Graco Inc.

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10-Q
GRACO INC filed this Form 10-Q on 10/25/2017
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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 September 29, 2017

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 (or for such shorter period that the registrant was required to file such reports), 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 for such shorter period that the registrant was required to submit and post such files).
 
Yes
X
 
No
 
 


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
X
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).
 
Yes
 
 
No
X
 

56,130,000 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of October 19, 2017.



TABLE OF CONTENTS 
 
 
 
 
Page
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 3.
 
 
 
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBITS
 

2


PART I     Item 1.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (In thousands except per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Sales
$
379,812

 
$
327,192

 
$
1,099,885

 
$
980,230

Cost of products sold
176,347

 
150,594

 
507,206

 
456,695

Gross Profit
203,465

 
176,598

 
592,679

 
523,535

Product development
14,815

 
14,671

 
44,215

 
44,964

Selling, marketing and distribution
57,941

 
49,269

 
168,912

 
158,106

General and administrative
31,072

 
31,194

 
95,325

 
99,710

Operating Earnings
99,637

 
81,464

 
284,227

 
220,755

Interest expense
3,901

 
4,432

 
12,110

 
13,468

Other expense (income), net
(656
)
 
416

 
(1,454
)
 
(338
)
Earnings Before Income Taxes
96,392

 
76,616

 
273,571

 
207,625

Income taxes
20,932

 
22,228

 
57,551

 
62,738

Net Earnings
$
75,460

 
$
54,388

 
$
216,020

 
$
144,887

Per Common Share
 
 
 
 
 
 
 
Basic net earnings
$
1.35

 
$
0.98

 
$
3.87

 
$
2.61

Diluted net earnings
$
1.30

 
$
0.95

 
$
3.73

 
$
2.55

Cash dividends declared
$
0.36

 
$
0.33

 
$
1.08

 
$
0.99

See notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Earnings
$
75,460

 
$
54,388

 
$
216,020

 
$
144,887

Components of other comprehensive
income (loss)
 
 
 
 
 
 
 
Cumulative translation adjustment
574

 
(6,642
)
 
17,921

 
(16,679
)
Pension and postretirement medical
liability adjustment
2,250

 
1,707

 
6,034

 
4,957

Income taxes - pension and postretirement
medical liability adjustment
(797
)
 
(619
)
 
(2,280
)
 
(1,823
)
Other comprehensive income (loss)
2,027

 
(5,554
)
 
21,675

 
(13,545
)
Comprehensive Income
$
77,487

 
$
48,834

 
$
237,695

 
$
131,342

See notes to consolidated financial statements.

3


GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)
 
September 29,
2017
 
December 30,
2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
140,000

 
$
52,365

Accounts receivable, less allowances of $14,100 and $12,700
258,632

 
218,365

Inventories
222,878

 
201,609

Other current assets
20,889

 
31,023

Total current assets
642,399

 
503,362

Property, Plant and Equipment
 
 
 
Cost
518,486

 
489,642

Accumulated depreciation
(319,058
)
 
(300,046
)
Property, Plant and Equipment, net
199,428

 
189,596

Goodwill
272,858

 
259,849

Other Intangible Assets, net
181,108

 
178,336

Deferred Income Taxes
81,756

 
86,653

Other Assets
26,674

 
25,313

Total Assets
$
1,404,223

 
$
1,243,109

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 
Notes payable to banks
$
6,215

 
$
8,913

Current portion of long term debt
75,000

 

Trade accounts payable
46,603

 
39,988

Salaries and incentives
49,574

 
37,109

Dividends payable
20,196

 
20,088

Other current liabilities
90,683

 
71,887

Total current liabilities
288,271

 
177,985

Long-term Debt
225,000

 
305,685

Retirement Benefits and Deferred Compensation
145,224

 
159,250

Deferred Income Taxes
17,433

 
17,672

Other Non-current Liabilities
8,306

 
8,697

Shareholders’ Equity
 
 
 
Common stock
56,115

 
55,834

Additional paid-in-capital
504,072

 
453,394

Retained earnings
280,355

 
206,820

Accumulated other comprehensive income (loss)
(120,553
)
 
(142,228
)
Total shareholders’ equity
719,989

 
573,820

Total Liabilities and Shareholders’ Equity
$
1,404,223

 
$
1,243,109

See notes to consolidated financial statements.

4


GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
Cash Flows From Operating Activities
 
 
 
Net Earnings
$
216,020

 
$
144,887

Adjustments to reconcile net earnings to net cash
provided by operating activities
 
 
 
Depreciation and amortization
33,620

 
36,846

Deferred income taxes
58

 
(8,470
)
Share-based compensation
19,154

 
16,143

Change in
 
 
 
Accounts receivable
(31,614
)
 
6,100

Inventories
(16,788
)
 
1,628

Trade accounts payable
4,319

 
1,057

Salaries and incentives
7,214

 
(6,914
)
Retirement benefits and deferred compensation
(8,595
)
 
7,431

Other accrued liabilities
25,402

 
9,379

Other
(2,642
)
 
(367
)
Net cash provided by operating activities
246,148

 
207,720

Cash Flows From Investing Activities
 
 
 
Property, plant and equipment additions
(28,899
)
 
