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 July 1, 1994
Commission File Number: 1-9249
GRACO INC
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
(State of incorporation) (I.R.S. Employer Identification Number)
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422
(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
11,629,204 common shares were outstanding as of July 1, 1994.
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
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 7
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote 8
of Security Holders
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
Nonemployee Director Stock Plan Exhibit 10.1
1994 Corporate and Business Unit Annual Bonus Plan Exhibit 10.2
Stock Option Agreement (Non-ISO) Exhibit 10.3
Computation of Net Earnings per Common Share Exhibit 11
2
PART I
GRACO INC. AND SUBSIDIARIES
Item 1 CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 1, 1994 June 25, 1993 July 1, 1994 June 25, 1993
(In thousands except per share amounts)
Net sales $94,179 $79,415 $175,109 $157,226
Cost of products sold 49,952 40,094 92,446 81,696
Gross profit 44,227 39,321 82,663 75,530
Product development 3,566 2,865 7,122 5,642
Selling 22,789 20,791 45,088 40,231
General and administrative 10,659 9,306 20,147 18,456
Operating profit 7,213 6,359 10,306 11,201
Interest expense 480 537 848 1,143
Other expense, net 138 158 177 272
Earnings before income taxes 6,595 5,664 9,281 9,786
Income taxes 2,400 1,550 3,250 3,100
Net earnings $4,195 $4,114 $6,031 $6,686
Net earnings per common share $0.36 $0.36 $0.52 $0.59
Cash dividend per common share $0.14 $0.13 $0.28 $0.25
See notes to consolidated financial statements.
3
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 1, 1994 December 31, 1993
ASSETS (Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents $2,577 $11,095
Marketable securities 0 26,345
Accounts receivable, less allowancces of 74,833 62,178
$4,700 and $4,100
Inventories 48,874 35,719
Deferred income taxes 9,542 8,843
Other current assets 4,037 3,079
Total current assets 139,863 147,259
Property, plant and equipment:
Cost 135,915 129,876
Less accumulated depreciation (75,475) (72,132)
60,440 57,744
Other assets 10,986 11,362
$211,289 $216,365
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $20,066 $3,234
Current portion of long-term debt 5,606 5,543
Trade accounts payable 18,860 16,737
Dividends payable 1,628 32,535
Income taxes payable 4,481 5,658
Other current liabilities 37,503 35,904
Total current liabilities 88,144 99,611
Long-term debt, less current portion above 13,544 13,937
Retirement benefits and deferred compensation 29,312 28,132
Shareholders' equity:
Preferred stock 1,474 1,485
Common stock 11,629 11,449
Additional paid-in capital 22,268 19,813
Retained earnings 44,875 42,430
Other, net 43 (492)
80,289 74,685
$211,289 $216,365
See notes to consolidated financial statements.
4
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks Ended
July 1, 1994 June 26, 1993
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net earnings $6,031 $6,686
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 5,157 4,860
Deferred income taxes (549) 257
Change in:
Accounts receivable (11,644) 3,552
Inventories (12,868) 3,989
Trade accounts payable 1,895 (5,066)
Accrued salaries (872) (1,211)
Retirement benefits and deferred compensation 1,025 2,028
Other accrued liabilities 1,097 (7,829)
Other (831) (3,327)
(11,559) 3,939
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (7,659) (6,023)
Proceeds from sale of property, plant, and equipment 169 626
Purchases of marketable securities (5,464) (7,512)
Proceeds from marketable securities 31,809 5,806
18,855 (7,103)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable, net change 16,643 (2,807)
Payments on long-term debt (332) (192)
Common stock issued 2,774 2,378
Retirement of common and preferred stock (5) (1,750)
Cash dividends paid (34,493) (2,919)
(15,413) (5,290)
Effect of exchange rate changes on cash (401) 170
Net decrease in cash and cash equivalents (8,518) (8,284)
Cash and cash equivalents:
Beginning of year 11,095 18,869
End of period $2,577 $10,585
See notes to consolidated financial statements.
5
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of July 1, 1994, the consolidated
statements of earnings for the twenty-six weeks ended July 1, 1994, and
June 25, 1993, and the consolidated statements of cash flows for the twenty-
six weeks then ended have been prepared by the Company without being
audited.
