Graco's Form 10-Q, First Quarter 2007

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 30, 2007

Commission File Number: 001-9249

  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, and (2) has been subject to such filing requirements for the past 90 days.

  Yes        X          No                 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer       X       Accelerated Filer               Non-accelerated Filer             

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

  Yes                  No        X         

66,520,000 shares of the Registrant’s Common Stock, $1.00 par value were outstanding as of April 18, 2007.

GRACO INC. AND SUBSIDIARIES

INDEX

      Page Number
PART I FINANCIAL INFORMATION  
         
  Item 1. Financial Statements  
         
          Consolidated Statements of Earnings 3
          Consolidated Balance Sheets 4
          Consolidated Statements of Cash Flows 5
          Notes to Consolidated Financial Statements 6-12
         
         
  Item 2. Management's Discussion and Analysis  
        of Financial Condition and  
        Results of Operations 13-15
         
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
         
  Item 4. Controls and Procedures 16
         
         
PART II OTHER INFORMATION  
         
  Item 1A. Risk Factors 17
         
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
         
  Item 4. Submission of Matters to a Vote of Security Holders 17
         
  Item 6. Exhibits 18
         
         
         
SIGNATURES    
         
         
EXHIBITS    
  PART I  
     
  GRACO INC. AND SUBSIDIARIES  
Item 1. CONSOLIDATED STATEMENTS OF EARNINGS  
  (Unaudited)  
  (In thousands, except per share amounts)  


  Thirteen Weeks Ended
March 30, 2007   March 31, 2006  
                 
Net Sales     $ 197,495   $ 192,216  
                 
     Cost of products sold    92,633    88,989  
     
 
 
Gross Profit    104,862    103,227  
                 
     Product development    8,272    7,212  
                 
     Selling, marketing and distribution    29,263    27,942  
                 
     General and administrative    15,240    13,421  
     
 
 
Operating Earnings    52,087    54,652  
                 
     Interest expense    258    125  
                 
     Other expense (income), net    (106 )  5  
     
 
 
Earnings before Income Taxes    51,935    54,522  
                 
     Income taxes    18,200    19,100  
     
 
 
Net Earnings   $ 33,735   $ 35,422  
     
 
 
Basic Net Earnings per Common Share   $.51   $.52  
                 
Diluted Net Earnings per Common Share   $.50   $.51  
                 
Cash Dividends Declared per Common Share   $.17   $.15  



See notes to consolidated financial statements.

  GRACO INC. AND SUBSIDIARIES  
  CONSOLIDATED BALANCE SHEETS  
  (Unaudited)  
  (In thousands)  

  March 30, 2007 Dec. 29, 2006
ASSETS                
                 
Current Assets    
       Cash and cash equivalents   $ 4,767   $ 5,871  
       Accounts receivable, less allowances of  
                $6,100 and $5,800    142,137    134,105  
       Inventories    87,366    76,311  
       Deferred income taxes    22,772    20,682  
       Other current assets    2,144    2,014  
            Total current assets    
 
259,186		  
 
238,983		  
                 
Property, Plant and Equipment  
       Cost    289,719    278,318  
       Accumulated depreciation    (156,579 )  (153,794 )
            Property, plant and equipment, net    
 
133,140		  
 
124,524		  
                 
Prepaid Pension    27,703    26,903  
Goodwill    67,173    67,174  
Other Intangible Assets, net    48,195    50,325  
Other Assets       3,420     3,694  
            Total Assets  
$
538,817		  
$
511,603		  
     
 
 		  
 
 		  
LIABILITIES AND SHAREHOLDERS' EQUITY   
                 
Current Liabilities  
       Notes payable to banks   $ 33,361   $ 18,363  
       Trade accounts payable    28,761    27,442  
       Salaries, wages and commissions    13,850    26,303  
       Dividends payable    11,006    11,055  
       Other current liabilities    53,994    45,766  
            Total current liabilities    
 
140,972		  
 
128,929		  
                 
Retirement Benefits and Deferred Compensation    37,011    36,946  
Uncertain Tax Positions    5,800    —  
Deferred Income Taxes    13,317    14,724  
                 
Shareholders' Equity  
       Common stock    66,536    66,805  
       Additional paid-in capital    140,676    130,621  
       Retained earnings    139,645    138,702  
       Accumulated other comprehensive income (loss)  
          Cumulative translation adjustment    (67 )  (60 )
          Pension liability adjustment       (5,073 )   (5,064 )
            Total shareholders' equity    
 
341,717		  
 
331,004		  
            Total Liabilities and Shareholders' Equity  
$
538,817		  
$
511,603		  
     
 
 		  
 
 		  


See notes to consolidated financial statements.

