UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 26, 1998
Commission File Number: 001-9249
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
------ -----------
20,039,793 common shares were outstanding as of July 24, 1998.
PART I
GRACO INC. AND SUBSIDIARIES
Item 1. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
(In thousands except per share amounts)
Net Sales $ 115,153 $ 111,721 $ 220,870 $ 203,820
Cost of products sold 57,066 58,322 110,838 105,888
------------- ------------- ------------- -------------
Gross Profit 58,087 53,399 110,032 97,932
Product development 4,716 4,828 9,498 9,653
Selling 21,550 23,764 44,197 45,397
General and administrative 12,254 8,284 22,419 16,839
------------- ------------- ------------- -------------
Operating Profit 19,567 16,523 33,918 26,043
Interest expense 173 240 398 447
Other (income) expense, net (171) 615 108 247
------------- ------------- ------------- -------------
Earnings Before Income Taxes 19,565 15,668 33,412 25,349
Income taxes 6,800 5,250 11,700 8,750
------------- ------------- ------------- -------------
Net Earnings $ 12,765 $ 10,418 $ 21,712 $ 16,599
============= ============= ============= =============
Basic Net Earnings Per Common Share* $ .49 $ .41 $ .84 $ .65
============= ============= ============= =============
Diluted Net Earnings Per Common Share* .48 $ .40 $ .82 $ .64
============= ============= ============= =============
Basic Weighted Average Number
of Common Shares* 25,817 25,701 25,644 25,680
Diluted Weighted Average Number
of Common Shares* 26,755 26,208 26,497 26,243
*All 1997 per share data has been restated for the three-for-two stock split paid February 4, 1998.
See notes to consolidated financial statements.
2
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 26, 1998 December 26, 1997
------------- -----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 34,226 $ 13,523
Accounts receivable, less allowances
of $5,200 and $4,100 86,499 86,148
Inventories 43,822 43,942
Deferred income taxes 11,322 11,140
Other current assets 1,526 1,539
------------- -----------------
Total current assets 177,395 156,292
Property, Plant and Equipment:
Cost 199,671 196,940
Accumulated depreciation (101,065) (96,760)
------------- -----------------
98,606 100,180
Other Assets 7,797 8,060
------------- -----------------
$ 283,798 $ 264,532
============= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 4,472 $ 2,911
Current portion of long-term debt 1,788 1,796
Trade accounts payable 12,731 12,542
Salaries, wages & commissions 12,586 14,903
Accrued insurance liabilities 10,887 10,227
Income taxes payable 6,089 5,546
Other current liabilities 20,321 21,055
------------- -----------------
Total current liabilities 68,874 68,980
Long-term Debt, less current portion 5,422 6,163
Retirement Benefits and Deferred Compensation 31,301 31,880
Shareholders' Equity:
Common stock 25,833 25,553
Additional paid-in capital 29,970 26,085
Retained earnings 121,376 105,030
Other, net 1,022 841
------------- -----------------
Total shareholders' equity 178,201 157,509
------------- -----------------
$ 283,798 $ 264,532
============= =================
See notes to consolidated financial statements.
3
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks
----------------
June 26, 1998 June 27, 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net Earnings $ 21,712 $ 16,599
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 7,864 7,284
Deferred income taxes (436) (1,715)
Change in:
Accounts receivable (2,063) (8,832)
Inventories 45 (3,042)
Trade accounts payable 236 950
Retirement benefits and deferred
compensation (348) 1,286
Other accrued liabilities (1,816) (7,633)
Other 538 (1,055)
------------- -------------
25,732 3,842
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (6,492) (12,881)
Proceeds from sale of property, plant
and equipment 386 1,555
------------- -------------
(6,106) (11,326)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable and lines of credit 5,789 37,420
Payments on notes payable and lines of credit (3,960) (28,805)
Payments on long-term debt (722) (714)
Common stock issued 4,164 2,850
Retirement of common stock (12) (5,145)
Cash dividends paid (5,649) (4,836)
------------- -------------
(390) 770
------------- -------------
Effect of exchange rate changes on cash 1,467 2,437
------------- -------------
Net increase (decrease) in cash and cash equivalents 20,703 (4,277)
Cash and cash equivalents:
Beginning of year 13,523 6,535
------------- -------------
End of period $ 34,226 $ 2,258
============= =============
See notes to consolidated financial statements.