In the opinion of management, these consolidated statements reflect all
adjustments necessary to present fairly the financial position of Graco
Inc. at July 1, 1994, and June 25, 1993, 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 1993 Form 10-K.
The results of operations for interim periods are not necessarily indicative
of results which will be realized for the full fiscal year.
2. Major components of inventories were as follows:
July 1, 1994 Dec. 31,1993
(In thousands)
Finished products and components $47,017 $42,010
Products and components in
various stages of completion 28,455 21,410
Raw Materials 10,195 8,642
Reduction to LIFO cost (36,793) (36,343)
$48,874 $35,719
6
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net earnings in the second quarter of $4,195,000 increased $81,000 from the same
period a year ago as higher operating earnings were nearly offset by a higher
tax rate. Net earnings of $6,031,000 for the first half of 1994 were $655,000
below 1993 as increased sales, up 11 percent over 1993, were more than offset by
a lower gross margin rate and higher expenses.
Sales in the second quarter of $94,179,000 increased $14,764,000, or 19 percent,
from the same period in 1993. Second quarter sales in the Americas increased 27
percent overall to $66,424,000. Contractor Equipment sales increased 33
percent, Lubrication Equipment sales were up 24 percent and
Industrial/Automotive Equipment rose 21 percent, with new product sales and an
expanding economy driving the increases. Sales in Europe were up 7 percent to
$15,072,000 (a 12 percent volume increase, offset 5 percent due to exchange
rates). In the Pacific, sales were down 4 percent to $12,683,000 (a 9 percent
volume decline, and a gain of 5 percent on exchange rates).
Sales for the six months were $175,109,000, an 11 percent increase over the same
period last year. In the Americas, sales increased 20 percent to $125,108,000.
European sales were down 1 percent to $27,125,000 (a volume increase of 4
percent, offset by a 5 percent exchange rate loss). Sales in the Pacific
decreased 9 percent to $22,876,000 (a 14 percent volume decline and a 5 percent
exchange rate gain.)
Gross profit margins decreased during the second quarter 1994 to 47 percent of
sales from 50 percent for the same period in 1993, primarily due to an increased
volume of lower-margin, large engineered systems.
Operating expenses in the second quarter of $37,014,000 increased $4,052,000, or
12 percent, from the second quarter of 1993. Product development expense
increased 24 percent over 1993, as previously announced spending increases
continued. Selling expenses were up 10 percent, while general and
administrative expenses were up 15 percent. Approximately half of the increase
in selling and general and administrative expense is attributable to costs
associated with the Company's ongoing cost reduction efforts. Operating
expenses for the six months increased $8,028,000, or 12 percent.
Because of operating losses at certain of its foreign subsidiaries for which no
tax benefit has been recorded, Graco has increased its expected annual tax rate
for 1994 to 35 percent, resulting in a 36 percent tax rate for the second
quarter.
For the second quarter, overall bookings were up 17 percent. Bookings were very
strong in the Americas, up modestly in Europe, and down in the Pacific. Backlog
at July 1, 1994 was $30 million, down $3 million from the beginning of the
quarter, but an increase of $7 million from $23 million on June 25, 1993.
The Company expects continued strong performance in the Americas and improved
performance in Europe as the economies there continue to strengthen. The
Pacific, and Japan in particular, remain weak. The Company is encouraged by the
increase in its bookings. It intends to continue making investments in
manufacturing efficiency and new product development, and is striving for a more
efficient global sales and marketing organization to improve its financial
performance.
Financial Condition
Accounts receivable increased $11,644,000 from the prior year-end due to the
increased sales volume, and inventories increased $12,868,000 primarily in the
Minneapolis production areas and in Europe. Property, plant and equipment
totaling $7,659,000 was purchased year-to-date. Marketable securities were sold
to fund the special one-time dividend of $31,200,000 which was paid in March of
this year.
The Company has unused lines of credit available at July 1, 1994, totaling $28
million.
