ggg-20210326

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 March 26, 2021

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-09249


GRACO INC.
(Exact name of registrant as specified in its charter)


Minnesota						41-0285640
(State or other jurisdiction of incorporation or organization)						(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)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	GGG	The New York Stock Exchange

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

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

169,435,068 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of April 14, 2021.

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Earnings

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders' Equity

Notes to Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II - OTHER INFORMATION

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Exhibits

SIGNATURES

EXHIBITS

Table of Contents

PART I Item 1.

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited) (In thousands except per share amounts)


	Three Months Ended
		March 26, 2021		March 27, 2020
Net Sales		$	454,129	$	373,567
Cost of products sold		206,795		174,936
Gross Profit		247,334		198,631
Product development		19,571		17,081
Selling, marketing and distribution		62,228		57,388
General and administrative		37,249		34,350

Operating Earnings		128,286		89,812

Interest expense		2,428		2,486

Other expense, net		121		5,223
Earnings Before Income Taxes		125,737		82,103
Income taxes		20,050		9,285
Net Earnings		$	105,687	$	72,818
Net Earnings per Common Share
Basic		$	0.63	$	0.43
Diluted		$	0.61	$	0.42

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)


	Three Months Ended
		March 26, 2021		March 27, 2020
Net Earnings		$	105,687	$	72,818
Components of other comprehensive income (loss)
Cumulative translation adjustment		(10,470)		(4,677)
Pension and postretirement medical liability adjustment		3,308		2,749
Income taxes - pension and postretirement medical liability adjustment		(672)		(615)
Other comprehensive income (loss)		(7,834)		(2,543)
Comprehensive Income		$	97,853	$	70,275

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands)


	March 26, 2021		December 25, 2020
ASSETS
Current Assets
Cash and cash equivalents	$	460,616	$	378,909
Accounts receivable, less allowances of $5,000 and $4,400	323,197		314,946
Inventories	311,645		285,704
Other current assets	31,928		44,242
Total current assets	1,127,386		1,023,801



Property, Plant and Equipment, net	360,370		350,750
Goodwill	343,010		347,603
Other Intangible Assets, net	152,792		160,669
Operating Lease Assets	37,164		37,807
Deferred Income Taxes	22,902		25,828
Other Assets	44,096		41,670
Total Assets	$	2,087,720	$	1,988,128
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Notes payable to banks	$	31,661	$	22,183

Trade accounts payable	66,242		58,305
Salaries and incentives	45,246		52,005
Dividends payable	31,718		31,636
Other current liabilities	148,653		157,260
Total current liabilities	323,520		321,389
Long-term Debt	150,000		150,000
Retirement Benefits and Deferred Compensation	183,576		184,747
Operating Lease Liabilities	30,020		29,224
Deferred Income Taxes	9,502		10,264
Other Non-current Liabilities	8,600		8,600

Shareholders’ Equity
Common stock	169,413		168,568
Additional paid-in-capital	702,829		671,206
Retained earnings	642,259		568,295
Accumulated other comprehensive income (loss)	(131,999)		(124,165)
Total shareholders’ equity	1,382,502		1,283,904
Total Liabilities and Shareholders’ Equity	$	2,087,720	$	1,988,128

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)


	Three Months Ended
	March 26, 2021		March 27, 2020
Cash Flows From Operating Activities
Net Earnings	$	105,687	$	72,818
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	14,515		13,062
Deferred income taxes	1,842		(65)
Share-based compensation	6,618		6,318

Change in
Accounts receivable	(10,611)		(10,139)
Inventories	(27,541)		(17,726)
Trade accounts payable	9,323		5,185
Salaries and incentives	(6,949)		(20,182)
Retirement benefits and deferred compensation	2,867		3,172
Other accrued liabilities	4,493		1,441
Other	1,425		349
Net cash provided by operating activities	101,669		54,233
Cash Flows From Investing Activities
Property, plant and equipment additions	(21,415)		(18,944)

Other	(34)		(256)
Net cash used in investing activities	(21,449)		(19,200)
Cash Flows From Financing Activities
Borrowings (payments) on short-term lines of credit, net	9,667		24,576
Borrowings on long-term lines of credit	—		250,000

Payments of debt issuance costs	(1,404)		—
Common stock issued	26,460		38,882
Common stock repurchased	—		(82,176)
Taxes paid related to net share settlement of equity awards	—		(1,796)
Cash dividends paid	(31,642)		(29,333)
Net cash provided by financing activities	3,081		200,153
Effect of exchange rate changes on cash	(1,594)		497
Net increase in cash and cash equivalents	81,707		235,683
Cash and Cash Equivalents
Beginning of year	378,909		220,973
End of period	$	460,616	$	456,656

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited) (In thousands)

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total



Three Months Ended March 26, 2021
Balance, December 25, 2020	$	168,568	$	671,206	$	568,295	$	(124,165)	$	1,283,904

Shares issued	845		25,615		—		—		26,460

Stock compensation cost	—		6,008		—		—		6,008


Net earnings	—		—		105,687		—		105,687
Dividends declared ($0.188 per share)	—		—		(31,723)		—		(31,723)

Other comprehensive income (loss)	—		—		—		(7,834)		(7,834)
Balance, March 26, 2021	$	169,413	$	702,829	$	642,259	$	(131,999)	$	1,382,502



Three Months Ended March 27, 2020
Balance, December 27, 2019	$	167,287	$	578,440	$	448,991	$	(169,787)	$	1,024,931

Shares issued	1,620		35,467		—		—		37,087
Shares repurchased	(2,067)		(7,143)		(80,819)		—		(90,029)
Stock compensation cost	—		5,934		—		—		5,934


Net earnings	—		—		72,818		—		72,818
Dividends declared ($0.175 per share)	—		—		(29,540)		—		(29,540)

Other comprehensive income (loss)	—		—		—		(2,543)		(2,543)
Balance, March 27, 2020	$	166,840	$	612,698	$	411,450	$	(172,330)	$	1,018,658

See notes to consolidated financial statements.

Table of Contents

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 March 26, 2021 and the related statements of earnings, comprehensive income and shareholders' equity for the three months ended March 26, 2021 and March 27, 2020, and cash flows for the three months ended March 26, 2021 and March 27, 2020 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 March 26, 2021, 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 2020 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.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
		March 26, 2021		March 27, 2020
Net Sales
Industrial		$	184,732	$	158,684
Process		91,373		86,078
Contractor		178,024		128,805
Total		$	454,129	$	373,567
Operating Earnings
Industrial		$	65,243	$	50,233
Process		21,733		18,111
Contractor		48,166		28,630
Unallocated corporate (expense)		(6,856)		(7,162)

Total		$	128,286	$	89,812

Assets by segment were as follows (in thousands):


	March 26, 2021		December 25, 2020
Industrial	$	626,256	$	632,165
Process	411,804		404,370
Contractor	459,715		438,067
Unallocated corporate	589,945		513,526
Total	$	2,087,720	$	1,988,128

Table of Contents

Geographic information follows (in thousands):

Three Months Ended

March 26,
2021

SEC Form 10-Q filed by Graco Inc.