(34,347
)
Acquisition of businesses, net of cash acquired
(12,905
)
 
(48,643
)
Change in restricted assets
1,349

 
150

Other
(124
)
 
(130
)
Net cash provided by (used in) investing activities
(40,579
)
 
(82,970
)
Cash Flows From Financing Activities
 
 
 
Borrowings (payments) on short-term lines of credit, net
(3,361
)
 
(7,349
)
Borrowings on long-term line of credit
293,880

 
532,724

Payments on long-term line of credit
(299,565
)
 
(569,639
)
Common stock issued
53,422

 
28,729

Common stock repurchased
(90,160
)
 
(48,050
)
Taxes paid related to net share settlement of equity awards
(10,735
)

(3,165
)
Cash dividends paid
(60,273
)
 
(55,058
)
Net cash provided by (used in) financing activities
(116,792
)
 
(121,808
)
Effect of exchange rate changes on cash
(1,142
)
 
(1,915
)
Net increase (decrease) in cash and cash equivalents
87,635

 
1,027

Cash and Cash Equivalents
 
 
 
Beginning of year
52,365

 
52,295

End of period
$
140,000

 
$
53,322

See notes to consolidated financial statements.

5


GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation

The consolidated balance sheet of Graco Inc. and Subsidiaries (the “Company”) as of September 29, 2017 and the related statements of earnings and comprehensive income for the three and nine months ended September 29, 2017 and September 23, 2016, and cash flows for the nine months ended September 29, 2017 and September 23, 2016 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 the Company as of September 29, 2017, 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 2016 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.Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net earnings available to common shareholders
$
75,460

 
$
54,388

 
$
216,020

 
$
144,887

Weighted average shares outstanding for basic earnings per share
56,023

 
55,684

 
55,864

 
55,571

Dilutive effect of stock options computed using the treasury stock method and the average market price
2,181

 
1,285

 
2,084

 
1,335

Weighted average shares outstanding for diluted earnings per share
58,204

 
56,969

 
57,948

 
56,906

Basic earnings per share
$
1.35

 
$
0.98

 
$
3.87

 
$
2.61

Diluted earnings per share
$
1.30

 
$
0.95

 
$
3.73

 
$
2.55


Stock options to purchase 6,000 and 1,034,000 shares were not included in the September 29, 2017 and September 23, 2016 computations of diluted earnings per share, respectively, because they would have been anti-dilutive.

3.Share-Based Awards

Options on common shares granted and outstanding, as well as the weighted average exercise price, are shown below (in thousands, except exercise prices):
 
Option
Shares
 
Weighted Average
Exercise Price
 
Options
Exercisable
 
Weighted Average
Exercise Price
Outstanding, December 30, 2016
5,535

 
$
55.26

 
3,672

 
$
45.40

Granted
575

 
92.13

 
 
 
 
Exercised
(1,138
)
 
40.97

 
 
 
 
Canceled
(38
)
 
80.31

 
 
 
 
Outstanding, September 29, 2017
4,934

 
$
62.66

 
3,071

 
$
51.40


6



The Company recognized year-to-date share-based compensation of $19.2 million in 2017 and $16.1 million in 2016. As of September 29, 2017, there was $12.5 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 2.3 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:
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
Expected life in years
7.0

 
7.0

Interest rate
2.2
%
 
1.4
%
Volatility
26.7
%
 
30.1
%
Dividend yield
1.6
%
 
1.8
%
Weighted average fair value per share
$
24.23

 
$
19.00


Under the Company’s Employee Stock Purchase Plan, the Company issued 167,000 shares in 2017 and 170,000 shares in 2016. 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:
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
Expected life in years
1.0

 
1.0

Interest rate
0.9
%
 
0.7
%
Volatility
22.3
%
 
24.6
%
Dividend yield
1.5
%
 
1.7
%
Weighted average fair value per share
$
21.97

 
$
19.14



7


4.Retirement Benefits

The components of net periodic benefit cost for retirement benefit plans were as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Pension Benefits
 
 
 
 
 
 
 
Service cost
$
1,917

 
$
1,968

 
$
5,732

 
$
5,880

Interest cost
3,874

 
3,902

 
11,477

 
11,765

Expected return on assets
(4,236
)
 
(4,504
)
 
(12,700
)
 
(13,509
)
Amortization and other
2,408

 
2,491

 
6,932

 
7,410

Net periodic benefit cost
$
3,963

 
$
3,857

 
$
11,441

 
$
11,546

Postretirement Medical
 
 
 
 
 
 
 
Service cost
$
150

 
$
136

 
$
451

 
$
407

Interest cost
274

 
271

 
820

 
813

Amortization
(2
)
 
(120
)
 
(7
)
 
(360
)
Net periodic benefit cost
$
422

 
$
287

 
$
1,264

 
$
860


The Company made a $20 million tax-deductible contribution to its funded U.S. defined benefit plan in the third quarter of 2017. Also in the third quarter, the Company approved an amendment to restructure the plan effective October 30, 2017. Under the restructuring, the plan will purchase insurance contracts to settle a portion of its benefit obligations. The Company expects that net periodic benefit cost for the fourth quarter will include a settlement loss related to the restructuring, estimated to be in the range of $11 million to $13 million. The actual amount of the settlement loss will depend on the value of plan assets, the amount transferred to the insurance company and the discount rate as of the measurement date.