7
PART II
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 3, 1994, George
Aristides, Ronald O. Baukol, Joe R. Lee and Gerard C. Planchon were
elected to the Office of Director with the following votes:
For Withheld
George Aristides 9,673,251 64,396
Ronald O. Baukol 9,674,586 63,061
Joe R. Lee 9,675,011 62,635
Gerard C. Planchon 9,671,077 66,570
At the same meeting, the Graco Inc. Nonemployee Director Stock Plan was
presented for approval. The plan allows nonemployee members of the
Board of Directors to receive, in lieu of cash, part or all of their
annual cash retainer in Graco Common Stock. The plan was approved,
with the following votes:
For Against Abstentions Broker Non-Vote
9,594,427 110,380 32,840 0
At the same meeting, the selection of Deloitte & Touche as independent
auditors for the current year was approved and ratified, with the
following votes:
For Against Abstentions Broker Non-Vote
9,706,530 17,371 13,746 0
No other matters were voted on at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Nonemployee Director Stock Plan Exhibit 10.1
1994 Corporate and Business Exhibit 10.2
Unit Annual Bonus Plan
Stock Option Agreement. Form Exhibit 10.3
of Agreement used for award of
non-incentive stock options to
executive officers
Statement on Computation Exhibit 11
of Per Share Earnings
(b) No reports on Form 8-K have been
filed during the quarter for which this
report is filed.
8
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: August 8, 1994 By: /s/ David A. Koch
David A. Koch
Chairman and Chief Executive Officer
Date: August 5, 1994 By: /s/ Robert A. Wagner
Robert A. Wagner
Vice President and Treasurer
(Principal Financial Officer)
9
Exhibit 10.1
GRACO INC.
NONEMPLOYEE DIRECTOR STOCK PLAN
("PLAN")
1. Purpose of the Plan. The purpose of the Graco Inc. Nonemployee Director
Stock Plan (the "Plan") is to provide an opportunity for nonemployee members of
the Board of Directors (the "Board") of Graco Inc. ("Graco" or the "Company") to
increase their ownership of Graco Common Stock ("Common Stock") and thereby
align their interest in the long-term success of the Company with that of the
other shareholders.
2. Eligibility. Directors of the Company who are not also officers or other
employees of the Company or its subsidiaries are eligible to participate in this
Plan ("Eligible Directors").
3. Administration. This Plan will be administered by the Secretary of the
Company (the "Administrator"). Since the issuance of shares of Common Stock
pursuant to this Plan is based on elections made by Eligible Directors, the
Administrator's duties under this Plan will be limited to matters of
interpretation and administrative oversight. All questions of interpretation of
this Plan will be determined by the Administrator, and each determination,
interpretation or other action that the Administrator makes or takes pursuant to
the provisions of this Plan will be conclusive and binding for all purposes and
on all persons. The Administrator will not be liable for any action or
determination made in good faith with respect to this Plan.
4. Election to Receive Stock and Stock Issuance.
4.1. Election to Receive Stock in Lieu of Cash. On forms provided by the
Company, each Eligible Director may irrevocably elect ("Stock Election") to
receive, in lieu of cash, shares of Common Stock having a Fair Market Value, as
defined in Section 4.3, equal to 25%, 50%, 75% or 100% of the annual cash
retainer (the 'Retainer") payable to that director for services rendered as a
director ("Participating Director"). A Stock Election shall apply only to the
Retainer and not to any fees payable for attendance at Board or Committee
meetings. Eligible Directors are customarily paid the Retainer in quarterly
installments in arrears at the end of each fiscal quarter. Any Stock Election
must be received by the Company at least six months in advance of the
commencement of the first fiscal quarter with respect to which such election is
made. Any Stock Election may only be amended or revoked ("Amended Stock
Election") in accordance with the procedure set forth in Section 4.4.
4.2. Issuance of Stock in Lieu of Cash. Shares of Graco Common Stock
having a Fair Market Value equal to the amount of the Retainer so elected shall
be issued to each Participating Director when each quarterly installment of the
Retainer is customarily paid. The Company shall not issue fractional shares.
Whenever, under the terms of this Plan, a fractional share would be required to
be issued, an amount in lieu thereof shall be paid in cash for such fractional
share based upon the same Fair Market Value as was utilized to determine the
number of Shares to be issued on the relevant issue date. In the event that a
Participating Director elects to receive less than 100% of each quarterly
installment of the Retainer in shares of Common Stock, he shall receive the
balance of the quarterly installment in cash.