  GRACO INC. AND SUBSIDIARIES  
  CONSOLIDATED STATEMENTS OF CASH FLOWS  
  (Unaudited)  
  (In thousands)  

  Thirteen Weeks Ended
  March 30, 2007   March 31, 2006  
Cash Flows from Operating Activities            
                 
   Net Earnings    $ 33,735   $ 35,422  
     Adjustments to reconcile net earnings to net cash  
      provided by operating activities  
        Depreciation and amortization    6,959    5,781  
        Deferred income taxes    (3,478 )  (1,706 )
        Share-based compensation    2,218    2,164  
        Excess tax benefit related to share-based  
         payment arrangements    (848 )  (2,000 )
        Change in:  
          Accounts receivable    (7,631 )  (6,471 )
          Inventories    (10,985 )  (7,934 )
          Trade accounts payable    1,711    4,906  
          Salaries, wages and commissions    (12,469 )  (9,825 )
          Retirement benefits and deferred compensation    (989 )  19  
          Other accrued liabilities    9,281    11,883  
          Uncertain tax positions    5,800    —  
          Other    (165 )  50  
Net cash provided by operating activities    
 
23,139		  
 
32,289		  
     
 
 		  
 
 		  
Cash Flows from Investing Activities   
                 
   Property, plant and equipment additions    (13,267 )  (4,371 )
   Proceeds from sale of property, plant and equipment    149    19  
Net cash used in investing activities    
 
(13,118		 )
 
(4,352		 )
     
 
 		  
 
 		  
Cash Flows from Financing Activities   
                 
   Borrowings on notes payable and lines of credit    29,415    4,333  
   Payments on notes payable and lines of credit    (14,476 )  (8,310 )
   Excess tax benefit related to share-based payment  
    arrangements    848    2,000  
   Common stock issued    8,355    10,200  
   Common stock retired    (23,985 )  (17,404 )
   Cash dividends paid    (11,010 )  (9,922 )
Net cash provided by (used in) financing activities    
 
(10,853		 )
 
(19,103		 )
Effect of exchange rate changes on cash    
 
(272		 )
 
(315		 )
Net increase (decrease) in cash and cash equivalents    
 
(1,104		 )
 
8,519		  
                 
Cash and cash equivalents  
   Beginning of year    5,871    18,664  
   End of period    
$
4,767		  
$
27,183		  
     
 
 		  
 
 		  

See notes to consolidated financial statements.



GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. The consolidated balance sheet of Graco Inc. and Subsidiaries (the Company) as of March 30, 2007 and the related statements of earnings and cash flows for the thirteen weeks then ended have been prepared by the Company and have not been audited.

  In the opinion of management, these consolidated statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of Graco Inc. and Subsidiaries as of March 30, 2007, 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 2006 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. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

  Thirteen Weeks Ended
  March 30, 2007   March 31, 2006  
     
Net earnings available to common shareholders     $ 33,735   $ 35,422  
     
Weighted average shares outstanding for basic  
earnings per share    66,667    68,428  
     
Dilutive effect of stock options computed using the  
treasury stock method and the average market  
price    1,048    1,121  
     
Weighted average shares outstanding for diluted  
earnings per share    67,715    69,549  
     
Basic earnings per share   $.51   $.52  
     
Diluted earnings per share    $.50   $.51  

  Stock options to purchase 948,000 and 1,000 shares are not included in the 2007 and 2006 calculations of diluted earnings per share, respectively, because they would have been anti-dilutive.

3. Information on option shares outstanding and option activity for the thirteen weeks ended March 30, 2007 is shown below (in thousands, except per share amounts):

  Option
Shares 		Weighted 
Average 
Exercise 
Price 		 Options
Exercisable 		Weighted
Average
Exercise
Price
                 
Outstanding, December 29, 2006       3,956   $ 24.79     2,272   $ 16.94  
     Granted       539     41.36  
     Exercised       (114 )   11.44  
     Canceled       (19 )   35.57  
Outstanding, March 30, 2007      
4,362		   $ 27.14     2,620   $ 19.91  
       
 		        

  The aggregate intrinsic value of exercisable option shares was $50.7 million as of March 30, 2007, with a weighted average contractual term of 5.2 years. There were approximately 4.3 million vested share options and share options expected to vest as of March 30, 2007, with an aggregate intrinsic value of $54.9 million, a weighted average exercise price of $26.81 and a weighted average contractual term of 6.5 years.