8


5.Shareholders’ Equity

Changes in components of accumulated other comprehensive income (loss), net of tax were (in thousands):
 
Pension and
Postretirement
Medical
 
Cumulative
Translation
Adjustment
 
Total
Balance, June 24, 2016
$
(67,876
)
 
$
(44,612
)
 
$
(112,488
)
Other comprehensive income (loss) before reclassifications

 
(6,642
)
 
(6,642
)
Amounts reclassified from accumulated other comprehensive income
1,088

 

 
1,088

Balance, September 23, 2016
$
(66,788
)
 
$
(51,254
)
 
$
(118,042
)
Balance, June 30, 2017
$
(74,125
)
 
$
(48,455
)
 
$
(122,580
)
Other comprehensive income (loss) before reclassifications

 
574

 
574

Amounts reclassified from accumulated other comprehensive income
1,453

 

 
1,453

Balance, September 29, 2017
$
(72,672
)
 
$
(47,881
)
 
$
(120,553
)
Balance, December 25, 2015
$
(69,922
)
 
$
(34,575
)
 
$
(104,497
)
Other comprehensive income (loss) before reclassifications

 
(16,679
)
 
(16,679
)
Amounts reclassified from accumulated other comprehensive income
3,134

 

 
3,134

Balance, September 23, 2016
$
(66,788
)
 
$
(51,254
)
 
$
(118,042
)
Balance, December 30, 2016
$
(76,426
)
 
$
(65,802
)
 
$
(142,228
)
Other comprehensive income (loss) before reclassifications

 
17,921

 
17,921

Amounts reclassified from accumulated other comprehensive income
3,754

 

 
3,754

Balance, September 29, 2017
$
(72,672
)
 
$
(47,881
)
 
$
(120,553
)

Amounts related to pension and postretirement medical adjustments are reclassified to pension cost, which is allocated to cost of products sold and operating expenses based on salaries and wages, approximately as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Cost of products sold
$
765

 
$
611

 
$
2,093

 
$
1,776

Product development
331

 
241

 
887

 
706

Selling, marketing and distribution
703

 
578

 
1,865

 
1,633

General and administrative
451

 
277

 
1,189

 
842

Total before tax
$
2,250

 
$
1,707

 
$
6,034

 
$
4,957

Income tax (benefit)
(797
)
 
(619
)
 
(2,280
)
 
(1,823
)
Total after tax
$
1,453

 
$
1,088

 
$
3,754

 
$
3,134


On February 21, 2017, the Company entered into an accelerated share repurchase arrangement (“ASR”) with a financial institution. In exchange for an up-front payment of $90 million, the financial institution delivered 850,000 shares of Company common stock with a fair value of $78 million. The total number of shares ultimately delivered under the ASR was determined at the end of the purchase period based on the volume weighted-average price (“VWAP”) of the Company’s common stock during that period. The purchase period ended in the third quarter and the Company received an additional 31,499 shares to complete the ASR at an average realized price of $102.10 per share.

The Company accounted for the up-front payment as a reduction of shareholders’ equity in the period made. Shares received under the ASR were retired and reflected as a reduction of outstanding shares on the date delivered for purposes of calculating earnings per share. The forward contract aspect of the ASR met all of the applicable criteria for equity classification, and therefore was accounted for as a derivative indexed to the Company's equity.


9


6.
Segment Information

The Company has three reportable segments, Industrial, Process and Contractor. Sales and operating earnings by segment were as follows (in thousands): 
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Sales
 
 
 
 
 
 
 
 Industrial
$
178,461

 
$
150,893

 
$
509,719

 
$
454,978

 Process
73,656

 
67,077

 
217,084

 
196,068

 Contractor
127,695

 
109,222

 
373,082

 
329,184

 Total
$
379,812

 
$
327,192

 
$
1,099,885

 
$
980,230

Operating Earnings
 
 
 
 
 
 
 
 Industrial
$
61,790

 
$
50,573

 
$
177,121

 
$
147,419

 Process
12,088

 
10,394

 
38,969

 
25,305

 Contractor
33,471

 
25,593

 
93,249

 
71,700

 Unallocated corporate (expense)
(7,712
)
 
(5,096
)
 
(25,112
)
 
(23,669
)
 Total
$
99,637

 
$
81,464

 
$
284,227

 
$
220,755


Assets by segment were as follows (in thousands): 
 
September 29,
2017
 
December 30,
2016
Industrial
$
575,024

 
$
546,366

Process
335,769

 
318,444

Contractor
254,342

 
208,016

Unallocated corporate
239,088

 
170,283

Total
$
1,404,223

 
$
1,243,109


Geographic information follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Sales (based on customer location)
 
 
 
 
 
 
 
United States
$
190,178

 
$
171,988

 
$
559,651

 
$
511,273

Other countries
189,634

 
155,204

 
540,234

 
468,957

Total
$
379,812

 
$
327,192

 
$
1,099,885

 
$
980,230

 
September 29,
2017
 
December 30,
2016
Long-lived Assets
 
 
 
