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UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 29,2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Exchange Act of 1934 for the transition period from to .
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Commission File No. 001-9249
Graco Inc.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
88 - 11th Avenue Northeast
Minneapolis, MN 55413
(Address of principal executive offices) (Zip Code)
(612) 623-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $1.00 per share
Preferred Share Purchase Rights
Shares registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act:
None
As of March 5, 2001, 30,747,876 shares of Common Stock were outstanding.
Indicate by a 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of approximately 27,025,728 shares held by
non-affiliates of the registrant was approximately $727 million on March 5,
2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 1, 2001, are incorporated by reference into Part
III, as specifically set forth in said Part III.
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GRACO INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
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Page
Part I
Item 1 Business............................................................3
Item 2 Properties..........................................................6
Item 3 Legal Proceedings...................................................7
Item 4 Submission of Matters to a Vote of Security Holders.................7
Executive Officers of the Company...................................7
Part II
Item 5 Market for the Company's Common Stock
and Related Stockholder Matters..................................8
Item 6 Selected Financial Data.............................................9
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................................................10
Item 8 Financial Statements and Supplementary Data........................14
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure ........................30
Part III
Item 10 Directors and Executive Officers of the Company....................30
Item 11 Executive Compensation.............................................30
Item 12 Security Ownership of Certain Beneficial Owners and Management.....30
Item 13 Certain Relationships and Related Transactions.....................30
Part IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K....30
Signatures ...................................................................32
NOTE: Certain exhibits listed in the Index to Exhibits beginning on page
33, and filed with the Securities and Exchange Commission, have been
omitted. Copies of such exhibits may be obtained upon written request
directed to:
Treasurer
Graco Inc.
P.O. Box 1441
Minneapolis, Minnesota
55440-1441
Part I
Item 1. Business
General Information
Graco Inc. ("Graco" or "the Company") supplies technology and expertise for the
management of fluids in both industrial and commercial settings. The Company
helps customers solve difficult manufacturing problems, increase productivity,
improve quality, conserve energy, save expensive material, control environmental
emissions and reduce labor costs. Graco is the successor to Gray Company, Inc.,
which was incorporated in 1926 as a manufacturer of automobile lubrication
equipment and became a public company in 1969.
Based in Minneapolis, Minnesota, Graco serves customers around the world in the
manufacturing, process, construction and maintenance industries. It designs,
manufactures and markets systems, products and technology to move, measure,
control, dispense and spray a wide variety of fluids and viscous materials.
Among Graco's strategic objectives is that of being the highest quality, lowest
cost, most responsive supplier in the world for its principal products. In
working to achieve this goal, Graco has organized its manufacturing operations
around product- focused factories which contain product-based cells. Other
strategic objectives include generating 30 percent of each year's sales from
products introduced in the last three years, generating at least 5 percent of
each year's sales from sales in markets entered in the last three years,
expanding its distribution network outside North America and active pursuit of
focused acquisitions.
Operating Segment Information
Graco's businesses are classified by management into three operating segments:
(1) Industrial/Automotive Equipment, (2) Contractor Equipment, and (3)
Lubrication Equipment. Financial information concerning these operating segments
is set forth in Part II, Item 7, at page 10, and in Note B to the Consolidated
Financial Statements.
Industrial/Automotive Equipment
Graco's Industrial/Automotive Equipment segment designs and markets fluid
application products, primarily for paints, coatings, sealants and adhesives.
The markets served include automotive assembly and components plants, wood
products, rail, marine, aerospace, farm and construction equipment, truck, bus
and recreational vehicles, and approximately thirty other industries.
Worldwide, the equipment designed and manufactured by this segment is sold
through general and specialized distributors and integrators as well as directly
to automotive assembly plants. Distributors promote and sell the equipment,
provide product application expertise, and offer integration capabilities,
on-site service and technical support.
Products marketed by the Industrial/Automotive Equipment segment are
manufactured in Minneapolis and Rogers, Minnesota, Sioux Falls, South Dakota and
Bielefeld, Germany. Assembly of certain products for the European market is
performed in Maasmechelen, Belgium.
Recent Developments. Graco is focusing its product design and marketing efforts
on four key areas of application: sealants and adhesives, process, finishing and
protective coatings. A major driver of product development in the
Industrial/Automotive segment is the need to reduce the emission of volatile
organic compounds ("VOCs") from coatings during the application process in order
to meet environmental regulations. In addition, Graco is developing new products
for the global marketplace and expanding its specialized distribution throughout
the world in order to achieve maximum coverage.