  Information related to options exercised in the first three months of 2007 and 2006 follows (in thousands):

          Thirteen Weeks Ended
  March 30, 2007 March 31, 2006
Cash received $1,305 $3,409
Aggregate intrinsic value 3,407 6,359
Tax benefit realized 1,200 2,300

  The Company recognized share-based compensation of $2.2 million in both the first quarter of 2007 and the first quarter of 2006. As of March 30, 2007, there was $13.2 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 2.4 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:

Thirteen Weeks Ended
  March 30, 2007    March 31, 2006   
Expected life in years 6.0    6.3   
Interest rate 4.6% 4.6%
Volatility 26.2% 27.8%
Dividend yield 1.6% 1.4%
Weighted average fair value per share $12.05    $12.81   

  Under the Company’s Employee Stock Purchase Plan, the Company issued 202,000 shares in 2007 and 204,000 shares in 2006. 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:

Thirteen Weeks Ended
  March 30, 2007    March 31, 2006   
Expected life in years 1.0    1.0   
Interest rate 4.9% 4.6%
Volatility 24.4% 24.0%
Dividend yield 1.6% 1.4%
Weighted average fair value per share $9.79    $10.18   

4. The components of net periodic benefit cost for retirement benefit plans were as follows (in thousands):

Thirteen Weeks Ended
 March 30, 2007 March 31, 2006
Pension Benefits    
Service cost     $ 1,479   $ 1,440  
Interest cost   2,882     2,608  
Expected return on assets    (4,800 )  (4,175 )
Amortization and other    255    192  
Net periodic benefit cost (credit)  
$
(184		 )
$
65		  
     
 
 
Postretirement Medical   
Service cost   $ 150   $ 250  
Interest cost    300    420  
Amortization and other    (50 )  186  
Net periodic benefit cost    
$
400		  
$
856		  
     
 
 

5. Total comprehensive income was as follows (in thousands):

Thirteen Weeks Ended
March 30, 2007 March 31, 2006
             
Net income     $ 33,735   $ 35,422  
Foreign currency translation adjustments    (7 )  515  
Pension liability adjustment, net of tax    (9 )  (19 )
Comprehensive income  
$
33,719		  
$
35,918		  
 
 
 		  
 
 		  

6. The Company has three reportable segments: Industrial, Contractor and Lubrication. The Company does not track assets by segment. Sales and operating earnings by segment for the thirteen weeks ended March 30, 2007 and March 31, 2006 were as follows (in thousands):

       Thirteen Weeks Ended
March 30, 2007   March 31, 2006  
Net Sales                
Industrial     $ 105,065   $ 100,160  
Contractor    69,751    74,352  
Lubrication    22,679    17,704  
Consolidated    
$
197,495		  
$
192,216		  
Operating Earnings   
Industrial   $ 34,418   $ 32,083  
Contractor    17,027    21,042  
Lubrication    3,064    4,755  
Unallocated corporate    (2,422 )  (3,228 )
Consolidated    
$
52,087		  
$
54,652		  

7. Major components of inventories were as follows (in thousands):

  March 30, 2007   Dec. 29, 2006  
                 
Finished products and components   $ 51,909   $ 44,969  
Products and components in various stages  
     of completion    29,795    26,841  
Raw materials and purchased components    36,188    35,258  
   
 
117,892		  
 
107,068		  
Reduction to LIFO cost    (30,526 )  (30,757 )
Total  
$
87,366		  
$
76,311		  

8. Information related to other intangible assets follows (dollars in thousands):

  Estimated
Life (Years) 		Original
Cost 		Amorti-
zation 		Foreign
Currency
Translation 		Book
Value
March 30, 2007                          
Customer relationships and     
    distribution network   4 - 8      $ 26,102   $ (8,272 ) $ 4   $ 17,834  
Patents, proprietary technology  
  and product documentation   5 - 15    22,243    (5,261 )  4    16,986  
Trademarks and trade names   3 - 10    4,684    (1,582 )  13    3,115  
           
 
53,029		  
 
(15,115		 )
 
