Exhibit 99
| FOR IMMEDIATE RELEASE: | FOR FURTHER INFORMATION: |
| Wednesday, October 15, 2003 | Mark W. Sheahan (612) 623-6656 |
MINNEAPOLIS, MN (October 15, 2003)— Graco Inc.(NYSE: GGG) today announced third quarter net earnings of $22.7 million on net sales of $133.8 million — increases over the prior year of 11 percent and 6 percent, respectively. Diluted net earnings per share were $0.49 versus $0.42 last year, a 17 percent increase aided by the share repurchase announced earlier this year. For the first nine months, Graco reported net earnings of $65.4 million on net sales of $399.8 million – increases over the prior year of 14 percent and 9 percent, respectively.
When compared to 2002 results, stronger foreign currencies versus the U.S. dollar helped to increase third quarter and year-to-date net earnings and net sales. Translated at consistent exchange rates, third quarter net earnings and net sales each increased by 4 percent and year-to-date net earnings and net sales increased by 3 percent and 5 percent, respectively.
When compared to the third quarter of 2002, worldwide Contractor Equipment Division sales of $65.3 million increased 4 percent. In the Americas, sales were up 2 percent with higher sales to the professional paint store channel, offset by lower sales to the home center channel. Third quarter sales in the home center channel were adversely influenced by a change in inventory purchasing practices at a major customer. Asia Pacific and European sales were up 18 percent and 14 percent, respectively.
Third quarter Industrial/Automotive Equipment Division sales of $57.3 million increased 9 percent versus the same period last year. Sales in the Americas were up 7 percent due to the acquisition of Sharpe. In Europe, sales were up 11 percent from last year due to the impact of favorable currency translations. Asia Pacific sales were up 10 percent, with sales gains throughout the region (except Japan).
Third quarter sales for the Lubrication Equipment Division were $11.2 million, up 10 percent from last year. The increase was due to stronger sales in the Americas versus last year’s third quarter, which was weak. In the third quarter, warranty and re-work costs of approximately $1 million resulting from design problems associated with the Matrix™ fluid management system were recorded in this segment. The company is working to address the problems and the product will be re-launched when the design issues are resolved.
Third quarter sales in the Americas increased 4 percent to $93.3 million. In Europe, net sales of $24.4 million were 12 percent higher than the third quarter of 2002, and were up 1 percent when measured in local currencies. In Asia Pacific, net sales of $16.1 million were 12 percent higher than the third quarter of 2002, and sales measured in local currencies increased 11 percent.
Graco’s gross profit margin, expressed as a percentage of sales, was 53.4 percent for the quarter versus 52.0 percent for the same period last year. The higher gross margin was due to favorable exchange rates, enhanced pricing, material cost reductions and factory efficiencies.
Graco’s operating profit margin, expressed as a percentage of sales, was 25.4 percent for the third quarter versus 24.4 percent last year. Higher sales, an improved gross profit margin and lower product development spending more than offset increased selling, marketing, distribution and general and administrative expenses.
“We are pleased to report another quarter of growth in net sales, net earnings and earnings per share,” said President and Chief Executive Officer David A. Roberts. ” Our performance this year is especially satisfying given the ongoing soft economic conditions in our two largest geographic markets. Despite minimal growth in both the Americas and Europe, we are on track for a year of record sales and net earnings. We have yet to see any material signs of a pick-up in the Americas and economic conditions throughout Europe remain weak. We expect this to continue for at least the balance of the year. Asia remains strong, with higher demand for our products throughout the region as companies continue to invest in infrastructure and durable goods output increases.”
In October 2003, Graco made a $20 million tax-deductible contribution to its defined benefit pension plan. The contribution was made to increase pension assets at a time when values have declined due to weak short-term asset performance. The contribution will substantially enhance the funded status of the plan and reduce the need for additional cash contributions in the near term.
A forward-looking statement is any statement made in this earnings release and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press releases, analyst briefings, conference calls and the Company’s Annual Report to shareholders which reflects the Company’s current thinking on market trends and the Company’s future financial performance at the time they are made. All forecasts and projections are forward-looking statements.
The Company desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will actually be achieved. 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: economic conditions in the United States and other major world economies, currency fluctuations, political instability, changes in laws and regulations, and changes in product demand. Please refer to Exhibit 99 to the Company’s Annual Report on Form 10-K for fiscal year 2002 for a more comprehensive discussion of these and other risk factors.
Investors should realize that factors other than those identified above and in Exhibit 99 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.
