Graco Aligns Operations with Market Conditions

Graco Inc. (NYSE: GGG) today announced a workforce reduction as part of its efforts to align operations with current market and economic conditions.

Patrick McHale, Graco’s president and chief executive officer, said, "It is impossible to ignore the impact of the global recession on our business and the challenging market that we anticipate in the year ahead. The company’s fourth-quarter incoming order rates remain 15 percent to 20 percent below the comparable 2007 period (measured at consistent exchange rates). As a result, we must take the difficult step of reducing our workforce and adjusting our cost structure to meet the current realities of our business. We regret the impact on our employees.”

The workforce reduction will affect approximately 150 people, or 6 percent of Graco’s global employee base. The company expects to take a pretax charge of $5 million related to severance and early retirement costs in the fourth quarter of 2008. The workforce reduction is expected to be complete by early 2009 and is expected to lower the Company’s cost structure $9 million. The Company is also reducing capital expenditures and discretionary spending to further control costs.

The Company anticipates impairment charges up to $4 million in the fourth quarter as the decline in business levels is reflected in the review of intangible assets.

As previously announced, the fourth quarter results also include additional expenses of $3 million associated with the roll-out of entry-level paint sprayers to additional paint and home center stores in the fourth quarter.

McHale commented further that, "we believe our long-term prospect for growth is strong and that we will be well-positioned to respond to customer requirements when economic conditions improve. Graco continues to be committed to making strategic investments in new product development, distribution expansion, new markets and strategic acquisitions.”

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 spray fluid materials. A recognized leader in its specialties, Minneapolis-based Graco serves customers around the world in the manufacturing, processing, automotive, construction and maintenance industries. For additional information about Graco Inc., please visit us at www.graco.com.

Cautionary Statement Regarding Forward-Looking Statements

A forward-looking statement is any statement made in this earnings release and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press releases, analyst briefings, conference calls and the Company’s Annual Report to shareholders, 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 undertakes no obligation to update these statements in light of new information or future events.

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. In addition, the Company’s ability to recognize cost savings from the workforce reduction and respond to economic conditions as they improve may be impacted by our ability to execute and maintain the workforce reduction, control other costs, and manage any disruption to our business from the workforce reduction. Please refer to Item 1A of, and Exhibit 99 to, the Company’s Annual Report on Form 10-K for fiscal year 2007 (and most recent Form 10-Q, if applicable) for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com and the Securities and Exchange Commission’s website at www.sec.gov.