21		  
 
37,935		  
Not Subject to Amortization:  
Brand names             10,260     —     —     10,260  
Total          
$
63,289		  
$
(15,115		 )
$
21		  
$
48,195		  
December 29, 2006    
Customer relationships and    
  distribution network     4 - 8      $ 26,102   $ (7,335 ) $ 6   $ 18,773  
Patents, proprietary technology    
  and product documentation     5 - 15       22,243     (4,443 )   5     17,805  
Trademarks, trade names and    
  other     3 - 10       5,114     (1,641 )   14     3,487  
           
 
53,459		  
 
(13,419		 )
 
25		  
 
40,065		  
Not Subject to Amortization:  
Brand names        10,260    —    —    10,260  
Total          
$
63,719		  
$
(13,419		 )
$
25		  
$
50,325		  

  Amortization of intangibles was $2.1 million in the first quarter of 2007. Estimated annual amortization expense is as follows: $8.2 million in 2007, $7.8 million in 2008, $6.9 million in 2009, $5.8 million in 2010, $4.9 million in 2011 and $6.4 million thereafter.

9. Components of other current liabilities were (in thousands):

  March 30, 2007 Dec. 29, 2006
     
Accrued insurance liabilities $  7,959 $  7,833
Accrued warranty and service liabilities 6,380 6,675
Accrued trade promotions 5,113 7,265
Payable for employee stock purchases 1,069 5,846
Income taxes payable 16,971 3,920
Other 16,502 14,227
   
$53,994 
$45,766 
   
 
 

  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):

  Thirteen Weeks
Ended         
March 30, 2007 		  Year Ended  
Dec. 29, 2006 		 
                 
Balance, beginning of year     $ 6,675   $ 7,649  
Charged to expense    991    4,442  
Margin on parts sales reversed    758    1,944  
Reductions for claims settled    (2,044 )  (7,360 )
Balance, end of period  
$
6,380		  
$
6,675		  

10. Effective at the beginning of 2007, the Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.” The adoption of FIN 48 resulted in no adjustment to beginning retained earnings.

  At the beginning of 2007, the Company’s liability for uncertain tax positions was $5.5 million. Unrecognized tax benefits of $4.9 million would affect the Company's effective tax rate if recognized. The Company records penalties and accrued interest related to uncertain tax positions in income tax expense. At the beginning of 2007, approximately $0.6 million was included in the liability for uncertain tax positions for the possible payment of interest and penalties. There were no significant changes in components of the liability in the first quarter of 2007.

  With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities for years prior to 2001. The Company’s U.S. income tax returns for 2004 and 2005 are currently under examination by the IRS. An estimate of the range of possible changes that may result from the examination cannot be made at this time.

  Approximately $1 million of unrecognized tax benefits relate to items that are affected by expiring statute of limitations within the next 12 months.

Item 2.    
  GRACO INC. AND SUBSIDIARIES  
     
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 		 

Results of Operations

First quarter net earnings of $33.7 million were 5 percent below net earnings in the first quarter last year. The decrease resulted from a lower gross margin rate and higher expenses, which more than offset the favorable impact of a 3 percent increase in sales.

Results include the operations of Lubriquip, which was acquired in July 2006. The integration of Lubriquip is on track for completion by the end of the year and the consolidation of Gusmer operations was competed in the first quarter. Costs and expenses related to the integration and consolidation activities totaled approximately $1 million in the first quarter of 2007.

Foreign currency translation rates had a favorable impact on first quarter sales and net earnings. Translated at consistent exchange rates, sales increased 1 percent and net earnings decreased 8 percent.

Net Sales

Sales by reportable segment and geographic area were as follows (in thousands):

    Thirteen Weeks Ended
  March 20, 2007 March 31, 2006
By Segment    
Industrial $105,065 $100,160
Contractor 69,751 74,352
Lubrication 22,679 17,704
Consolidated
$197,495
$192,216
By Geographic Area
Americas1 $120,546 $132,212
Europe2 49,377 39,546
Asia Pacific 27,572 20,458
Consolidated
$197,495
$192,216
1

North and South America, including the U.S.

2

Europe, Africa and Middle East


Industrial segment sales increased 5 percent. A decrease in the Americas was more than offset by double-digit percentage increases in Europe and Asia Pacific.

Contractor segment sales decreased 6 percent. Segment sales in Europe increased 40 percent while sales were lower in the Americas and Asia Pacific. In the Americas, growth in the home center channel was not enough to offset the decline in the professional paint stores channel.