A conference call for analysts and institutional investors will be held Thursday, October 16, 2003, at 11:00 a.m. ET to discuss Graco’s third quarter results. Graco management will host the call.
A real-time, listen-only Webcast of the conference call will be broadcast live over the Internet. Individuals wanting to listen can access the call at the Company’s website atwww.graco.com. Listeners should go to the website at least 15 minutes prior to the live conference call to install any necessary audio software.
For those unable to listen to the live event, a replay will be available soon after the conference call at Graco’s website, or by telephone beginning at approximately 1:00 p.m. ET on October 16, 2003, by dialing 800.428.6051, passcode 309332, if calling within the U.S. or Canada. The dial-in number for international participants is 973.709.2089, with the same passcode. The replay by telephone will be available through October 21, 2003.
Graco Inc. supplies technology and expertise for the management of fluids in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries. For additional information about Graco Inc., please visit us atwww.graco.com.
| Third Quarter (13 weeks) Ended | Nine Months (39 weeks) Ended | ||||||||
| (In thousands, except per share amounts) | Sept. 26, 2003 | Sept. 27, 2002 | Sept. 26, 2003 | Sept. 27, 2002 | |||||
| Net Sales | $133,788 | $125,832 | $399,812 | $366,485 | |||||
| Cost of products sold | 62,385 | 60,418 | 189,474 | 178,767 | |||||
| Gross Profit | 71,403 | 65,414 | 210,338 | 187,718 | |||||
| Product development | 4,464 | 4,813 | 13,265 | 13,501 | |||||
| Selling, marketing and distribution | 23,794 | 21,426 | 71,979 | 63,314 | |||||
| General and administrative | 9,111 | 8,438 | 27,680 | 24,940 | |||||
| Operating Earnings | 34,034 | 30,737 | 97,414 | 85,963 | |||||
| Interest expense | 146 | 122 | 386 | 382 | |||||
| Other expense (income), net | 377 | 321 | 360 | 525 | |||||
| Earnings before Income Taxes | 33,511 | 30,294 | 96,668 | 85,056 | |||||
| Income taxes | 10,800 | 9,800 | 31,300 | 27,500 | |||||
| Net Earnings | $ 22,711 | $ 20,494 | $ 65,368 | $ 57,556 | |||||
| Net Earnings per Common Share | |||||||||
| Basic | $ �� 0.50 | $ 0.43 | $ 1.41 | $ 1.21 | |||||
| Diluted | $ 0.49 | $ 0.42 | $ 1.39 | $ 1.19 | |||||
| Weighted Average Number of Shares | |||||||||
| Basic | 45,851 | 47,604 | 46,249 | 47,376 | |||||
| Diluted | 46,678 | 48,286 | 46,993 | 48,180 | |||||
| All figures are subject to audit and adjustment at the end of the fiscal year. | |||||||||
| Third Quarter (13 weeks) Ended | Nine Months (39 weeks) Ended | |||||||||||||
| (In thousands) | Sept. 26, 2003 | Sept. 27, 2002 | Sept. 26, 2003 | Sept. 27, 2002 | ||||||||||
| Net Sales | ||||||||||||||
| Industrial / Automotive | $ | 57,276 | $ | 52,624 | $ | 167,378 | $ | 149,486 | ||||||
| Contractor | 65,316 | 62,990 | 197,060 | 182,718 | ||||||||||
| Lubrication | 11,196 | 10,218 | 35,374 | 34,281 | ||||||||||
| Consolidated | $ | 133,788 | $ | 125,832 | $ | 399,812 | $ | 366,485 | ||||||
| Operating Earnings | ||||||||||||||
| Industrial / Automotive | $ | 16,981 | $ | 14,438 | $ | 46,253 | $ | 39,398 | ||||||
| Contractor | 17,493 | 15,412 | 48,186 | 43,520 | ||||||||||
| Lubrication | 1,549 | 1,869 | 7,136 | 7,390 | ||||||||||
| Unallocated Corporate Expense | (1,989 | ) | (982 | ) | (4,161 | ) | (4,345 | ) | ||||||
| Consolidated | $ | 34,034 | $ | 30,737 | $ | 97,414 | $ | 85,963 | ||||||
| All figures are subject to audit and adjustment at the end of the fiscal year. | ||||||||||||||
| (In thousands) | Sept. 26, 2003 | Dec. 27, 2002 | ||||||
| ASSETS | ||||||||
|---|---|---|---|---|---|---|---|---|
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 95,993 | $ | 103,333 | ||||