Graco serves the automotive market by selling pre-engineered packages, modules
and equipment primarily through independent distributors, integrators, and robot
manufacturers and directly to automotive assembly plants. An experienced
specialized sales force meets the unique needs of these customers as well as
those of original equipment manufacturers and material suppliers.
In 2000, Graco introduced ValueMix(TM), the first electronic entry-level plural
component sprayer. Environmental regulations have driven small and medium-sized
industrial users of paint to more environmentally friendly methods of
application. The ValueMix technology offers these companies an easy-to-use, cost
effective alternative to manual or mechanical premixing of plural component
materials.
The Therm-O-Flow Plus(TM), a high performance pump for the high volume
dispensing of heated adhesives and sealants, was introduced in a multi-voltage
configuration which allows its use throughout the world. The uniquely designed
platen on this unit transfers heat to the material more quickly than competitive
designs.
The PrecisionMix II 3K entered the market in 2000. This high-end three component
proportioner automatically integrates the catalyst, resin and solvent from the
supply pumps and delivers the mixture to the spray gun, thus permitting the
elimination of solvent premixing and reducing the cost of labor and material.
Graco continued to expand its offering of electronic monitoring devices, to
assist customers in meeting their environmental responsibilities and business
needs. The PrecisionView(TM)AMR, an easy-to-use software package, allows
customers to automatically track and report their material usage, emissions and
on-line processes. It can be used with the PrecisionMix II and II 3K and the
Informer(TM).
In December 2000, Graco received TE 9000 certification. Automotive manufacturers
established the TE 9000 supplement to ISO 9000 in the mid-1990's, to ensure that
the machine tools they buy will perform as required. In order to obtain TE 9000
certification, suppliers must demonstrate that they are pursuing a plan that
will meet customer requirements for product quality, reliability,
maintainability and durability. Certification will allow Graco to maintain its
preferred business association with these customers.
Products. Products offered by the Industrial/Automotive segment include air,
electric and hydraulically powered pumps that pressurize and transfer paints,
stains, chemicals, sealants, adhesives, food, and other viscous materials
through various application devices, including air, airless, air-airless,
electrostatic, and high-volume-low-pressure ("HVLP") spray guns. Fluid pressures
ranging from 20 to more than 6,000 pounds per square inch and flow rates from
under 1 gallon to 275 gallons per minute are available. Sealant and adhesive,
paint circulating and plural component packages and modules and a complete line
of parts and accessories are also offered.
Contractor Equipment
Graco's Contractor Equipment segment designs and markets sprayers for the
application of paint and other architectural coatings, and for the high-pressure
cleaning of equipment and structures. The segment offers its equipment to
distributors selling to contractors in the painting, roofing, texture, corrosion
control and line striping markets. The segment offers equipment which gives
contractors the opportunity to produce a higher quality finish at higher
production rates with sprayers that are durable and easy to use.
The equipment is sold primarily through retail stores which sell paint and other
coatings, and secondarily through general equipment distributors. In 2000, Graco
began marketing a limited line of sprayers through the home center channel.
Manufacturers' representatives are used to sell the Company's equipment to the
rental market.
Products for the contractor equipment markets are manufactured in Rogers,
Minnesota, and Sioux Falls, South Dakota. Assembly of certain products for the
European market is performed in Maasmechelen, Belgium.
Recent Developments. In 2000, the Magnum(TM) sprayers, a new line of airless
sprayers and accessories for the entry-level painting contractor and remodeler,
were introduced into the home center market, a new channel for Graco.
The Pro ST(TM) family of electronic airless sprayers with the SmartControl(TM)
microprocessor, Endurance E(TM) pump and a helical drive was introduced in 2000.
The SmartControl microprocessor automatically adjusts to the size of the spray
tip, offers spray pressure consistency and a higher atomizing pressure over
competitive designs. The Endurance E pump allows the pump to be repacked in
one-half the time of other models.
The 190 ES(TM) electric airless sprayer introduced in 2000 represents a new
price point for an entry level professional sprayer.
Graco added to its broad line of spray guns a new extended reach pole gun with
the revolutionary CleanShot(TM) shut-off valve, which allows material flow to be
shut off at the spray tip and eliminates spitting.
Products. The segment's primary product lines are airless paint sprayers and
associated accessories such as spray guns, filters, valves and tips. Also
offered are pressure washers and specialized spraying equipment for the
application of roofing materials, texture coatings and traffic paint. Fluid
pressures ranging from 5 to more than 4,000 pounds per square inch and flow
rates up to 4 gallons per minute are available. Pumps are electric, hydraulic
and air-powered models in addition to gasoline-powered models, increasing the
flexibility of contractors in areas where electricity is not readily available.
