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ACCOUNTING CHANGES, REORGANIZATION COSTS RESULT IN LOWER GRACO NET EARNINGS

 MINNEAPOLIS, Feb. 11 /PRNewswire/ -- Graco Inc. (NYSE: GGG) today announced operating results for its fiscal year (52 weeks) and fourth quarter (13 weeks) ended Dec. 25, 1992. These results reflect the adoption of two new accounting standards relating to postretirement benefits and income taxes, as well as provisions for certain cost reduction actions, employment contract settlements, and additional costs associated with its former robotics business.
 Consolidated net sales in 1992 amounted to $320,334,000, compared with $311,874,000 last year, a gain of 3 percent. Net earnings before changes in accounting principles increased 25 percent to $11,145,000, or $1.46 per share from $8,946,000, or $1.18 per share in 1991. After provision for the cumulative effect of the changes in accounting principles, net earnings declined to $5,301,000, or 69 cents per share in 1992.
 GRACO INC.
 (In thousands, except per share amounts)
 12 Months Ended 4th Quarter Ended
 12/25/92 12/27/91 12/25/92 12/27/91
 NET SALES $320,334 $311,874 $85,020 $78,034
 NET EARNINGS BEFORE CHANGES
 IN ACCOUNTING PRINCIPLES $11,145 $8,946 $939 $2,230
 Cumulative Effect of Change
 in Accounting Principle
 Relating to Postretirement
 Benefits (6,768) -- -- --
 Cumulative Effect of Change
 in Accounting Principle
 Relating to Income Taxes 924 -- -- --
 NET EARNINGS $5,301 $8,946 $939 $2,230
 NET EARNINGS PER COMMON SHARE:
 Before Changes in Accounting
 Principles $1.46 $1.18 $.12 $.29
 Changes in Accounting
 Principles (.77) -- -- --
 Net Earnings $.69 $1.18 $.12 $.29
 The company recorded one-time adjustments in 1992 for the cumulative effect of its required adoption of Statements of Financial Accounting Standards (SFAS) No.106, Employers' Accounting for Postretirement Benefits Other Than Pensions and SFAS No.109, Accounting for Income Taxes. SFAS 106 changed the company's accounting for retiree health care from a pay-as-you-go method to accruing these costs over the employees' working lives. SFAS 109 changed the liability method used by the company in accounting for deferred income taxes. These changes in accounting principles were made effective as of the first day of the 1992 fiscal year. The effect of these changes on current year operating results was to increase costs for retiree health care by $800,000.
 In addition to the changes in accounting principles noted above, the company also recorded $6,400,000 (approximately $4,000,000 after taxes, or 53 cents per share) of expenses during the fourth quarter of 1992 related to cost reduction actions, employee contract settlements, and costs of completing two systems contracts of its former robotics business.
 Included in other (income) expense, net, is a $1,800,000 gain on the sale in April 1992, of a wholly-owned subsidiary, Lockwood Technical, Inc. (LTI). In the second quarter of 1991, a loss of $2,400,000 was recorded in operating expense in connection with the sale of certain of the assets of the company's former robotics business, Graco Robotics Inc. (GRI), and a $1,000,000 gain on the sale of a building was included in other (income) expense, net.
 Company chairman and chief executive officer David A. Koch said, "Despite difficult economic conditions in most world markets, our core businesses experienced a moderate recovery in sales and profitability during 1992. In our continuing effort to refocus our business strategies around these core businesses, we sold our LTI business unit earlier in the year, having also exited the robotics business in 1991. These actions, together with recently announced organization changes in other company operations, are all directed at improving our ability to effectively and more profitably compete in today's global market place."