4.3 Fair Market Value. For purposes of converting dollar amounts into
shares of Common Stock, the Fair Market Value of each share of Common Stock
shall be equal to the closing price of one share of the Company's Common Stock
on the New York Stock Exchange-Composite Transactions on the last business day
of the fiscal quarter for which such shares are issued.
4.4. Change in Election. Each Participating Director may irrevocably
elect in writing to change an earlier Stock Election, either to receive a
different percentage of that director's Retainer in shares of Common Stock or to
receive the entire Retainer in cash (an "Amended Stock Election"). Such Amended
Stock Election shall not become effective until the first fiscal quarter
commencing at least six months after the date of receipt of such Amended Stock
Election by the Company.
4.5 Termination of Service as a Director. If a Participating Director
leaves the Board before the conclusion of any fiscal quarter, he will be paid
the quarterly installment of the Retainer entirely in cash, notwithstanding that
a Stock Election or Amended Stock Election is on file with the Company. The
date of termination of a Participating Director's service as a director of the
Company will be deemed to be the date of termination recorded on the personnel
or other records of the Company.
5. Shares Available for Issuance.
5.1. Maximum Number of Shares Available. The maximum number of shares of
the Company's Common Stock, par value $1.00 per share, that will be available
for issuance under this Plan will be 100,000 shares, subject to any adjustments
made in accordance with the provisions of Section 5.2. At the election of the
Administrator, the shares of Common Stock available for issuance under this Plan
may be either authorized but unissued shares or treasury shares. If treasury
shares are used, all references in the Plan to the issuance of shares will be
deemed to mean the transfer of shares from treasury.
5.2. Adjustments to Shares. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights offering, divestiture or
extraordinary dividend, an appropriate adjustment will be made in the number
and/or kind of securities available for issuance under the Plan to prevent
either the dilution or the enlargement of the rights of the Eligible and
Participating Directors.
6. Limitation on Rights of Eligible and Participating Directors.
6.1. Service as a Director. Nothing in this Plan will interfere
with or limit in any way the right of the Company's Board or its shareholders to
remove an Eligible or Participating Director from the Board. Neither this Plan
nor any action taken pursuant to it will constitute or be evidence of any
agreement or understanding, express or implied, that the Company's Board or its
shareholders have retained or will retain an Eligible or Participating Director
for any period of time or at any particular rate of compensation.
6.2. Nonexclusivity of the Plan. Nothing contained in this Plan is
intended to effect, modify or rescind any of the Company's existing compensation
plans or programs or to create any limitations on the Board's power or authority
to modify or adopt compensation arrangements as the Board may from time to time
deem necessary or desirable.
7. Plan Amendment, Modification and Termination. The Board may suspend
or terminate this Plan at any time. The Board may amend this Plan from time to
time in such respects as the Board may deem advisable in order that this Plan
will conform to any change in applicable laws or regulations or in any other
respect that the Board may deem to be in the Company's best interests; provided,
however, that no amendments to this Plan will be effective without approval of
the Company's shareholders, if shareholder approval of the amendment is then
required pursuant to Rule 16b-3 (or any successor rule) under the Securities
Exchange Act of 1934, as amended, or the rules of the New York Stock Exchange.
In addition, the Plan may not be amended more than once every six months other
than to conform it with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act of 1974, or the rules thereunder.
8. Effective Date and Duration of the Plan. This Plan shall become
effective as of the date the Company's shareholders approve it and will
terminate on December 31, 2003, unless earlier terminated by the Company's
Board.
9. Miscellaneous.
9.1 Securities Law and Other Restrictions. Notwithstanding any
other provision of this Plan or any Stock Election or Amended Stock Election
delivered pursuant to this Plan, the Company will not be required to issue any
shares of Common Stock under this Plan and a Participating Director may not
sell, assign, transfer or otherwise dispose of shares of Common Stock issued
pursuant to this Plan, unless (a) there is in effect with respect to such shares
a registration statement under the Securities Act of 1933, as amended (the
"Securities Act") and any applicable state securities laws or an exemption from
such registration under the Securities Act and applicable state securities laws,
and (b) there has been obtained any other consent, approval or permit from any
other regulatory body that the Administrator, in his or her sole discretion,
deems necessary or advisable. The Company may condition such issuance, sale or
transfer upon the receipt of any representations or agreements from the parties
involved, and the placement of any legends on certificates representing shares
of Common Stock, as may be deemed necessary or advisable by the Company, in
order to comply with such securities law or other restriction.