High-volume-low-pressure ("HVLP") equipment has become increasingly popular as
regulation of volatile emissions has increased. Replacement and maintenance
parts, such as packings, seals and hoses, which must be replaced periodically in
order to maintain efficiency and prevent loss of material, are also offered for
sale.
Lubrication Equipment
The Lubrication Equipment segment designs and markets products for the
lubrication and maintenance of vehicles and other equipment. The markets for the
segment's products include fast oil change facilities, service garages, fleet
service centers, automobile dealerships, the mining industry, and industrial
lubrication. The purchase of vehicle lubrication equipment is often funded by
major oil companies for their customers as a marketing tool.
Products are distributed primarily through independent distributors worldwide,
which are serviced by direct sales personnel and a network of independent sales
representatives.
Products for the Lubrication Equipment markets are manufactured in Minneapolis,
Minnesota.
Recent Developments. A family of electronic metering devices designed to meter
and dispense bulk fluids in the servicing of vehicles and equipment was brought
to market in 2000. The EM6(TM) leads the competition in gallons per minute flow
and higher fluid pressures. All valves in the family handle multiple fluids.
In 2000, the Pro-Shot(TM) Grease Dispense Valve was introduced. This robust
heavy-duty valve has a ball check mechanism with four times longer life, a
pressure assist trigger pull to reduce operator fatigue and a trigger lock to
prevent accidental triggering.
The 350 and 500 Series Hose Reels, two new lines of heavy-duty hose reels
designed for use with air and water, were launched during the year. Intended to
broaden Graco's reel offerings to bus and truck fleets, manufacturing plants and
lubrication trucks, the 500 Series allows 15 different mounting positions.
The Dyna-Star (R) Hydraulic Pump Module provides a hydraulically-powered pump as
an alternative to air-powered equipment for the lubrication of mobile mining
equipment. A Visual Level Indicator with a magnetic proximity switch to sense
high and low fluid levels is offered as an option.
Products. The Lubrication Equipment segment offers a full line of lubrication
pumps (air and hydraulic-powered), meters, fluid and air pressure gauges, fluid
management systems, hose reels and dispense valves. The segment sells a fluid
management system for the vehicle services market, which tracks and records
inventories of lubricants and the quantities dispensed. It continues to develop
its capability to service the mining industry with automatic lubrication
systems. A complete line of parts and accessories is also offered.
Marketing and Distribution
Graco sells its full line of products in each of the following major geographic
markets: the Americas (North, Central and South America), Europe (including the
Middle East and Africa), and Asia Pacific. The Industrial/Automotive Equipment
segment, Contractor Equipment segment, and the Lubrication Equipment segment
provide worldwide marketing, product design and application assistance to each
of these geographic markets.
Graco sells its equipment worldwide principally through independent
distributors. In Japan, Korea, and Europe, Graco equipment is sold to
distributors through sales subsidiaries. Manufacturers' representatives are used
in the Lubrication Equipment and the Contractor Equipment segments.
It is the Company's goal to generate at least 5 percent of each year's revenues
from sales in markets entered in the last three years. The home center channel
into which the Contractor Equipment Division introduced the Magnum line of
airless sprayers in 2000 is an example of the Company's efforts to reach this
goal.
In 2000, Graco's net sales in the Americas were $359,881,000 or approximately 73
percent of the Company's consolidated net sales; in Europe net sales were
$84,733,000 or approximately 17 percent; and in the Asia Pacific Region, net
sales were $49,759,000 or approximately 10 percent.
Research, Product Development and Technical Services
Graco's research, development and engineering activities are organized by
operating segment. The engineering group in each segment focuses on new product
design, product improvements, applied engineering and strategic technologies for
its specific customer base. It is one of Graco's goals to generate 30 percent of
each year's sales from products introduced in the prior three years. All major
research and development activities are conducted in facilities located in
Minneapolis, and Rogers, Minnesota. Total research and development expenditures
were $19,998,000, $19,688,000 and $18,213,000 for 2000, 1999 and 1998.
Intellectual Property
Graco owns a number of patents and has patent applications pending both in the
United States and in foreign countries, licenses its patents to others, and is
licensed under patents owned by others. In the opinion of the Company, its
business is not materially dependent upon any one or more of these patents or
licenses. The Company also owns a number of trademarks in the United States and
foreign countries, including the registered trademarks for "GRACO," several
forms of a capital "G" and various product trademarks which are material to the
business of the Company inasmuch as they identify Graco and its products to its
customers.