United States
$
161,034

 
$
151,911

Other countries
38,394

 
37,685

Total
$
199,428

 
$
189,596



10


7.Inventories

Major components of inventories were as follows (in thousands):
 
September 29,
2017
 
December 30,
2016
Finished products and components
$
111,481

 
$
113,643

Products and components in various stages of completion
59,961

 
50,557

Raw materials and purchased components
98,720

 
84,631

Subtotal
270,162

 
248,831

Reduction to LIFO cost
(47,284
)
 
(47,222
)
Total
$
222,878

 
$
201,609


8.Intangible Assets

Components of other intangible assets were (dollars in thousands):
 
Finite Life
 
Indefinite Life
 
 
 
Customer
Relationships
 
Patents and
Proprietary
Technology
 
Trademarks,
Trade Names
and Other
 
Trade
Names
 
Total
As of September 29, 2017
 
 
 
 
 
 
 
 
 
Cost
$
176,065

 
$
18,322

 
$
1,070

 
$
57,853

 
$
253,310

Accumulated amortization
(51,312
)
 
(7,448
)
 
(472
)
 

 
(59,232
)
Foreign currency translation
(9,029
)
 
(703
)
 
(57
)
 
(3,181
)
 
(12,970
)
Book value
$
115,724

 
$
10,171

 
$
541

 
$
54,672

 
$
181,108

Weighted average life in years
13

 
10

 
4

 
N/A

 
 
As of December 30, 2016
 
 
 
 
 
 
 
 
 
Cost
$
170,284

 
$
17,321

 
$
895

 
$
57,853

 
$
246,353

Accumulated amortization
(41,599
)
 
(6,088
)
 
(337
)
 

 
(48,024
)
Foreign currency translation
(13,630
)
 
(1,055
)
 
(59
)
 
(5,249
)
 
(19,993
)
Book value
$
115,055

 
$
10,178

 
$
499

 
$
52,604

 
$
178,336

Weighted average life in years
13

 
10

 
4

 
N/A

 
 

Amortization of intangibles for the quarter was $3.8 million in 2017 and $4.6 million in 2016 and for the year to date was $11.0 million in 2017 and $14.3 million in 2016. Estimated annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):
 
2017
 
2018
 
2019
 
2020
 
2021
 
Thereafter
Estimated Amortization Expense
$
14,834

 
$
14,959

 
$
14,630

 
$
14,448

 
$
14,279

 
$
64,311


Changes in the carrying amount of goodwill for each reportable segment were (in thousands): 
 
Industrial    
 
Process    
 
Contractor    
 
Total    
Balance, December 30, 2016
$
150,556

 
$
96,561

 
$
12,732

 
$
259,849

Additions (adjustments) from business acquisitions
7,152

 
(63
)
 

 
7,089

Foreign currency translation
4,480

 
1,440

 

 
5,920

Balance, September 29, 2017
$
162,188

 
$
97,938

 
$
12,732

 
$
272,858



11


9.
Other Current Liabilities
Components of other current liabilities were (in thousands):
 
September 29,
2017
 
December 30,
2016
Accrued self-insurance retentions
$
7,164

 
$
7,105

Accrued warranty and service liabilities
9,876

 
8,934

Accrued trade promotions
8,126

 
6,007

Payable for employee stock purchases
7,188

 
9,328

Customer advances and deferred revenue
21,097

 
9,400

Income taxes payable
9,778

 
8,608

Other
27,454

 
22,505

Total
$
90,683

 
$
71,887


The Company manages certain self-insured loss exposures through a wholly-owned captive insurance subsidiary. Cash balances of $7.9 million as of September 29, 2017 and $9.2 million as of December 30, 2016 were restricted to funding of the captive's loss reserves and are included within other current assets on the Company's Consolidated Balance Sheets.

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):
Balance, December 30, 2016
$
8,934

Charged to expense
5,708

Margin on parts sales reversed
1,977

Reductions for claims settled
(6,743
)
Balance, September 29, 2017
$
9,876


10.Fair Value

Assets and liabilities measured at fair value on a recurring basis and fair value measurement level were as follows (in thousands):
 
Level   
 
September 29,
2017
 
December 30,
2016
Assets
 
 
 
 
 
Cash surrender value of life insurance
2
 
$
15,480

 
$
13,785

Forward exchange contracts
2
 
513

 
571

Total assets at fair value
 
 
$
15,993

 
$
14,356

Liabilities
 
 
 
 
 
Contingent consideration
3
 
$
4,081

 
$
4,081

Deferred compensation
2
 
3,640

 
3,265

Forward exchange contracts
2
 

 

Total liabilities at fair value
 
 
$
7,721

 
$
7,346


Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.

Contingent consideration liability represents the estimated value (using a probability-weighted expected return approach) of future payments to be made to previous owners of an acquired business based on future revenues.


12


Long-term notes payable with fixed interest rates have a carrying amount of $300 million (including $75 million classified as current) and an estimated fair value of $325 million as of September 29, 2017 and $325 million as of December 30, 2016. The fair value of variable rate borrowings approximates carrying value. The Company uses significant other observable inputs to estimate fair value (level 2 of the fair value hierarchy) based on the present value of future cash flows and rates that would be available for issuance of debt with similar terms and remaining maturities.