Lubrication segment sales increased 28 percent due to sales of Lubriquip products, acquired in mid-2006. Sales in this segment increased in all geographic areas.

Gross Profit

Gross profit as a percentage of sales was 53.1 percent compared to 53.7 percent for the first quarter last year. The decrease was due mainly to lower margin rates on Lubriquip products and higher production and material costs, offset somewhat by the favorable impacts of currency translation and pricing.

Operating Expenses

Total operating expenses increased $4 million including approximately $1.5 million related to Lubriquip. The Contractor segment incurred approximately $1 million of expenses related to the market testing of a new line of sprayers in the home center channel.

Income Taxes

The effective tax rate of 35 percent was the same as last year’s rate for the first quarter.

Liquidity and Capital Resources

Significant uses of cash in the first quarter of 2007 included $24 million for purchases and retirement of Company common stock, $13 million for capital additions and $11 million for payment of dividends. During the first quarter of 2006, significant uses of cash included $17 million for purchases and retirement of Company common stock and $10 million for dividends.

At March 30, 2007, the Company had various lines of credit totaling $145 million, of which $115 million was unused. Internally generated funds and unused financing sources provide the Company with the financial flexibility to meet liquidity needs.

Outlook

First quarter sales fell short of expectations due mostly to soft demand in the North American Industrial and Contractor businesses. Management expects that 2007 will continue to be a challenging sales growth environment in North America. Spending over the remainder of the year will be adjusted accordingly, however, the Company will continue to invest for the future by funding key growth strategies.

SAFE HARBOR CAUTIONARY STATEMENT

A forward-looking statement is any statement made in this report and other reports that the Company files periodically with the Securities and Exchange Commission, or in press or earnings releases, analyst briefings and conference calls, 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 Item 1A of, and Exhibit 99 to, the Company’s Annual Report on Form 10-K for fiscal year 2006 for a more comprehensive discussion of these and other risk factors.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There are no material changes related to market risk from the disclosures made in the Company’s 2006 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 Chairman, President and Chief Executive Officer, Chief Financial Officer and Treasurer, Vice President and Controller and Vice President, General Counsel and Secretary. Based upon that evaluation, they concluded that the Company’s disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Company’s disclosure obligations under the Exchange Act.

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.

PART II OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes to the Company’s risk factors from those disclosed in the Company’s 2006 Annual Report on Form 10-K.

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

Issuer Purchases of Equity Securities

On February 17, 2006, the Board of Directors authorized the Company to purchase up to a total of 7,000,000 shares of its outstanding common stock, primarily through open-market transactions. This authorization expires on February 29, 2008.

In addition to shares purchased under the Board authorization, the Company purchases shares of common stock held by employees who wish to tender owned shares to satisfy the exercise price or tax withholding on option exercises.

Information on issuer purchases of equity securities follows:

Period                                     (a)
Total Number
of Shares
Purchased 		(b)
Average
Price Paid
per Share 		(c)
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs 		(d)
Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs (at
end of period)
                    
Dec. 30, 2006 - Jan 26, 2007 133,600 $40.27 133,600 4,909,900
                    
Jan 27, 2007 - Feb 23, 2007 170,000 $41.11 170,000 4,739,900
                    
Feb 24, 2007 - Mar 30, 2007 283,800 $39.46 283,800 4,456,100

Item 4. Submission of Matters to a Vote of Security Holders

  None
Item 6. Exhibits

 

 4.1 Credit agreement dated April 1, 2006, between the Company and Wachovia Bank, N.A. (Promissory Note and Offering Basis Loan Agreement) (Incorporated by reference to Exhibit 4.1 to the Company's Report on Form 10-Q for the thirteen weeks ended March 31, 2006.); as extended by letter from Wachovia Bank, N.A. to Graco Inc., dated March 26, 2007.

 

 10.1 Stock Option Agreement. Form of agreement used for award in 2007 of non-incentive stock options to executive officers under the Graco Inc. Amended and Restated Stock Incentive Plan (2006). Form of agreement for award made to Chief Executive Officer in 2007.

 

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

 

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

 

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

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:  April 24, 2007 By: /s/David A. Roberts
 
 
David A. Roberts
    Chairman, President and Chief Executive Officer
      (Principal Executive Officer)
 
 
Date:  April 24, 2007 By: /s/James A. Graner
 
 
James A. Graner
    Chief Financial Officer and Treasurer
      (Principal Financial Officer)