Competition
Graco faces substantial competition in all of its markets. The nature and extent
of this competition varies in different markets due to the depth and breadth of
the Company's product lines. Product quality, reliability, design, customer
support and service, specialized engineering and pricing are the major
competitive factors. Although no competitor duplicates all of Graco's products,
some competitors are larger than the Company, both in terms of sales of directly
competing products and in terms of total sales and financial resources. The
Company faces competitors with different cost structures and expectations of
profitability. Graco believes it is one of the world's leading producers of
high-quality specialized fluid management equipment. It is impossible, because
of the absence of reliable industry-wide third-party data, to determine its
relative market position.
Environmental Protection
The Company's compliance with Federal, State and local environmental laws and
regulations did not have a material effect upon the capital expenditures,
earnings or competitive position of the Company during the fiscal year ending
December 29, 2000.
Employees
As of December 29, 2000, the Company employed approximately 1920 persons on a
full-time basis. Of this total, approximately 300 were employees based outside
the United States, and 821 were hourly factory workers in the United States.
None of the Company's U.S. employees is covered by a collective bargaining
agreement. Various national industry-wide labor agreements apply to certain
employees in Europe. Compliance with such agreements has no material effect on
the Company or its operations.
Item 2. Properties
As of December 29, 2000, the Company's principal operations that occupy more
than 10,000 square feet were conducted in the following facilities:
Gross
Type of Facility Location Square Footage
---------------- -------- --------------
Owned
-----
Distribution/Manufacturing/Office Rogers, Minnesota 333,000
Manufacturing/Office Minneapolis, Minnesota 242,300
Manufacturing/Office Minneapolis, Minnesota 202,300
Research & Development/Corporate Headquarters Minneapolis, Minnesota 138,700
Assembly/European Headquarters/Warehouse Maasmechelen, Belgium 75,200
Manufacturing/Office Sioux Falls, South Dakota 55,100
Leased
------
Manufacturing/Office Bielefeld, Germany 69,400
Office/Warehouse Yokohama, Japan (2 facilities) 32,800
Office/Warehouse Gwangju-Gun, Korea 10,500
Office Plymouth, Michigan 21,000
A 163,000 square foot addition to one of its buildings in Minneapolis is
expected to be completed during 2001. This addition will permit the Company to
provide space in its Rogers, Minnesota facility for the expansion of its
Contractor Equipment manufacturing capability and create a separate warehouse in
Minneapolis for Industrial/Automotive and Lubrication Equipment products closer
to their respective manufacturing facilities.
The Company leases space for liaison offices in China.
A 73,800 square foot office building in Golden Valley, Minnesota was sold in
December 2000.
With the expansion of one of its buildings in Minneapolis, Graco's facilities
are in satisfactory condition, suitable for their respective uses and are
sufficient and adequate to meet current needs. Manufacturing capacity met
business demand in 2000. Production requirements in the immediate future are
expected to be met through existing production capabilities, expanded production
facilities currently under construction, efficiency and productivity
improvements, and the use of available subcontract services.
Item 3. Legal Proceedings
The Company is engaged in routine litigation incident to its business, which
management believes will not have a material adverse effect upon its operations
or consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No issues were submitted to a vote of security holders during the fourth quarter
of 2000.
Executive Officers of the Company
The following are all the executive officers of the Company as of March 5, 2001.
George Aristides, 65, was elected Chief Executive Officer effective January 3,
2000. From March 1, 1999 to December 29, 1999, he was Vice Chairman. From
January 1, 1996 to February 28, 1999 he was Chief Executive Officer. From 1993
to 1997 he was President. From 1993 to 1996 he was President and Chief Operating
Officer. He joined the Company in 1973 as Corporate Controller and became Vice
President and Controller in 1980. He has served as a director of the Company
since 1993.
Stephen L. Bauman, 48, was elected Vice President, Human Resources, effective
October 25, 2000. Prior to joining Graco, he held various positions with Alliant
Techsystems, Inc. most recently as Vice President of Human Resources, Alliant
Integrated Defense Company, a subsidiary.
James A. Graner, 56, was elected Vice President and Controller in February 1994.
He became Treasurer in May 1993. Prior to becoming Assistant Treasurer in 1988,
he held various managerial positions in the treasury, accounting and information
systems departments. He joined Graco in 1974.
