Graco 2012 Annual Report Download - page 34

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torch and solder business which was sold on July 1, 2011. During 2012, all conditions related to the escrow were satisfied and
resolved, and the Company had received $7.8 million from the escrow and recognized the proceeds as a gain from the sale of the
hand torch and solder business in discontinued operations. The loss on disposal of discontinued operations for 2011 related to the
disposal of the hand torch and solder business. See Footnote 2 of the Notes to Consolidated Financial Statements for further
information.
Results of Operations — 2011 vs. 2010
Net sales for 2011 were $5,864.6 million, representing an increase of $206.4 million, or 3.6%, from $5,658.2 million for 2010.
The following table sets forth an analysis of changes in consolidated net sales for 2011 as compared to 2010 (in millions, except
percentages):
Core sales $ 102.0 1.8%
Foreign currency 104.4 1.8
Total change in net sales $ 206.4 3.6%
Core sales increased 1.8% compared to the prior year, driven by growth in the Company’s international businesses, particularly
in emerging markets, with double-digit core sales growth in the Latin America and Asia Pacific regions, across substantially all
segments. Excluding foreign currency, sales at the Company’s international and North American businesses increased 3.5% and
1.2%, respectively. Foreign currency contributed 1.8% to the increase in net sales.
Gross margin, as a percentage of net sales, for 2011 was 37.6%, or $2,205.2 million, versus 38.0% of net sales, or $2,148.7 million,
for 2010. The primary drivers of the 40 basis point gross margin decrease were input and sourced product cost inflation, partially
offset by pricing and productivity.
SG&A expenses for 2011 were 25.8% of net sales, or $1,515.3 million, versus 25.6% of net sales, or $1,447.8 million, for 2010.
In constant currency, SG&A expenses increased $36.6 million due to $39.8 million of incremental investments in brand building
and other strategic SG&A activities to support marketing initiatives, advertising and promotions, new market entries and global
expansion. SG&A expenses for 2011 include $6.3 million of incremental costs incurred due to the Company’s Chief Executive
Officer transition and an increase of $22.2 million in restructuring-related costs for the European Transformation Plan. The
aforementioned increases were partially offset by $31.7 million lower structural SG&A costs, which resulted primarily from lower
incentive compensation costs in 2011 compared to 2010.
As a result of the Company’s annual impairment testing of goodwill and indefinite-lived intangible assets, the Company recorded
non-cash impairment charges of $382.6 million during 2011, principally relating to the impairment of goodwill in the Company’s
Baby & Parenting and Hardware businesses. There were no similar charges recorded during 2010.
The Company recorded restructuring costs of $50.1 million and $77.4 million for 2011 and 2010, respectively. The year-over-
year decrease in restructuring costs was attributable to the completion of Project Acceleration in 2010. The restructuring costs for
2011 relate to Project Renewal and the European Transformation Plan and consisted of $8.4 million of facility and other exit and
impairment costs; $33.2 million of employee severance, termination benefits and employee relocation costs; and $8.5 million of
exited contractual commitments and other restructuring costs. The restructuring costs in 2010 primarily relate to Project
Acceleration and included $6.0 million of facility and other exit and impairment costs; $53.5 million of employee severance,
termination benefits and employee relocation costs; and $17.9 million of exited contractual commitments and other restructuring
costs. See Footnote 4 of the Notes to Consolidated Financial Statements for further information.
Operating income for 2011 was 4.4% of net sales, or $257.2 million, versus 11.0% of net sales, or $623.5 million for 2010.
Excluding the impact of the $382.6 million of impairment charges, which were 6.5% of net sales, operating income for 2011 would
be $639.8 million, or 10.9% of net sales.
Net nonoperating expenses for 2011 were $104.7 million versus $329.7 million for 2010. Interest expense for 2011 was $86.2
million, a decrease of $32.2 million from $118.4 million for 2010, due to lower overall borrowing costs resulting from the Capital
Structure Optimization Plan, a more favorable interest rate environment and a higher mix of short-term borrowings. Losses related
to extinguishments of debt were $4.8 million for 2011 compared to $218.6 million in 2010. The losses related to extinguishments
of debt of $218.6 million recognized in 2010 relate to the retirement of $279.3 million of the $300.0 million aggregate principal
amount of 10.60% senior unsecured notes due April 2019 and $324.7 million principal amount of the $345.0 million 5.50%
convertible senior notes due 2014 pursuant to the Capital Structure Optimization Plan. During 2011, the Company recognized
$14.7 million of foreign exchange transactional losses; however, during 2010, the Company recognized foreign exchange gains
of $6.9 million principally related to a foreign exchange gain of $5.6 million associated with the Company’s transition to the
Transaction System for Foreign Currency Denominated Securities (“SITME”) rate for remeasuring the Company’s Venezuelan
assets and liabilities denominated in Bolivar Fuerte.