Graco Inc.

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SEC Filings

8-K
GRACO INC filed this Form 8-K on 01/30/2017
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Page 2 GRACO


Non-cash Impairment Charges

In 2016, operating results of our Oil and Natural Gas reporting unit ("ONG") within the Process segment fell short of expectations due to weakness in oil and natural gas markets. At the end of the third quarter, we concluded that the depth and length of industry weakness, and its continuing impact on ONG results, were greater than previously expected, so we initiated an impairment analysis. We completed the impairment analysis in the fourth quarter and recorded adjustments to reduce goodwill by $147 million and other intangible assets by $45 million. The non-cash impairment charges reduced operating earnings by $192 million, created a $31 million deferred tax benefit, and decreased net earnings by $161 million.

Financial Results Adjusted for Comparability

Non-cash impairment charges in 2016 and investment income from Liquid Finishing businesses sold in 2015 created large fluctuations in financial results. Excluding those items provides a more consistent comparison of ongoing financial results. A calculation of the non-GAAP measurements of adjusted operating earnings, net earnings and diluted earnings per share, excluding non-cash impairment charges in 2016 and investment income in 2015, follows (in millions except per share amounts):
 
Quarter Ended
 
Year Ended
 
Dec 30,
2016
 
Dec 25,
2015
 
Dec 30,
2016
 
Dec 25,
2015
Operating Earnings (Loss), as reported
$
(106.9
)
 
$
76.1

 
$
113.9

 
$
302.1

Impairment
192.0

 

 
192.0

 

Operating Earnings, adjusted
$
85.1

 
$
76.1

 
$
305.9

 
$
302.1

 
 
 
 
 
 
 
 
Net Earnings (Loss), as reported
$
(104.2
)
 
$
53.5

 
$
40.7

 
$
345.7

Impairment
192.0

 

 
192.0

 

Held separate investment (income), net

 
(0.9
)
 

 
(191.6
)
Income tax effect
(30.6
)
 
0.3

 
(30.6
)
 
50.2

Net Earnings, adjusted
$
57.2

 
$
52.9

 
$
202.1

 
$
204.3

 
 
 
 
 
 
 
 
Weighted Average Diluted Shares
57.1

 
57.3

 
57.0

 
59.0

Diluted Earnings (Loss) per Share
 
 
 
 
 
 
 
   As reported
$
(1.83
)
 
$
0.94

 
$
0.71

 
$
5.86

   Adjusted
$
1.00

 
$
0.93

 
$
3.55

 
$
3.46


Consolidated Results

Sales for the quarter increased 7 percent, with increases of 7 percent in the Americas, 9 percent in EMEA (14 percent at consistent translation rates) and 4 percent in Asia Pacific. Sales for the year increased 3 percent, with increases of 2 percent in the Americas, 7 percent in EMEA and 3 percent in Asia Pacific. Incremental sales from operations acquired within the last 12 months totaled $4 million for the quarter and $19 million for the year. Changes in currency translation rates reduced sales by approximately $4 million for the quarter and $12 million for the year. Organic sales at consistent translation rates increased 7 percent for the quarter and 3 percent for the year. There were 53 weeks in fiscal 2016, with 14 weeks in the fourth quarter compared to 52 weeks in fiscal 2015, with 13 weeks in the fourth quarter.

Gross profit margin rates for the quarter and year were consistent with rates in the comparable periods last year. The favorable effects of realized pricing and product and channel mix offset the unfavorable impacts of lower factory volume.


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