4
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet of Graco Inc. and Subsidiaries (the Company)
as of June 26, 1998 and the related statements of earnings for the thirteen
and twenty-six weeks ended June 26, 1998, and June 27, 1997, and cash flows
for the twenty-six weeks ended June 26, 1998, and June 27, 1997, 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. and Subsidiaries as of June 26, 1998, 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 1997 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 (in thousands):
June 26, 1998 Dec 26, 1997
------------- ------------
Finished products and components $ 35,897 $ 38,290
Products and components in various
stages of completion 25,527 25,320
Raw materials 18,846 16,715
------------- ------------
80,270 80,325
Reduction to LIFO cost (36,448) (36,383)
------------- ------------
$ 43,822 $ 43,942
5
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which will be effective for the
Company at the end of the 1998 fiscal year. SFAS No. 131 redefines how
operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments.
The Company has not yet determined the nature of its segments, nor has it
determined how adoption of SFAS No. 131 will impact its future disclosures.
4. To match North American and European fiscal years, Europe's December 1997
operating results were recorded as an adjustment to equity. Those results
included sales of $3,836,000 and net earnings of $300,000. The results of
operations for Graco Inc. for the quarter ended June 26, 1998 include
Europe's operations for the months of April, May and June. Second quarter
1997 results included the months of March, April and May, 1997. The
inclusion of the months of April, May, and June in the operating results
for Europe in the second quarter of 1997 would have had an immaterial
impact on sales, net earnings, and diluted earnings per share.
5. On July 2, 1998, the Company repurchased 5,800,000 shares of common stock,
for $190,887,000, from its largest shareholder, the Trust under the Will of
Clarissa L. Gray, pursuant to an agreement executed in May, 1998. The stock
repurchase was funded with cash of $32,887,000 and $158,000,000 from the
credit facility discussed below.
On July 2, 1998 the Company entered into a five-year $190,000,000 reducing
revolving credit facility (the Revolver) with a syndicate of ten banks
including the lead bank, US Bank National Association. The Company's
initial borrowing of $158,000,000 financed a portion of the stock
repurchase discussed above. $135,500,000 of the outstanding balance bears
interest at the London Interbank Offered Rate ("LIBOR") plus 0.625%. The
remaining $22,500,000 balance bears interest at Prime. The Revolver
requires quarterly reductions of the maximum amount of the credit line, and
requires the Company to maintain certain financial covenants as to net
worth, cash flow leverage and fixed charge coverage.
In conjunction with the aforementioned Revolver, the Company entered into a
two-year, $75,000,000 interest rate swap agreement on July 2, 1998 with
Wachovia Bank, National Association to manage its exposure to interest rate
changes.
6
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. (cont.)
The pro forma net income of the Company, assuming the stock repurchase and
related signing of the Revolver had occurred on December 27, 1997, would
have been $18.3 million for the six months ended June 26, 1998, including
the impact of increased interest expense net of related income taxes. For
the six months then ended, the pro forma basic and diluted earnings per
share are $.92 and $.88. The pro forma condensed balance sheet of the
Company as of June 26, 1998 is shown below.
June 26, 1998 June 26, 1998
As Reported Pro Forma
------------- -------------
Cash $ 34,226 $ 1,226
Current Assets 177,395 144,395
Total Assets 283,798 250,798
Current Liabilities 68,874 68,874
Long-term Debt 5,422 163,422
Total Liabilities 105,597 263,597
Shareholders' Equity $ 178,201 $ (12,799)
Common Shares Outstanding 25,836 20,036
7
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 14, 1998 By:/s/Mark W. Sheahan
Title: Treasurer
8