11.Recent Accounting Pronouncements

A new accounting standard that changed certain aspects of accounting for share-based payments became effective for the Company in the first quarter of 2017. Excess tax benefits on exercised stock options that were previously credited to equity now reduce the current income tax provision. For the quarter, the change in accounting for excess tax benefits decreased the current income tax provision and increased net earnings by $3.2 million, reduced the effective income tax rate by 3 percentage points, and increased diluted earnings per share by $0.06. For the year to date, the change in accounting for excess tax benefits decreased the current income tax provision and increased net earnings by $20.5 million, reduced the effective income tax rate by 7 percentage points, and increased diluted earnings per share by $0.36. Under the new standard, excess tax benefits are no longer reclassified out of cash flows from operating activities to financing activities in the Consolidated Statements of Cash Flows. We elected to apply the cash flow presentation requirements retrospectively to all periods presented, which resulted in a year-to-date increase in previously reported net cash provided by operating activities and a decrease in net cash provided by financing activities of $5.5 million for the nine months ended September 23, 2016. Also under the new standard, the Company elected to account for share-based grant forfeitures as they occur. The impact of the change in accounting for forfeitures was not significant, and was reflected in share-based compensation cost in the first quarter.

In May 2014, the Financial Accounting Standards Board (FASB) issued a final standard on revenue from contracts with customers. The new standard sets forth a single comprehensive model for recognizing and reporting revenue. The new standard will become effective for the Company beginning with the first quarter of 2018, and the Company plans to adopt the accounting standard using the modified retrospective transition approach. The modified retrospective transition approach will recognize any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods.

We have established an implementation team and engaged a third-party consultant to assist with our assessment of the impact of the new revenue guidance on our operations, consolidated financial statements and related disclosures. To date, this assessment has included (1) utilizing questionnaires to assist with the identification of our revenue streams, (2) performing contract analyses for each revenue stream identified, (3) assessing the noted differences in recognition and measurement that may result from adopting this new standard, (4) performing detailed analyses of contracts with large customers, and (5) performing transaction level testing (based on our designed test plans) for consistency with contract provisions that affect revenue recognition. Based on the preliminary results of the evaluation, which is still in process, nothing has come to our attention that would indicate that adoption of the new standard will have a material impact on our consolidated financial statements. However, given our acquisition strategy, there may be additional revenue streams acquired prior to the adoption date. We currently believe the most significant potential change relates to whether certain project-based revenues will be recognized over time or at a point in time, although our technical analysis of potential impacts is still on-going. We also anticipate changes to the consolidated balance sheet related to accounts receivable, contract assets, and contract liabilities.

We are in the process of evaluating and designing the necessary changes to our business processes, policies, systems and controls to support recognition and disclosure under the new standard. Further, we are continuing to assess what incremental disaggregated revenue disclosures will be required in our consolidated financial statements. The implementation team has reported these findings and the progress of the project to the Audit Committee of our Board of Directors.

In March 2017, the FASB issued a final standard that changes the presentation of net periodic benefit cost related to defined benefit plans. The Company will adopt the standard when it becomes effective in fiscal 2018 and it will be applied retrospectively to all periods presented. Under the new standard, net periodic benefit costs are required to be disaggregated between service costs presented as operating expenses and other components of pension costs presented as non-operating expenses. The Company currently charges service costs to segment operations and includes other components of pension cost in unallocated corporate operating expenses. Under the new standard, unallocated corporate operating expenses will decrease, operating earnings will increase and other expense will increase by the amount of other (non-service) components of pension cost. There will be no impact on reported segment earnings, net earnings or earnings per share.


13


Item 2. GRACO INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Industrial, Process and Contractor. Key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channel and technologies.

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.

Consolidated Results

A summary of financial results follows (in millions except per share amounts):
 
Three Months Ended    
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
%
 Change 
 
September 29,
2017
 
September 23,
2016
 
%
 Change 
Net Sales
$
379.8

 
$
327.2

 
16
%
 
$
1,099.9

 
$
980.2

 
12
%
Operating Earnings
99.6

 
81.5

 
22
%
 
284.2

 
220.8

 
29
%
Net Earnings
75.5

 
54.4

 
39
%
 
216.0

 
144.9

 
49
%
Net Earnings adjusted (1)
66.8

 
54.4

 
23
%
 
190.0

 
144.9

 
31
%
Diluted Net Earnings per Common Share
$
1.30

 
$
0.95

 
37
%
 
$
3.73

 
$
2.55

 
46
%
Diluted Net Earnings per Common Share, adjusted (1)
$
1.15

 
$
0.95

 
21
%
 
$
3.28

 
$
2.55

 
29
%
(1) See below for a reconciliation of adjusted non-GAAP financial measures to GAAP.

All segments and regions had double-digit percentage sales growth for the quarter and year to date. Sales growth and operating expense leverage drove operating earnings increases of 22 percent for the quarter and 29 percent for the year to date.