Dale D. Johnson, 46, was elected President and Chief Operating Officer effective
January 14, 2000. From December 1996 to January 2000 he was Vice President,
Contractor Equipment Division. Prior to becoming the Director of Marketing,
Contractor Equipment Division in June 1996, he held various marketing and sales
positions in the Contractor Equipment Division and the Industrial Equipment
Division. He joined the Company in 1976.
D. Christian Koch, 36, was appointed Vice President, Lubrication Equipment
Division effective February 15, 2000. From August 1999 to February 2000, he was
the Director, Industrial Global Sales and Marketing. From December 1998 to
August 1999 he was Director, Lubrication Marketing. Prior to joining the Company
in December 1998, he was employed by H.B. Fuller Company, where he held various
positions, including President and Division Manager of TEC Incorporated and Vice
President and Business Unit Manager of Foster Products Corporation. (Mr. Koch is
not related to David A. Koch, Chairman of the Board.)
David M. Lowe, 45, became Vice President and General Manager, European
Operations effective September 1, 1999. Mr. Lowe was Vice President, Lubrication
Equipment Division from December 1996 to September 1999. From February 1995 to
December 1996 he was Treasurer. Prior to joining the Company in 1995, he was
employed by Ecolab Inc., where he held various positions in the Treasury
Department, including Manager, Corporate Finance; Director, Corporate Finance;
and Director, Corporate Development.
Robert M. Mattison, 53, was first elected Vice President, General Counsel and
Secretary, in January 1992, a position which he holds today.
Patrick J. McHale, 39, was appointed Vice President, Contractor Equipment
Division effective February 15, 2000. Mr. McHale was Vice President, Lubrication
Equipment Division from September 1999 to February 2000. He was Contractor
Equipment Manufacturing - Distribution Operations Manager from February 1998 to
September 1999. From March 1997 to February 1998 he was Director of Michigan
Operations. From February 1996 to March 1997 he was Contractor Equipment
Manufacturing Operations Manager and from January 1994 to February 1996 he was
the Sioux Falls Plant Manager. Mr. McHale joined the Company in December 1989.
Charles L. Rescorla, 49, is Vice President, Manufacturing and Distribution
Operations, a position to which he was first elected on May 5, 1998. Mr.
Rescorla was previously appointed to that position on January 1, 1995. Prior to
becoming the Director of Manufacturing in March 1994, he was the Director of
Engineering, Industrial/Automotive Division, a position which he assumed in 1988
when he joined the Company.
Mark W. Sheahan, 36, was elected Vice President and Treasurer on December 11,
1998. Effective December 17, 1996, he was elected Treasurer. Prior to joining
the Company as Treasury Operations Manager in 1995, he was a Senior Manager with
KPMG Peat Marwick LLP.
Fred A. Sutter, 40, was appointed Vice President, Asia Pacific and Latin America
effective March 1, 1999. From March 1995 to February 28, 1999 he was Director of
Industrial Marketing. Prior to joining the Company in 1995, he held various
positions with Fisher-Rosemount, most recently as Director of Marketing.
The Board of Directors elected Messrs. Aristides, Johnson, Graner, Lowe,
Mattison, Rescorla and Sheahan on May 2, 2000, all to hold office until the next
annual meeting of directors or until their successors are elected and qualify.
PART II
Item 5. Market for the Company's Common Stock and Related Shareholder Matters
Graco Common Stock. Graco common stock is traded on the New York Stock Exchange
under the ticker symbol "GGG." As of March 5, 2001, the share price was $26.90
and there were 30,747,876 shares outstanding and 2,500 common shareholders of
record, which includes nominees or broker dealers holding stock on behalf of an
estimated 4,600 beneficial owners.
Quarterly Financial Information
(In thousands, except per share amounts)
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
- ------------------------ -------- -------- -------- --------
Net sales $122,227 $132,768 $123,100 $116,278
Gross profit 62,129 66,102 62,949 59,672
Net earnings 14,975 18,331 18,073 18,729
Per common share:
Basic net earnings 0.49 0.60 0.60 0.62
Diluted net earnings 0.48 0.59 0.59 0.61
Dividends declared 0.09 0.09 0.09 0.10
-------- -------- -------- --------
Stock price (per share)
High $ 22.75 $ 23.33 $ 23.92 $ 27.67
Low 19.33 20.00 20.42 20.13
Close 19.33 21.67 21.67 27.59
-------- -------- -------- --------
Volume (# of shares) 4,532 4,880 2,223 2,904
-------- -------- -------- --------
1999
- ------------------------
Net sales $105,141 $116,803 $112,076 $116,454
Gross profit 52,857 59,619 57,510 61,149
Net earnings 11,201 17,961 15,043 15,136
Per common share:
Basic net earnings 0.37 0.59 0.49 0.49
Diluted net earnings 0.36 0.57 0.48 0.48
Dividends declared 0.07 0.07 0.07 0.09
-------- -------- -------- --------
Stock price (per share)
High $ 20.17 $ 21.75 $ 23.25 $ 23.92
Low 13.33 14.33 19.00 21.29
Close 14.29 19.54 22.04 23.92
-------- -------- -------- --------
Volume (# of shares) 4,289 4,496 3,503 3,792
-------- -------- -------- --------
[FN]
1 Pursuant to EITF 00-10, freight expense for products shipped to customers,
previously netted against sales, has been reclassified to cost of products
sold.
