6.
|
We
see that you recognized a net loss on pension benefits during the period
of $102.8 million in other comprehensive (income) loss in
2008. Please tell us more about what the loss represents, why
it occurred as well as the authoritative accounting literature that you
relied on to determine your accounting and presentation for
it.
|
Response:
As
defined by FASB Accounting Standards Codification (ASC) topic 715-30-35-18, the
net loss represents changes in the value of either the projected benefit
obligation or the plan assets resulting from experience different from that
assumed or from a change in an actuarial assumption. In 2008, the loss resulted
mainly from a decrease in the market value of pension assets. The
loss is included in other comprehensive income in accordance with FASB ASC topic
715-30-35-21 and disclosed in accordance with FASB ASC topic
715-20-50-1(i).
Item 9A. Controls and
Procedures
|
7.
|
We
note the language added after the word effective in management’s
conclusion regarding the effectiveness of your disclosure controls and
procedures. The language that is currently included after the
word effective in your disclosure appears to be superfluous, since the
meaning of disclosure controls and procedures is established by Rule
13a-15(e) of the Exchange Act. Please remove the language in
your future filings, including any amendments, or revise the disclosure in
those filings so that the language that appears after the word effective
is substantially similar in all material respects to the language that
appears in the entire two-sentence definition of “disclosure controls and
procedures” set forth in Rule
13a-15(e).
|
Response:
Beginning
with the 2009 Form 10-K, our future filings will remove the language after the
word “effective.”
Forms 10-Q for the periods
ended March 27, 2009, June 26, 2009 and September 25, 2009
Signatures
|
8.
|
We
note that your Form 10-Q for the period ended September 25, 2009 is not
appropriately dated. Please file an appropriately signed and
currently dated amendment to the Form 10-Q for the period ended September
25, 2009. Please consider this comment together with comment 9
below.
|
Response:
The
original Form 10-Q for the period ended September 25, 2009, was appropriately
signed and currently dated and is available at our offices in
Minnesota. Certain dates and signatures were unintentionally omitted
from the EDGAR version of this Form 10-Q. We will file an
appropriately signed and dated amendment to the Form 10-Q for the period ended
September 25, 2009.
Certifications, Exhibit 31
and 32
|
9.
|
We
note that your certifications filed pursuant to Section 302 and 906 of the
Sarbanes-Oxley Act of 2002 are not appropriately dated and in certain
periods are not appropriately signed. Please file an amendment
to each of your Forms 10-Q for the periods ended March 27, 2009, June 26,
2009 and September 25, 2009 to include certifications that are
appropriately signed and currently dated by your Chief Executive Officer
and Chief Financial Officer. Your amendments must each include
the entire periodic report as well as currently dated and signed 906 and
302 certifications.
|
Response:
The
original certifications for the Forms 10-Q for periods ended March 27, 2009,
June 26, 2009 and September 25, 2009 were appropriately dated and appropriately
signed and are available at our offices in Minnesota. Certain dates
and signatures were unintentionally omitted from the EDGAR version of these
certifications. We will file an amendment to each of our Forms 10-Q
for the periods ended March 27, 2009, June 26, 2009 and September 25, 2009, to
include certifications that are appropriately signed and dated by our Chief
Executive Officer and Chief Financial Officer. Our amendments will
include the entire periodic report as well as appropriately dated and signed 906
and 302 certifications.
As
specifically requested by the Commission, we acknowledge that:
|
·
|
the
Company is responsible for the adequacy and accuracy of the disclosure in
the above-referenced filing;
|
|
·
|
Staff
comments or changes to disclosure in response to Staff comments in the
filing reviewed by the staff do not foreclose the Commission from taking
any action with respect to the filing;
and
|
|
·
|
the
Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
|
If you
have any further comments or questions, please don’t hesitate to contact me at
612-623-6635 or Caroline Chambers, Corporate Controller, at
612-623-6694.
Sincerely,
GRACO
INC.
/s/James
A. Graner
James A.
Graner
Chief
Financial Officer and Treasurer
|
cc:
|
Brian
Mallaro, Deloitte & Touche
Julie
Sherman, SEC Staff Accountant
Jay
Webb, SEC Reviewing Accountant
Jeff
Jaramillo, SEC Accounting Branch Chief
Joseph
McCann, SEC Staff Attorney
|