Adoption of a new stock compensation accounting standard and recognition of certain tax planning benefits in 2017 created large fluctuations in net earnings compared to prior periods. Excluding the excess tax benefits on exercised stock options and other tax planning benefits recognized as reductions of income taxes in 2017 presents a more consistent comparison of financial results. A calculation of the non-GAAP measurements of adjusted income taxes, net earnings and diluted earnings per share follows (in millions except per share amounts):

14


 
Three Months Ended
 
Nine Months Ended
 
Sep 29,
2017
 
Sep 23,
2016
 
Sep 29,
2017
 
Sep 23,
2016
Income taxes, as reported
$
20.9

 
$
22.2

 
$
57.6

 
$
62.7

Excess tax benefit from option exercises
3.2

 

 
20.5

 

Tax planning benefit
5.5

 

 
5.5

 

Income taxes, adjusted
$
29.6

 
$
22.2

 
$
83.6

 
$
62.7

 
 
 
 
 
 
 
 
Effective income tax rate
 
 
 
 
 
 
 
   As reported
22
%
 
29
%
 
21
%
 
30
%
   Adjusted
31
%
 
29
%
 
31
%
 
30
%
 
 
 
 
 
 
 
 
Net Earnings, as reported
$
75.5

 
$
54.4

 
$
216.0

 
$
144.9

Excess tax benefit from option exercises
(3.2
)
 

 
(20.5
)
 

Tax planning benefit
(5.5
)
 

 
(5.5
)
 

Net Earnings, adjusted
$
66.8

 
$
54.4

 
$
190.0

 
$
144.9

 
 
 
 
 
 
 
 
Weighted Average Diluted Shares
58.2

 
57.0

 
57.9

 
56.9

Diluted Earnings per Share
 
 
 
 
 
 
 
   As reported
$
1.30

 
$
0.95

 
$
3.73

 
$
2.55

   Adjusted
$
1.15

 
$
0.95

 
$
3.28

 
$
2.55


The following table presents an overview of components of net earnings as a percentage of net sales:
 
Three Months Ended   
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Sales
100.0
 %
 
100.0
%
 
100.0
 %
 
100.0
 %
Cost of products sold
46.4

 
46.0

 
46.1

 
46.6

Gross Profit
53.6

 
54.0

 
53.9

 
53.4

Product development
3.9

 
4.5

 
4.0

 
4.6

Selling, marketing and distribution
15.3

 
15.1

 
15.4

 
16.1

General and administrative
8.2

 
9.5

 
8.7

 
10.2

Operating Earnings
26.2

 
24.9

 
25.8

 
22.5

Interest expense
1.0

 
1.4

 
1.1

 
1.3

Other expense (income), net
(0.2
)
 
0.1

 
(0.1
)
 

Earnings Before Income Taxes
25.4

 
23.4

 
24.8

 
21.2

Income taxes
5.5

 
6.8

 
5.2

 
6.4

Net Earnings
19.9
 %
 
16.6
%
 
19.6
 %
 
14.8
 %



15


Net Sales

The following table presents net sales by geographic region (in millions):
 
Three Months Ended   
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Americas(1)
$
217.7

 
$
194.4

 
$
639.1

 
$
575.3

EMEA(2)
86.7

 
73.6

 
252.8

 
229.4

Asia Pacific
75.4

 
59.2

 
208.0

 
175.5

Consolidated
$
379.8

 
$
327.2

 
$
1,099.9

 
$
980.2

(1)
North, South and Central America, including the United States
(2)
Europe, Middle East and Africa

The following table presents the components of net sales change by geographic region:
 
Three Months Ended   
 
Nine Months Ended
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
Americas
11%
 
1%
 
0%
 
12%
 
11%
 
0%
 
0%
 
11%
EMEA
14%
 
0%
 
4%
 
18%
 
12%
 
0%
 
(2)%
 
10%
Asia Pacific
28%
 
0%
 
(1)%
 
27%
 
20%
 
0%
 
(2)%
 
18%
Consolidated
15%
 
0%
 
1%
 
16%
 
13%
 
0%
 
(1)%
 
12%

Gross Profit

Gross profit margin rate decreased by one-half percentage point for the quarter and increased one-half percentage point for the year to date. Favorable effects from higher production volume and realized pricing were offset in varying degrees for the quarter and the year to date by the unfavorable impact of product mix.

Operating Expenses

Total operating expenses for the quarter increased $9 million (9 percent) compared to the third quarter last year. More than half of the increase was from increases in sales and earnings-based incentives and unallocated corporate operating expense (mostly from market-based stock compensation and pension costs). Year-to-date operating expenses increased $6 million (2 percent). Volume and rate-related increases were partially offset by a $3 million decrease in amortization expense and the impact of currency translation.

Income Taxes

The effective income tax rate for the quarter was 22 percent, down from 29 percent last year. The effective income tax rate for the year to date was 21 percent, down from 30 percent last year. Adoption of a new accounting standard, requiring excess tax benefits related to stock option exercises to be credited to the income tax provision (formerly credited to equity), reduced the tax provision by $3.2 million for the quarter and $20.5 million for the year to date, decreasing the effective tax rate for the quarter and year to date by 3 and 7 percentage points, respectively. The effective tax rates for both the quarter and year to date were further reduced by the impacts of tax planning that will not recur in 2018 and foreign earnings taxed at lower rates than the U.S.