9.2. Governing Law. The validity, construction, interpretation,
administration and effect of this Plan and any rules, regulations and actions
relating to this Plan will be governed by and construed exclusively in
accordance with the laws of the State of Minnesota.
Exhibit 10.2
GRACO INC.
1994 CORPORATE
&
BUSINESS UNIT
ANNUAL BONUS PLAN
Effective January 1, 1994
Human Resources
GRACO INC.
CORPORATE & BUSINESS UNIT
ANNUAL BONUS PLAN
Objectives
- To create shareholder value through achievement of annual
financial objectives.
- To motivate and retain those key executives and managers who work
in positions where they can impact the Company's annual financial
objectives.
Plan Design
The Plan links the size of each individual's award to specific financial
objectives. These objectives are tailored for the Corporation and for each
Business Unit. These objectives are:
- Corporation
Corporate earnings
- Business Units
Profitability objective
Eligibility Requirements
Only those positions which carry clear managerial responsibility for directly
contributing to Graco's Corporate earnings objective and Business Unit
profitability and sales objectives are eligible to be included in this Plan.
Only those individuals in eligible positions who have demonstrated and are
maintaining a performance level that meets the supervisor's normal expectations
for that position are eligible for annual participation in this Plan as well as
the receipt of any annual Bonus Payments.
Participation
The top executive in each organizational unit may nominate managers for
participation in this Plan when the established position and individual
eligibility requirements have been met.
The Management Organization and Compensation Committee of the Graco Inc. Board
of Directors has sole authority to approve the participation of the Chief
Executive Officer in the Plan.
The Chief Executive Officer of Graco Inc. has sole authority to select and
approve all other Plan participants.
Bonus Maximum
Taken in conjunction with base salary market comparisons, bonus maximum for all
positions will be:
- Commensurate with the position's ability to impact the annual Corporate
earnings objective and Business Unit profitability and sales
objectives.
- Consistent with total compensation levels prevalent for similar
positions in the market place.
Based on these criteria, bonus maximums ranging from 10% to 80% have been
established for each individual.
Bonus Payment
The determination of a participant's annual Bonus Payment will be calculated by
adding the bonus results attained for Corporate earnings performance (expressed
in percent) to the bonus results attained for any applicable Business Unit's
contribution or margin growth performance (expressed in percent). These bonus
results are then multiplied by the participant's Maximum Bonus Percentage and
then multiplied by the participant's Base Salary for the Plan Year, to determine
the total Bonus Payment.
Example:
Annual Annual Participant's Participant's
Corporate + Business x Maximum x Annual = Bonus
Performance Unit Bonus Base
Results Performance Salary Salary
Results
(if
applicable)
% % $ $ $
Administration
The following rules have been established to insure equitable administration of
Graco's Annual Bonus Plan (the Plan):
1. The Plan will be administered by the Management Organization and
Compensation Committee of the Board of Directors. The Committee may cancel
the Plan and interpret the Plan.
2. The Management Organization and Compensation Committee shall establish the
annual corporate bonus plan financial objectives. Within the basic
framework of the Plan, the Chief Executive Officer may establish the annual
bonus plan financial objectives for individual Business Units. The CEO may
also establish deadlines for filing administrative forms and adopt other
administrative rules.
The CEO has established the Bonus Administrative Committee consisting of
the President, the Vice President, Human Resources, and the Compensation
Manager. This Committee is responsible for making approval recommendations
on all Annual Bonus Program administrative matters, such as participation
award payments, performance measures, and performance results. All
requests for adjustments or exceptions are to be formally submitted to this
Committee for review through the Compensation Manager.
3. Key executives and managers selected to participate in the Plan after its
annual effective date (January 1st) may be included on a pro-rata basis.
