Graco 2005 Annual Report Download - page 29

limited success in achieving, these objectives could result in actual results diÅering materially from those
expressed or implied in the forward-looking statements. In addition, there can be no assurance that the
Company has correctly identiÑed and assessed all of the factors aÅecting the Company or that the publicly
available and other information the Company receives with respect to these factors is complete or correct.
RISK FACTORS
The factors that are discussed below, as well as the matters that are generally set forth in this annual
report and the 2005 Form 10-K and the documents incorporated by reference herein, could materially and
adversely aÅect the Company's business, results of operations and Ñnancial condition.
The Company is subject to risks related to its dependence on the strength of retail economies in various
parts of the world.
The Company's business depends on the strength of the retail economies in various parts of the world,
primarily in North America and to a lesser extent Europe, Central and South America and Asia. These
retail economies are aÅected primarily by factors such as consumer demand and the condition of the retail
industry, which, in turn, are aÅected by general economic conditions and speciÑc events such as natural
disasters and the terrorist attacks of September 11, 2001. In recent years, the retail industry in the U.S.
and, increasingly, elsewhere has been characterized by intense competition and consolidation among
retailers. Because such competition, particularly in weak retail economies, can cause retailers to struggle or
fail, the Company must continuously monitor, and adapt to changes in, the proÑtability, creditworthiness
and pricing policies of its customers.
The Company is subject to intense competition in a marketplace dominated by large retailers.
The Company competes with numerous other manufacturers and distributors of consumer and
commercial products, many of which are large and well established. The Company's principal customers
are large mass merchandisers, such as discount stores, home centers, warehouse clubs and oÇce
superstores, and commercial distributors. The rapid growth of these large mass merchandisers, together
with changes in consumer shopping patterns, have contributed to the formation of dominant multi-category
retailers that have strong negotiating power with suppliers. Current trends among retailers include fostering
high levels of competition among suppliers, demanding innovative new products and requiring suppliers to
maintain or reduce product prices and deliver products with shorter lead times. Other trends are for
retailers to import products directly from foreign sources and to source and sell products, under their own
private label brands, that compete with products of the Company.
The combination of these market inÖuences has created an intensely competitive environment in
which the Company's principal customers continuously evaluate which product suppliers to use, resulting
in downward pricing pressures and the need for strong end-user brands, the ongoing introduction of
innovative new products, continuing improvements in customer service, and the maintenance of strong
relationships with large, high-volume purchasers. The Company also faces the risk of changes in the
strategy or structure of its major retailer customers, such as overall store and inventory reductions and
retailer consolidation. The resulting risks to the Company include possible loss of sales, reduced
proÑtability and limited ability to recover cost increases through price increases.
To compete successfully, the Company must develop a continuing stream of innovative new products that
create consumer demand.
The Company's long-term success in this competitive retail environment depends on its ability to
develop a continuing stream of innovative new products that create consumer demand for the Company's
products. The Company also faces the risk that its competitors will introduce innovative new products that
compete with the Company's products. Project Acceleration, a three-year initiative announced in
September 2005, includes increased investment in new product development. There are, nevertheless,
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