 


16


Segment Results

Certain measurements of segment operations compared to last year are summarized below:

Industrial Segment

The following table presents net sales and operating earnings as a percentage of sales for the Industrial segment
(dollars in millions):
 
Three Months Ended  
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Sales
 
 
 
 
 
 
 
Americas
$
74.9

 
$
66.8

 
$
219.8

 
$
201.3

EMEA
52.1

 
44.4

 
146.1

 
134.2

Asia Pacific
51.5

 
39.7

 
143.8

 
119.5

Total
$
178.5

 
$
150.9

 
$
509.7

 
$
455.0

Operating earnings as a percentage of net sales
35
%
 
34
%
 
35
%
 
32
%

The following table presents the components of net sales change by geographic region for the Industrial segment:
 
Three Months Ended   
 
Nine Months Ended
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
Americas
11%
 
1%
 
0%
 
12%
 
9%
 
0%
 
0%
 
9%
EMEA
13%
 
0%
 
5%
 
18%
 
10%
 
0%
 
(1)%
 
9%
Asia Pacific
30%
 
1%
 
(1)%
 
30%
 
22%
 
1%
 
(3)%
 
20%
Segment Total
17%
 
0%
 
1%
 
18%
 
12%
 
1%
 
(1)%
 
12%

Sales increased in all Industrial segment product applications. Year-to-date operating margin rate for the Industrial segment increased 3 percentage points compared to last year. Favorable effects of higher sales volume and expense leverage were partially offset by the unfavorable effect of currency translation.

Process Segment

The following table presents net sales and operating earnings as a percentage of sales for the Process segment
(dollars in millions):
 
Three Months Ended   
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Sales
 
 
 
 
 
 
 
Americas
$
47.9

 
$
43.0

 
$
139.1

 
$
124.3

EMEA
12.4

 
12.7

 
41.2

 
40.1

Asia Pacific
13.4

 
11.4

 
36.8

 
31.7

Total
$
73.7

 
$
67.1

 
$
217.1

 
$
196.1

Operating earnings as a percentage of net sales
16
%
 
15
%
 
18
%
 
13
%


17


The following table presents the components of net sales change by geographic region for the Process segment:
 
Three Months Ended   
 
Nine Months Ended
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
Americas
11%
 
0%
 
0%
 
11%
 
12%
 
0%
 
0%
 
12%
EMEA
(3)%
 
0%
 
1%
 
(2)%
 
7%
 
0%
 
(4)%
 
3%
Asia Pacific
17%
 
0%
 
0%
 
17%
 
17%
 
0%
 
(1)%
 
16%
Segment Total
9%
 
0%
 
1%
 
10%
 
12%
 
0%
 
(1)%
 
11%

The Process segment had solid sales growth in legacy product applications, partially offset by the effects of continued weakness in Oil and Natural Gas. Year-to-date operating margin rates for this segment increased 5 percentage points compared to last year due to higher sales volume, favorable expense leverage and a decrease in intangible amortization related to the impairment recorded in the fourth quarter of 2016.

Contractor Segment

The following table presents net sales and operating earnings as a percentage of sales for the Contractor segment
(dollars in millions):
 
Three Months Ended   
 
Nine Months Ended
 
September 29,
2017
 
September 23,
2016
 
September 29,
2017
 
September 23,
2016
Net Sales
 
 
 
 
 
 
 
Americas
$
94.9

 
$
84.6

 
$
280.2

 
$
249.7

EMEA
22.3

 
16.5

 
65.6

 
55.2

Asia Pacific
10.5

 
8.1

 
27.3

 
24.3

Total
$
127.7

 
$
109.2

 
$
373.1

 
$
329.2

Operating earnings as a percentage of net sales
26
%
 
23
%
 
25
%
 
22
%

The following table presents the components of net sales change by geographic region for the Contractor segment:
 
Three Months Ended   
 
Nine Months Ended
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
 
Volume and Price
 
Acquisitions
 
Currency
 
Total
Americas
12%
 
0%
 
0%
 
12%
 
12%
 
0%
 
0%
 
12%
EMEA
29%
 
0%
 
5%
 
34%
 
20%
 
0%
 
(1)%
 
19%
Asia Pacific
30%
 
0%
 
1%
 
31%
 
13%
 
0%
 
0%
 
13%
Segment Total
16%
 
0%
 
1%
 
17%
 
13%
 
0%
 
0%
 
13%

Contractor segment sales increased in all channels. Operating margin rates for both the quarter and the year to date for the Contractor segment increased 3 percentage points compared to last year due to higher sales volume, improved gross margin rate and favorable expense leverage.


Liquidity and Capital Resources

Net cash provided by operating activities of $246 million increased $38 million compared to the first nine months of last year, mostly driven by the increase in net earnings. Increases in accounts receivable, inventories and accrued liabilities reflect growth in business activity in the first nine months of 2017. The Company used cash of $13 million in 2017 and $49 million in 2016 to acquire businesses that were not material to the consolidated financial statements. Other significant uses of cash in 2017 included share repurchases of $90 million (partially offset by $43 million of net proceeds from shares issued), cash dividends of $60 million, property, plant and equipment additions of $29 million and a contribution of $20 million to a funded pension plan.


18


At September 29, 2017, cash balances of $8 million were restricted to funding of certain self-insured loss reserves. Restricted cash is included within other current assets on the Company's consolidated balance sheet.