2 All share and per share data has been restated for the three-for-two stock
split declared on December 8, 2000 and distributed February 6, 2001.
3 As of the last trading day of the calendar quarter.
Item 6. Selected Financial Data
Graco Inc. & Subsidiaries
(In thousands, except per share amounts) 2000 1999 1998 1997 1996
- ---------------------------------------- -------- -------- -------- -------- --------
Net sales $494,373 $450,474 $440,585 $423,897 $399,356
Net earnings 70,108 59,341 47,263 44,716 36,169
======== ======== ======== ======== ========
Per common share:
Basic net earnings $ 2.31 $ 1.95 $ 1.37 $ 1.17 $ 0.93
Diluted net earnings 2.27 1.90 1.34 1.14 0.92
-------- -------- -------- -------- --------
Total assets $237,976 $236,033 $233,702 $264,532 $247,814
Long-term debt (including current portion) 19,360 66,910 115,739 7,959 9,920
Cash dividends declared per common share $ 0.38 $ 0.31 $ 0.29 $ 0.25 $ 0.22
======== ======== ======== ======== ========
1 Pursuant to EITF 00-10, freight expense for products shipped to customers,
previously netted against sales, has been reclassified to cost of products
sold.
2 All share and per share data has been restated for the three-for-two stock
split declared on December 8, 2000 and distributed February 6, 2001.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S REVIEW AND DISCUSSION
Graco's net earnings of $70.1 million in 2000 are 18 percent higher than the
$59.3 million earned in 1999 and are 48 percent higher than the $47.3 million
recorded in 1998. The increase in 2000 was a result of higher sales, improved
manufacturing efficiencies (largely due to increased volume), improved business
processes and price increases. The increase in 1999 is primarily due to enhanced
profit margins resulting from many factors, including improved business
processes, exiting the custom systems business, closing facilities, improved
manufacturing efficiencies and price increases.
The table below reflects the percentage relationship between income and expense
items included in the Consolidated Statements of Earnings for the three fiscal
years and the percentage changes in those items for such years.
Revenue & Expense Item Revenue & Expense Item
As a Percentage of Net Sales % Increase (Decrease)
2000 1999 1998 00/99 99/98
----- ----- ----- ----- -----
Net Sales 100.0 100.0 100.0 10 2
----- ----- ----- ----- -----
Cost of products sold 49.3 48.7 50.2 11 (1)
Product development 4.0 4.4 4.1 2 8
Selling, marketing and
distribution 17.5 17.7 18.9 8 (4)
General and administrative 6.7 8.5 9.4 (14) (7)
----- ----- ----- ----- -----
Operating profit 22.5 20.7 17.4 19 21
----- ----- ----- ----- -----
Interest expense 0.8 1.6 1.2 (41) 32
Other expense (income), net 0.3 (0.6) -- * *
----- ----- ----- ----- -----
Earnings before income taxes 21.4 19.7 16.2 19 24
Income taxes 7.2 6.5 5.5 21 22
----- ----- ----- ----- -----
Net Earnings 14.2 13.2 10.7 18 26
===== ===== ===== ===== =====
* Not a meaningful figure.
NET SALES
Worldwide net sales in 2000 reached a record $494.4 million, a 10 percent
increase over 1999 net sales of $450.5 million. Foreign currency translations
had a negative impact on reported sales in 2000 when compared to 1999, reducing
sales by 2 percent. By segment, 2000 net sales versus 1999 increased in the
Contractor Equipment and Lubrication Equipment by 24 percent and 2 percent,
respectively. Sales in the Industrial/Automotive segment were flat. The large
increase in Contractor Equipment sales in 2000 was due primarily to the
introduction of a new line of sprayers for entry into the home center channel.