4. Participation in the Plan one year does not necessarily assure participa
tion in subsequent years. Eligibility requirements for both the position
and individual performance must be met continually.
5. Participation continues during any paid time off such as short term
disability (up to six months). Participation ceases with retirement,
death, or long term disability (over six months). In the event
participation ceases due to retirement, death, or long term disability, the
Participant will be eligible for a Bonus Payment, calculated using the
Maximum Bonus Percent and Base Salary up to the time of retirement, death,
or long term disability and the annual performance results for the year in
which retirement, death, or long term disability occurs.
6. A participant who transfers to a position not eligible for inclusion in the
Plan will be eligible for a pro-rata award based on the actual time
employed in the eligible position during the year. The pro-rated award
will be paid as described in Administrative Rule #11.
7. A participant who resigns or is terminated effective during the Plan Year is
ineligible for a bonus.
Participants must maintain satisfactory performance throughout the Plan
year in order to be eligible to receive a bonus award payment.
In addition, a participant whose employment termination has been requested
due to performance or otherwise for cause will be ineligible for a bonus
payment even though the participant is still employed at year-end.
8. Corporate earnings calculations will include such effects as those created
by foreign exchange gain/loss translation and income tax rate changes.
9. Corporate earnings calculations will be based on actual exchange rates, not
plan rates.
10. Acquisitions and divestitures not included in the annual business plan for
the Plan Year will be excluded from the corporate earnings calculations.
11. Significant changes in historical FASB accounting practices or income tax
rates will be included in corporate earnings calculations at the discretion
of the Management Organization and Compensation Committee of the Board of
Directors.
12. Payments will be made by March 15th of the year following each successive
Corporate and Business Unit performance year.
Exhibit 10.3
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 2nd day of May, 1994, by and between Graco Inc.,
a Minnesota corporation (the "Company") and _____________________________
(the "Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive Stock Plan
wishes to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. Grant of Option
The Company hereby grants to Employee, the right and option
(hereinafter called the "option") to purchase all or any part of an aggregate of
____________ Common Shares, par value $1.00 per share, at the price of
$____________ per share on the terms and conditions set forth herein.
2. Duration and Exercisability
(a) This option may not be exercised by Employee until the expiration
of two (2) years from the date of grant, and this option shall in all events
terminate ten (10) years after the date of grant. During the first two years
from the date of grant of this option, no portion of this option may be
exercised. Thereafter this option shall become exercisable in four cumulative
installments of 25% as follows:
Total Portion of Option
Date Which is Exercisable
Two Years after Date of Grant 25%
Three Years after Date of Grant 50%
Four Years after Date of Grant 75%
Five Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the full number of
shares of Common Stock of the Company to which he/she is entitled under this
option, he/she may, subject to the terms and conditions of Section 3 hereof,
purchase such shares of Common Stock in any subsequent year during the term of
this option.
(b) During the lifetime of the Employee, the option shall be
exercisable only by him/her and shall not be assignable or transferable by
him/her otherwise than by will or the laws of descent and distribution.
3. Effect of Termination of Employment
(a) In the event that Employee shall cease to be employed by the
Company or its subsidiaries for any reason other than his/her gross and willful
misconduct, death, retirement (as defined in Section 3(d) below), or disability
(as defined in Section 3(d) below), Employee shall have the right to exercise
the option at any time within one month after such termination of employment to
the extent of the full number of shares he/she was entitled to purchase under
the option on the date of termination, subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(b) In the event that Employee shall cease to be employed by the
Company or its subsidiaries by reason of his/her gross and willful misconduct
during the course of his/her employment, including but not limited to wrongful
appropriation of Company funds or the commission of a felony, the option shall
be terminated as of the date of the misconduct.