At September 29, 2017, the Company had various lines of credit totaling $545 million, of which $540 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 2017.

Outlook

Demand levels remained robust and broad based in the third quarter. We expect the positive business environment to continue into 2018, however we do note that our fourth quarter represents our most difficult comparable of the year. In addition to the strong fourth quarter last year, we also had 14 weeks compared to only 13 weeks in this year's fourth quarter. Consequently, we anticipate low single-digit organic, constant currency growth in the fourth quarter. With that outlook we have the possibility to achieve double-digit sales growth for the full year 2017.

Cautionary Statement Regarding Forward-Looking Statements

The Company desires to take advantage of the “safe harbor” provisions regarding forward-looking statements of the Private Securities Litigation Reform Act of 1995 and is filing this Cautionary Statement in order to do so. From time to time various forms filed by our Company with the Securities and Exchange Commission, including our Form 10-K, Form 10-Qs and Form 8-Ks, and other disclosures, including our 2016 Overview report, press releases, earnings releases, analyst briefings, conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ materially from those expressed in these statements. The Company undertakes no obligation to update these statements in light of new information or future events.

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: our Company’s growth strategies, which include making acquisitions, investing in new products, expanding geographically and targeting new industries; economic conditions in the United States and other major world economies; changes in currency translation rates; changes in laws and regulations; compliance with anti-corruption and trade laws; new entrants who copy our products or infringe on our intellectual property; risks incident to conducting business internationally; the ability to meet our customers’ needs and changes in product demand; supply interruptions or delays; security breaches; the possibility of asset impairments if acquired businesses do not meet performance expectations; political instability; results of and costs associated with litigation, administrative proceedings and regulatory reviews incident to our business as well as indemnification claims under our asset purchase agreement with Carlisle Companies Incorporated, Carlisle Fluid Technologies, Inc., and Finishing Brands Holdings Inc.; the possibility of decline in purchases from few large customers of the Contractor segment; variations in activity in the construction, automotive, mining and oil and natural gas industries; our ability to attract, develop and retain qualified personnel; and catastrophic events. Please refer to Item 1A of our Annual Report on Form 10-K for fiscal year 2016 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. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

Investors should realize that factors other than those identified above and in Item 1A 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.


19


Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes related to market risk from the disclosures made in the Company’s 2016 Annual Report on Form 10-K.

Item 4.Controls and Procedures

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, Controller and Information Systems, and the Vice President, General Counsel and Secretary. Based upon that evaluation, they concluded that the Company’s disclosure controls and procedures are effective.

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.

20


PART IIOTHER INFORMATION

Item 1A.Risk Factors

There have been no material changes to the Company’s risk factors from those disclosed in the Company’s 2016 Annual Report on Form 10-K.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On April 24, 2015, the Board of Directors authorized the Company to purchase up to 6,000,000 shares of its outstanding common stock, primarily through open-market transactions. The authorization is for an indefinite period of time or until terminated by the Board.

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 due upon exercise of options or vesting of restricted stock.

Information on issuer purchases of equity securities follows:
Period
 
Total Number
of Shares Purchased  
 
Average Price
Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be
Purchased Under the Plans or Programs
(at end of period)
Jul 1, 2017 - Jul 28, 2017 (1)
 
31,499

 
$
102.10

 

 
2,935,868

Jul 29, 2017 - Aug 25, 2017
 

 
$

 

 
2,935,868

Aug 26, 2017 - Sep 29, 2017
 

 
$

 

 
2,935,868


(1) On February 21, 2017, the Company entered into an accelerated share repurchase arrangement (“ASR”) with a financial institution. In exchange for an up-front payment of $90 million, the financial institution delivered 850,000 shares of Company common stock with a fair value of $78 million. The total number of shares ultimately delivered under the ASR is determined at the end of the purchase period based on the volume weighted-average price (“VWAP”) of the Company’s common stock during that period. The purchase period ended in the third quarter and the Company received an additional 31,499 shares to complete the ASR at an average realized price of $102.10 per share.






21


Item 6.Exhibits
3.1

 
 
 
 
3.2

 
 
 
 

 
Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).
 
 
 

 
Certification of Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a).
 
 
 

 
Certification of President and Chief Executive Officer and Chief Financial Officer and Treasurer pursuant to Section 1350 of Title 18, U.S.C.
 
 
 

 
Press Release Reporting Third Quarter Earnings dated October 25, 2017.
 
 
 
101

 
Interactive Data File.

22


SIGNATURES

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.

GRACO INC.
 
 
 
 
 
 
 
Date:
 
October 25, 2017
 
By:
 
/s/ Patrick J. McHale
 
 
 
 
 
 
Patrick J. McHale
 
 
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
 
October 25, 2017
 
By:
 
/s/ Christian E. Rothe
 
 
 
 
 
 
Christian E. Rothe
 
 
 
 
 
 
Chief Financial Officer and Treasurer
 
 
 
 
 
 
(Principal Financial Officer)
 
 
 
 
Date:
 
October 25, 2017
 
By:
 
/s/ Caroline M. Chambers
 
 
 
 
 
 
Caroline M. Chambers
 
 
 
 
 
 
Vice President, Corporate Controller
     and Information Systems
 
 
 
 
 
 
(Principal Accounting Officer)

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