Graco Inc.

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SEC Filings

GRACO INC filed this Form 10-K on 02/17/2015
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Under terms of the hold separate order, the Company does not have the power to direct the activities of the Liquid Finishing businesses that most significantly impact the economic performance of those businesses. Therefore, we have determined that the Liquid Finishing businesses are variable interest entities for which the Company is not the primary beneficiary and that they should not be consolidated. Furthermore, the Company does not have a controlling interest in the Liquid Finishing businesses, nor is it able to exert significant influence over the Liquid Finishing businesses. Consequently, our investment in the shares of the Liquid Finishing businesses has been reflected as a cost-method investment on our Consolidated Balance Sheets as of December 26, 2014 and December 27, 2013, and their results of operations have not been consolidated with those of the Company. As a cost-method investment, income is recognized based on dividends received from current earnings of Liquid Finishing. Dividends of $28 million received in 2014, $28 million received in 2013 and $12 million received in 2012 are included in other expense (income) on the Consolidated Statements of Earnings. We evaluate our cost-method investment for other-than-temporary impairment at each reporting period. As of December 26, 2014, we evaluated our investment in the Liquid Finishing businesses and determined that there was no impairment.

Results of Operations

Net sales, operating earnings, net earnings and earnings per share were as follows (in millions except per share amounts):


  2014   2013   2012  

Net Sales

$   1,221   $   1,104   $   1,012  

Operating Earnings

  309     280     225  

Net Earnings

  226     211     149  

Diluted Net Earnings per Common Share

$ 3.65   $ 3.36   $ 2.42  

2014 Summary:

    Net sales grew by 11 percent, representing growth in all reportable segments and regions, including double digit growth in the Americas.
    Sales from acquired operations totaled $41 million for 2014, contributing 4 percentage points of the growth for the year.
    Changes in currency translation rates reduced sales and net earnings by approximately $3 million and $2 million, respectively.
    Gross profit margin, expressed as a percentage of sales, was 55 percent for the year, slightly lower than 2013 due to the effects of purchase accounting ($2.5 million) and lower margins from acquired operations.
    Investment in new product development was $54 million or 4 percent of sales in 2014.
    Operating expenses increased $30 million over 2013; approximately 75 percent of the increase relates to acquired operations and spending on regional and product growth initiatives.
    Operating earnings were consistent in 2014 and 2013 at 25 percent of sales.
    Other expense (income) included dividends received from the Liquid Finishing businesses that are held separate from the Company’s other businesses. Dividends for 2014 and 2013 were $28 million in each year.
    The effective tax rate was 28 12 percent, up from 27 percent in 2013. The effective rate was lower in 2013 primarily because it included two years of federal R&D credit as the credit was reinstated in the first quarter of 2013 retroactive to the beginning of 2012.
    Cash flows from operations totaled $241 million, compared to $243 million in the prior year; increases in accounts receivable and inventories were in line with volume growth.
    Long-term debt was $615 million at December 26, 2014, compared to $408 million at December 27, 2013.
    Dividends paid totaled $66 million in 2014.
    The Company repurchased $195 million of its stock in 2014 compared to $68 million in 2013.

2013 Summary:

    Net sales grew by 9 percent, including increases of 11 percent in the Americas, 10 percent in EMEA and 3 percent in Asia Pacific. Sales in the Industrial segment grew by 8 percent; sales in the Contractor segment grew by 15 percent and sales in the Lubrication segment decreased by 1 percent.
    First quarter 2013 sales from Powder Finishing operations acquired in April 2012 contributed approximately 3 percentage points to full-year 2013 sales growth.
    Changes in currency translation rates did not have a significant impact on sales or earnings in 2013.
    Gross profit margin as a percentage of sales increased to 55 percent from 54 percent. The effects of realized price increases and higher production volume offset the unfavorable effect of changes in product mix, including the effect of increased Powder Finishing equipment and Contractor segment sales. In 2012, non-recurring purchase accounting effects reduced gross margin for the year by approximately 1 percentage point.
    Investment in new product development was $51 million or 5 percent of sales in 2013.



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