 Sales of the company's continuing core businesses (excluding LTI and GRI operations divested in 1992 and 1991, respectively) increased 9 percent in 1992 to $315,441,000 from $290,378,000 in 1991. These core businesses grew 12 percent in the Americas, with strong sales of equipment for the painting contractor market offsetting declines in sales of large engineered systems for auto manufacturers. Sales in Europe were up 10 percent, reflecting modest unit growth and translation of these foreign currency sales at more favorable exchange rates. Sales in Asia were down 1 percent as a result of weak business conditions in Japan; however, strong growth in export sales to other Pacific Rim countries partially offset this weakness.
 Fourth quarter consolidated net sales increased 9 percent to $85,020,000 from $78,034,000 in 1991. Net earnings were $939,000, or 12 cents per share compared with $2,230,000, or 29 cents per share last year, a decline in net earnings of 58 percent.
 Excluding recently divested operations, core business sales during the fourth quarter increased 12 percent to $84,702,000 from $75,541,000. This gain reflects improved business conditions in the Americas for standard product sales. Sales in Europe were up modestly, reflecting more favorable currency translation rates, while business in Asia was generally unchanged from the prior year.
 Earnings for the quarter were down substantially despite the gain in revenues. Cost of products sold as a percent of net sales increased to 53 percent from 50 percent in 1991, principally as a result of a larger component of engineered system sales at generally lower margins and a $1,200,000 charge in connection with completing two robotics systems contracts. Included in operating expenses are $5,200,000 in costs associated with the relocation and consolidation of the company's Detroit-based operations, reductions in the U.S. sales force and European operations, other early retirements, and early termination of employment agreements. Approximately 60 positions have been eliminated as a result of these actions. Without the effects of these cost reduction actions, net earnings for the fourth quarter would have substantially exceeded 1991 fourth quarter earnings.
 Income tax expense in the fourth quarter was low due to the lower foreign tax rates and refinements of prior estimates.
 Consolidated backlog at Dec. 25, 1992 declined to approximately $18 million compared with $29 million at the beginning of the quarter and $32 million at year end 1991. This reduction results from completion of several large engineered systems orders in Europe and Japan and continuing weak systems business worldwide.
 Chairman Koch said, "An improving business environment in the Americas and renewed focus on our core business, including the reduction of our operating cost base, will help to maintain our sales growth and improve our operating profitability despite of some expected continued slowing of the European and Japanese economies in 1993."
 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 apply fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, construction and maintenance industries.
 GRACO INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF EARNINGS
 (In thousands, except per share amounts)
 12 Months Ended 4th Quarter Ended
 12/25/92 12/27/91 12/25/92 12/27/91
 NET SALES $320,334 $311,874 $85,020 $78,034
 Cost of products sold 163,648 160,530 44,966 39,321
 GROSS PROFIT 156,686 151,344 40,054 38,713
 Product development 10,616 11,979 2,722 2,924
 Selling 85,583 80,087 23,458 20,928
 General and administrative 41,019 39,947 11,582 10,046
 OPERATING PROFIT 19,468 19,331 2,292 4,815
 Interest expense 2,716 3,723 672 956
 Other (income) expense, net (1,293) 262 581 129
 EARNINGS BEFORE INCOME TAXES
 AND CHANGES IN ACCOUNTING
 PRINCIPLES 18,045 15,346 1,039 3,730
 Income taxes 6,900 6,400 100 1,500
 NET EARNINGS BEFORE CHANGES IN
 ACCOUNTING PRINCIPLES 11,145 8,946 939 2,230
 Cumulative effect of changes
 in accounting principles (5,844) -- -- --
 NET EARNINGS $5,301 $8,946 $939 $2,230
 NET EARNINGS PER COMMON SHARE:
 Before changes in accounting
 principles $1.46 $1.18 $.12 $.29
 Changes in accounting
 principles (.77) -- -- --
 Net earnings $.69 $1.18 $.12 $.29
 WEIGHTED AVERAGE NUMBER
 OF COMMON SHARES 7,570 7,506 7,575 7,507
 -0- 2/11/93
 /CONTACT: Roger L. King, 612-623-6700, or David L. Schoeneck, 612-623-6679, both of Graco/
 (GGG)


CO: Graco Inc. ST: Minnesota IN: SU: ERN

KH -- MN041 -- 5821 02/11/93 15:32 EST
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