| Accounts receivable, less allowances of | ||||||||
| $5,900 and $5,600 | 95,521 | 93,617 | ||||||
| Inventories | 32,591 | 30,311 | ||||||
| Deferred income taxes | 13,800 | 12,022 | ||||||
| Other current assets | 1,480 | 1,241 | ||||||
| Total current assets | 239,385 | 240,524 | ||||||
| Property, Plant and Equipment | ||||||||
| Cost | 226,114 | 219,427 | ||||||
| Accumulated depreciation | (131,692 | ) | (124,474 | ) | ||||
94,422 | 94,953 | |||||||
| Goodwill | 9,199 | 7,939 | ||||||
| Other Intangible Assets, net | 11,209 | 3,921 | ||||||
| Other Assets | 7,243 | 8,513 | ||||||
$ | 361,458 | $ | 355,850 | |||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Notes payable to banks | $ | 4,852 | $ | 13,204 | ||||
| Trade accounts payable | 12,915 | 13,031 | ||||||
| Salaries, wages and commissions | 14,231 | 14,490 | ||||||
| Accrued insurance liabilities | 10,241 | 10,251 | ||||||
| Accrued warranty and service liabilities | 7,731 | 6,294 | ||||||
| Income taxes payable | 4,237 | 5,583 | ||||||
| Dividends payable | 3,790 | 3,922 | ||||||
| Other current liabilities | 14,056 | 13,439 | ||||||
| Total current liabilities | 72,053 | 80,214 | ||||||
| Retirement Benefits and Deferred Compensation | 29,766 | 28,578 | ||||||
| Deferred Income Taxes | 2,516 | 1,652 | ||||||
| Shareholders' Equity | ||||||||
| Common stock | 45,965 | 47,533 | ||||||
| Additional paid-in capital | 79,920 | 71,277 | ||||||
| Retained earnings | 132,256 | 128,125 | ||||||
| Other, net | (1,018 | ) | (1,529 | ) | ||||
| Total shareholders' equity | 257,123 | 245,406 | ||||||
$ | 361,458 | $ | 355,850 | |||||
| All figures are subject to audit and adjustment at the end of the fiscal year. | ||||||||
| (In thousands) | Thirty-Nine Weeks | |||||||
| Sept. 26, 2003 | Sept. 27, 2002 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Earnings | $ | 65,368 | $ | 57,556 | ||||
| Adjustments to reconcile net earnings to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 13,568 | 13,876 | ||||||
| Deferred income taxes | (764 | ) | 344 | |||||
| Tax benefit related to stock options | 3,200 | 3,400 | ||||||
| exercised | ||||||||
| Change in: | ||||||||
| Accounts receivable | 2,077 | (5,615 | ) | |||||
| Inventories | 957 | 2,248 | ||||||
| Trade accounts payable | (1,539 | ) | 2,299 | |||||
| Salaries, wages and commissions | (547 | ) | 1,830 | |||||
| Retirement benefits and deferred | 2,173 | (348 | ) | |||||
| compensation | ||||||||
| Other accrued liabilities | 47 | (2,055 | ) | |||||
| Other | 223 | 153 | ||||||
| Net Cash from Operating Activities | 84,763 | 73,688 | ||||||
| Cash Flows from Investing Activities | ||||||||
| Property, plant and equipment additions | (10,934 | ) | (7,255 | ) | ||||
| Proceeds from sale of property, plant and | 109 | 284 | ||||||
| equipment | ||||||||
| Acquisition of business | (13,514 | ) | -- | |||||
(24,339 | ) | (6,971 | ) | |||||
| Cash Flows from Financing Activities | ||||||||
| Borrowings on notes payable and lines of credit | 12,588 | 16,418 | ||||||
| Payments on notes payable and lines of credit | (21,217 | ) | (13,771 | ) | ||||
| Payments on long-term debt | -- | (50 | ) | |||||
| Common stock issued | 9,427 | 12,114 | ||||||
| Common stock retired | (55,496 | ) | (3,162 | ) | ||||
| Cash dividends paid | (11,460 | ) | (10,398 | ) | ||||
(66,158 | ) | 1,151 | ||||||
| Effect of exchange rate changes on cash | (1,606 | ) | (596 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | (7,340 | ) | 67,272 | |||||
| Cash and cash equivalents | ||||||||
| Beginning of year | 103,333 | 26,531 | ||||||
| End of period | $ | 95,993 | $ | 93,803 | ||||
| All figures are subject to audit and adjustment at the end of the fiscal year. | ||||||||
# # #
