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 March 31, 1995.
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
11,489,516 common shares were outstanding as of March 31, 1995.
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 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
Stock Option Agreement (Non-ISO) Exhibit 10
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule Exhibit 27
2
PART I
GRACO INC. AND SUBSIDIARIES
Item 1.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Thirteen Weeks Ended
March 31, 1995 April 1, 1994
(In thousands except per share amounts)
Net sales $95,527 $80,930
Cost of products sold 49,000 42,494
Gross profit 46,527 38,436
Product development 3,921 3,556
Selling 21,690 22,299
General and administrative 11,100 9,488
Operating profit 9,816 3,093
Interest expense 684 368
Other expense, net 396 39
Earnings before income taxes 8,736 2,686
Income taxes 3,300 850
Net earnings $5,436 $1,836
Net earnings per common share $0.47 $0.16
Cash dividend per common share $0.16 $0.14
See notes to consolidated financial statements.
3
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1995 December 31, 1994
ASSETS
(In thousands)
Current Assets:
Cash and cash equivalents $809 $2,444
Accounts receivable, less allowances of
$5,167 and $4,700 80,097 75,589
Inventories 54,589 50,529
Deferred income taxes 12,086 11,755
Other current assets 2,799 3,628
Total current assets 150,380 143,945
Property, plant and equipment:
Cost 151,774 145,164
Less accumulated depreciation (77,767) (75,124)
74,007 70,040
Other assets 14,590 14,400
$238,977 $228,385
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $21,706 $11,675
Current portion of long-term debt 5,916 5,685
Trade accounts payable 17,588 19,764
Dividends payable 1,820 1,857
Income taxes payable 7,943 5,761
Other current liabilities 40,426 44,798
Total current liabilities 95,399 89,540
Long-term debt, less current portion above 24,460 26,798
Retirement benefits and deferred compensation 31,233 30,196
Shareholders' equity:
Preferred stock 1,474 1,485
Common stock 11,495 11,366
Additional paid-in capital 20,242 18,289
Retained earnings 54,270 50,702
Other, net 404 9
87,885 81,851
$238,977 $228,385
See notes to consolidated financial statements.
4
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
March 31, 1995 April 1, 1994
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net earnings $5,436 $1,836
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,282 2,600
Deferred income taxes (292) (340)
Change in:
Accounts receivable (3,044) (5,213)
Inventories (3,848) (6,231)
Trade accounts payable (2,405) (1,216)
Accrued salaries (3,770) (2,154)
Retirement benefits and deferred compensation 1,342 938
Other accrued liabilities 671 (1,747)
Other 1,297 (852)
(1,331) (12,379)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (7,526) (2,711)
Proceeds from sale of property, plant, and equipment 322 123
Purchases of marketable securities 0 (5,464)
Proceeds from marketable securities 0 31,450
(7,204) 23,398
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 33,557 10,155
Payments on notes payable (23,739) (1,053)
Payments on long-term debt (2,210) 0
Common stock issued 2,071 2,663
Cash dividends paid (1,905) (32,829)
7,774 (21,064)
Effect of exchange rate changes on cash (874) 66
Net decrease in cash and cash equivalents (1,635) (9,979)
Cash and cash equivalents:
Beginning of year 2,444 11,095
End of period $809 $1,116
See notes to consolidated financial statements.
5
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of March 31, 1995, the
consolidated statements of earnings for the thirteen weeks ended
March 31, 1995, and April 1, 1994, and the consolidated statements
of cash flows for the thirteen 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 March 31, 1995, and April 1, 1994,
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
1994 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:
Mar. 31, 1995 DEC. 30, 1994
Finished products and components $50,406 $46,694
Products and components in
various stages of completion 28,086 24,826
Raw materials 11,169 13,918
Reduction to LIFO cost (35,072) (34,909)
$54,589 $50,529
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 first quarter of $5,436,000 increased
$3,600,000 from the same period a year ago as the Company
continues to have strong sales in the Americas and growth in
Europe and in most of the Pacific, despite the economic downturn
in Japan. In addition to increased sales, gross margin levels
have improved from 1994 and operating expenses as a percent of
sales have declined due primarily to cost reduction efforts taken
in 1994.
Sales in the first quarter of $95,527,000 increased $14,597,000,
or 18 percent, from the same period in 1994. Sales in the
Americas increased 11 percent to $65,115,000, and European sales
were up 35 percent to $16,242,000 (a 23 percent volume increase,
and a 12 percent gain due to exchange rates). In the Pacific
(excluding Japan), sales increased 79 percent to $8,542,000 (a 78
percent volume increase, and a gain of 1 percent on exchange
rates). In Japan, sales increased 4 percent to $ 5,628,000 (a 7
percent volume decrease offset by a gain of 11 percent on
exchange rates).
Operating expenses of $36,711,000 increased $1,368,000, or 4
percent, from the first quarter of 1994. Product development
expense increased 10 percent over 1994, as previously announced
initiatives continue. Selling expenses were 3 percent lower than
the same period last year, largely due to lower headcount levels
associated with the Company's cost reduction efforts taken in
1994. General and administrative costs were up by 17 percent,
due primarily to expense items related to increased profitability
and special charges.
The income tax rate for the quarter was 38 percent compared to 32
percent for the same period in 1994. The increase was due
primarily to foreign results effectively taxed at higher rates.
For the quarter, consolidated bookings were up 4%. Bookings were
up modestly in all regions, with the most significant improvement
in Europe. Backlog at March 31, 1995 was $28,000,000,
approximately 11 percent higher than it was on December 30, 1994
and 14 percent lower than the first quarter of 1994.
The Company expects continued strong performance in the Americas
and improved performance in Europe as the economies there
continue to strengthen. Performance in Japan remains weak. The
Company 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
Cash was used for operating activities and fixed asset additions.
Accounts receivable increased $4,508,000 from the prior year-end
due to the increased sales volume, and inventories increased
$4,060,000 primarily in production. Property, plant and
equipment totaling $7,526,000 was purchased during the first
quarter.
The Company has unused lines of credit available at March 31,
1995, totaling $15 million.
7
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Stock Option Agreeement Exhibit 10
Form of Agreement used for
award of non-incentive stock
options to executive officers,
dated March 1, 1995.
Statement on Computation Exhibit 11
of Per Share Earnings
Financial Data Schedule Exhibit 27
(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: May 11, 1995 By: /s/ David A. Koch
David A. Koch
Chairman and Chief Executive Officer
Date: May 11, 1995 By: /s/David M. Lowe
David M. Lowe
Treasurer
(Principal Financial Officer)
9
EXHIBIT 10
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this day of , 199 , 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 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended
March 31, 1994 April 1, 1994
(In thousands except per share amounts)
Net earnings applicable to common stock:
Net earnings $5,436 $1,836
Less dividends on preferred stock 19 19
$5,417 $1,817
Average number of common and common
equivalent shares outstanding:
Average number of common
shares outstanding 11,416 11,515
Dilutive effect of stock options
computed on the treasury stock method 83 65
11,499 11,580
Net earnings per common share
and common equivalent share $0.47 $0.16
Primary and fully diluted earnings per share are substantially the same.
5
0000042888
GRACO INC.
1,000
3-MOS
DEC-29-1995
MAR-31-1995
809
0
85,264
5,167
54,589
150,380
151,774
77,767
238,977
95,399
30,376
11,495
1,474
0
74,916
238,997
95,527
95,527
49,000
49,000
37,791
544
684
8,736
3,300
5,436
0
0
0
5,436
.47
.47