After growing in the first half of 2000, Industrial/Automotive equipment sales
declined in the second half of 2000 due primarily to a slowing North American
economy. Lubrication Equipment sales in 2000 were flat in a market that is
mature and well served.
Geographically, sales outside of the Americas represented 27 percent of total
sales in 2000, compared to 30 percent in 1999. Net sales gains in Asia Pacific
were offset by lower sales in Europe. In the Americas, 2000 sales increased 15
percent for the year, primarily due to strong sales in the Company's Contractor
Equipment business segment. In Europe, sales measured in local currencies
increased 6 percent but reported net sales were 6 percent lower than 1999 after
unfavorable currency translations. In the Asia Pacific Region, sales measured in
local currencies increased 3 percent but reported net sales were 7 percent
higher than 1999 after favorable currency translations.
Worldwide net sales in 1999 were $450.5 million, a 2 percent increase over 1998.
Foreign currency translations had no net impact on reported sales in 1999 when
compared to 1998. The 1999 increase was due to higher sales in all regions
except Europe. Net sales in the Americas, which accounted for 70 percent of net
sales, advanced 3 percent, primarily due to strong sales in the Contractor
Equipment segment. Lower sales in Europe offset net sales gains in the Asia
Pacific Region.
Consolidated backlog on December 29, 2000 was $12 million, which the Company
expects to fill within the current fiscal year. Backlog was $21 million at the
end of 1999 and $13 million at the end of 1998. The decrease in 2000 backlog
reflected a return to normal levels from the large backlog that resulted from
orders in late 1999 for the home center channel products that were shipped in
the first quarter of 2000.
% Increase (Decrease)
(In thousands) 2000 1999 1998 00/99 99/98
- --------------------------------- -------- -------- -------- ----- -----
Segment Sales:
Industrial/Automotive Equipment $227,963 $227,772 $235,328 -- (3)
Contractor Equipment 221,538 178,616 160,718 24 11
Lubrication Equipment 44,872 44,086 44,539 2 (1)
-------- -------- -------- ----- -----
Consolidated $494,373 $450,474 $440,585 10 2
======== ======== ======== ===== =====
Geographic Sales:
Americas $359,881 $313,915 $305,860 15 3
Europe 84,733 90,112 95,938 (6) (6)
Asia Pacific 49,759 46,447 38,787 7 20
-------- -------- -------- ----- -----
Consolidated $494,373 $450,474 $440,585 10 2
======== ======== ======== ===== =====
GROSS MARGINS
Gross margins, expressed as a percentage of sales, were 50.7 percent in 2000,
compared with 51.3 percent in 1999. The effects of higher production levels,
enhanced pricing, and improved manufacturing efficiencies were offset by the mix
of products sold and the negative foreign exchange rate impact. 1999 gross
margins of 51.3 percent were up from 1998 gross margins of 49.8 percent. The mix
of products sold, pricing, improved manufacturing efficiencies, exiting the
custom-engineered systems business, and slightly higher sales all contributed to
the enhanced gross margin.
OPERATING EXPENSES
Overall, operating expenses, expressed as a percentage of net sales, decreased
2.4 percentage points in 2000 versus 1999. Product development expenses were
$20.0 million in 2000, $19.7 million in 1999 and $18.2 million in 1998. Graco
continues to make significant investments in product development to grow its
sales revenue.
Selling, marketing, distribution and general and administrative expenses were
higher in 2000 due to higher sales, but decreased as a percentage of sales to
24.2 percent in 2000 from 26.2 percent in 1999. In 2000, selling, marketing, and
distribution expenses were higher than in 1999 due to higher sales and expenses
related to the launch of home center products. General and administrative
expenses were lower than 1999 due to corporate expense reduction initiatives and
lower information systems expenditures. In 1999, selling, marketing,
distribution and administrative expenses, expressed as a percentage of sales,
decreased to 26.2 percent from 28.2 percent in 1998. In 1999, overall selling,
marketing, distribution and administrative expenses were lower than in 1998 due
to the benefits of prior year corporate expense reduction initiatives, lower
information systems expenditures, and reduced non-recurring charges.
The Company recorded pension income of $3.8 million in 2000, $2.1 million in
1999 and $2.1 million in 1998, which resulted from recognition of investment
gains attributable to pension plan assets. Pension expense/income is included in
cost of products sold and operating expenses based on salaries and wages.