(c) If the Employee shall die while in the employ of the Company or a
subsidiary or within one month after termination of employment for any reason
other than gross and willful misconduct and shall not have fully exercised the
option, all remaining shares shall become immediately exerciseable and such
option may be exercised at any time within twelve months after his/her death by
the executors or administrators of the Employee or by any person or persons to
whom the option is transferred by will or the applicable laws of descent and
distribution, and subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
(d) If the Employee's termination of employment is due to retirement
(either after attaining age 55 with 10 years of service, or attaining age 65, or
due to disability within the meaning of the provisions of the Graco Long-Term
Disability Plan), all remaining shares shall become immediately exerciseable and
the option may be exercised by the Employee at any time within three years of
the employee's retirement, or in the event of the death of the Employee within
the three-year period after retirement, the option may be exercised at any time
within twelve months after his/her death by the executors or administrators of
the Employee or by any person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution, to the extent of the
full number of shares he/she was entitled to purchase under the option on the
date of death, and subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
4. Manner of Exercise
(a) The option can be exercised only by Employee or other proper party
within the option period delivering written notice to the Company at its
principal office in Minneapolis, Minnesota, stating the number of shares as to
which the option is being exercised and, except as provided in Section 4(c),
accompanied by payment-in-full of the option price for all shares designated in
the notice.
(b) The Employee may, at Employee's election, pay the option price
either by check (bank check, certified check, or personal check) or by
delivering to the Company for cancellation Common Shares of the Company with a
fair market value equal to the option price. For these purposes, the fair
market value of the Company's Common Shares shall be the closing price of the
Common Shares on the date of exercise on the New York Stock Exchange (the
"NYSE") or on the principal national securities exchange on which the shares are
traded if the shares are not then traded on the NYSE. If there is not a
quotation available for such day, then the closing price on the next preceding
day for which such a quotation exists shall be determinative of fair market
value. If the shares are not then traded on an exchange, the fair market value
shall be the average of the closing bid and asked prices of the Common Shares as
reported by the National Association of Securities Dealers Automated Quotation
System. If the Common Shares are not then traded on NASDAQ or on an exchange,
then the fair market value shall be determined in such manner as the Company
shall deem reasonable.
(c) The Employee may, with the consent of the Company, pay the option
price by arranging for the immediate sale of some or all of the shares issued
upon exercise of the option by a securities dealer and the payment to the
Company by the securities dealer of the option exercise price.
5. Payment of Withholding Taxes
Upon exercise of any portion of this option, Employee shall pay to the
Company an amount sufficient to satisfy any federal, state, or local withholding
tax requirements which arise as a result of the exercise of the option or
provide the Company with satisfactory indemnification for such payment.
6. Adjustments
If Employee exercises all or any portion of the option subsequent to
any change in the number or character of the Common Shares of the Company
(through merger, consolidation, reorganization, recapitalization, stock
dividend, or otherwise), Employee shall then receive for the aggregate price
paid by him/her on such exercise of the option, the number and type of
securities or other consideration which he/she would have received if such
option had been exercised prior to the event changing the number or character of
outstanding shares.
7. Miscellaneous
(a) This option is issued pursuant to the Company's Long-Term Incentive
Stock Plan and is subject to its terms. A copy of the Plan has been given to
the Employee. The terms of the Plan are also available for inspection during
business hours at the principal offices of the company.
(b) This Agreement shall not confer on Employee any right with respect
to continuance of employment by the Company or any of its subsidiaries, nor will
it interfere in any way with the right of the Company to terminate such
employment at any time. Employee shall have none of the rights of a shareholder
with respect to shares subject to this option until such shares shall have been
issued to him upon exercise of this option.
(c) The Company shall at all times during the term of the option
reserve and keep available such number of shares as will be sufficient to
satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
GRACO INC.
By________________________________________
Its: Chairman and Chief Executive Officer
___________________________________________
Employee
EXHIBIT NO. 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 1, 1994 June 25, 1993 July 1, 1994 June 25, 1993
(In thousands except per share amounts)
Net earnings applicable to common stock:
Net earnings $4,195 $4,114 $6,031 $6,686
Less dividends on preferred stock 19 19 37 37
$4,176 $4,095 $5,994 $6,649
Average number of common and common
equivalent shares outstanding:
Average number of common
shares outstanding 11,514 11,392 11,514 11,372
Dilutive effect of stock options
computed on the treasury stock 49 86 57 71
11,563 11,478 11,571 11,443
Net earnings per common share
and common equivalent share $0.36 $0.36 $0.52 $0.58
Primary and fully diluted earnings per share are substantially the same.
10
