Graco 2005 Annual Report Download - page 30

numerous uncertainties inherent in successfully developing and introducing innovative new products on a
continuing basis, and new product launches may not deliver expected growth results.
To compete successfully, the Company must develop and maintain strong end-user brands.
The Company's competitive success also depends increasingly on its ability to develop and maintain
strong end-user brands so that the Company's retailer customers will need the Company's products to
meet consumer demand. The development and maintenance of such brands requires signiÑcant investment
in brand building and marketing initiatives. While the Company is substantially increasing its expenditures
for advertising and other brand building and marketing initiatives as a part of Project Acceleration, the
increased investment may not deliver the anticipated results.
Price increases in raw materials could harm the Company's Ñnancial results.
The Company purchases some raw materials, including resin, corrugate, steel and aluminum, that are
subject to price volatility and inÖationary pressure. The Company attempts to reduce its exposure to
increases in those costs through a variety of programs, including periodic purchases, purchases for future
delivery, long-term contracts and sales price adjustments. Where practical, the Company uses derivatives
as part of its risk management process. Raw material price increases may oÅset productivity gains and
could materially impact the Company's Ñnancial results.
The Company's success depends on its ability to continuously improve productivity and streamline
operations, principally by reducing its manufacturing overhead.
The Company's objective is to become its retailer customers' low-cost provider and global supplier
and brand of choice. To do this, the Company needs to continuously improve its manufacturing eÇciencies
and develop sources of supply on a global basis. Project Acceleration includes the closure of approximately
one-third of the Company's 80 manufacturing facilities (as of September 2005) over the next three years.
The Company also needs to continue to divest low-margin product lines that do not Ñt in the Company's
strategic plan. The Company runs the risk that Project Acceleration may not be completed substantially as
planned, may be more costly to implement than expected, or may not have the positive eÅects anticipated,
or that another major productivity and streamlining program may be required after Project Acceleration is
completed. In addition, disruptions in the Company's ability to supply products on a timely basis, which
may be incidental to any problems in the execution of Project Acceleration, could adversely aÅect the
Company's future results.
The Company needs to continue to make strategic acquisitions and to integrate its acquired businesses.
Although the Company has in recent years increasingly emphasized internal growth rather than
growth by acquisition, the Company's ability to continue to make strategic acquisitions and to integrate the
acquired businesses successfully, obtaining anticipated cost savings and operating income improvements
within a reasonable period of time, remain important factors in the Company's future growth. For example,
the successful integration of the recently acquired DYMO business into the Company's OÇce Products
segment is important to the Company's success. Furthermore, the cost of any future major acquisitions
could constrain the Company's access to capital and increase the Company's borrowing costs.
The Company is subject to risks related to its international operations.
Foreign operations, especially in Europe, but also in Asia, Central and South America and Canada,
are important to the Company's business. In November 2005, the Company acquired the DYMO business
and thereby increased the magnitude of the Company's operations in Europe. In addition, as the Company
increasingly sources products in low-cost countries, particularly in the Far East, it is exposed to additional
risks and uncertainties. Foreign operations can be aÅected by factors such as currency devaluation, other
currency Öuctuations, tariÅs, nationalization, exchange controls, interest rates, limitations on foreign
investment in local business and other political, economic and regulatory risks and diÇculties. The
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