SEGMENT OPERATING PROFITS
Increases in 2000 operating profits are the result of several factors, including
higher sales, expense reduction initiatives and improved manufacturing
efficiencies. Operating profits for Industrial/Automotive Equipment increased by
20.1 percent versus 1999 and by 4.3 percentage points as a percentage of net
sales primarily as a result of improved gross margin rates along with lower
product development, marketing and sales-related expenses. Contractor Equipment
operating profits increased by 14.9 percent versus 1999 but decreased 1.8
percentage points as a percentage of net sales due to the mixture of products
sold. Lubrication Equipment operating profits increased by 2.8 percent versus
1999 and increased by .2 percentage points as a percentage of net sales.
FOREIGN CURRENCY EFFECTS
Approximately 27 percent of the Company's sales in 2000 and 5 percent of its
product costs are in currencies other than the U.S. dollar. The strong U.S.
dollar, versus European currencies, decreased the Company's profits. In 2000,
the adverse impact of the strengthening dollar in Europe was partially offset by
the dollar weakening against the Japanese yen and Korean won. The Company
estimates that fluctuations in exchange rates adversely impacted operating
earnings by $5 million in 2000 and had no significant impact in 1999.
OTHER EXPENSE (INCOME)
In 2000, interest expense, net of interest income, decreased to $4.1 million due
to the significant reduction in borrowings. In 1999, interest expense of $7.0
million was higher than the $5.3 million of interest expense in 1998 due to the
full year impact of borrowings for the July 2, 1998 stock repurchase of 5.8
million shares.
Other expense, net of other income, was $1.2 million in 2000 compared to other
income in 1999 of $2.6 million and other expense in 1998 of $0.2 million. Other
expense (income) includes, among other things, foreign currency translation
losses of $1.6 million in 2000. The Company sold its Golden Valley headquarters
building in 2000 and facilities in Los Angeles and Plymouth, Michigan in 1999
with gains of $2.2 million and $3.2 million respectively.
INCOME TAXES
The Company's net effective tax rate of 34 percent in 2000 is one percentage
point lower than the 2000 U.S. federal tax rate of 35 percent. The increase from
the 33 percent effective rate in 1999 is due primarily to earnings from sales
outside of the U.S. being taxed at higher effective rates. The 1999 effective
tax rate of 33 percent was lower than the 1998 effective tax rate of 34 percent
principally due to earnings from sales outside the U.S. being taxed at lower
effective rates. Reconciliations of the U.S. federal tax rate to the effective
rates for 2000, 1999 and 1998 are included in Note E to the Consolidated
Financial Statements.
ACCOUNTING CHANGES
To conform with the requirements of the Emerging Issues Task Force Issue Number
00-10, "Accounting for Shipping and Handling Fees and Costs," the Company
reclassified freight expenses for products shipped to customers into cost of
products sold. Such expenses were formerly classified as a reduction of net
sales. This change has no impact on previously reported gross profit amounts or
net earnings.
On December 30, 2000, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." Based on current practice, the
Company expects that adoption will have no effect on consolidated results of
operations or financial position.
The Company has reviewed its revenue recognition policy and practice and has
determined that they meet the requirements of SEC Staff Accounting Bulletin No.
101.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As discussed under Foreign Currency Effects, Graco sells and purchases products
and services in currencies other than the U.S. dollar. Consequently, the Company
is subject to profitability risk arising from exchange rate movements.
Graco uses foreign exchange contracts to reduce risks associated with foreign
currency net monetary asset and liability positions. These contracts typically
have maturities of 90 days or less, and gains or losses from changes in market
value of these contracts offset foreign exchange gains and losses on the
underlying balance sheet items. At December 29, 2000, the foreign currencies to
which the Company had the most significant balance sheet exchange rate exposure
were the European euro, Canadian dollar, Japanese yen, British pound, and Korean
won. The Company does not hold or issue derivative financial instruments for
trading purposes.
To evaluate its currency exchange rate risks on its foreign exchange contracts,
the Company uses sensitivity analysis, which measures the impact on earnings of
hypothetical changes in the value of foreign currencies to which it has
exposure. At December 29, 2000, due to the short-term nature of the Company's
hedging instruments, reasonably likely fluctuations in foreign currency exchange
rates in the near term would not materially affect Graco's consolidated
operating results, financial position or cash flows.
When appropriate, the Company utilizes interest rate swaps to manage its
exposure to fluctuations in earnings due to changes in interest rates on its
variable rate debt. At December 29, 2000, a 50 basis point increase or decrease
in market interest rates, principally LIBOR, would not materially increase or
decrease interest expense or cash flows.
For further discussion of the Company's foreign currency and interest rate
hedging strategy and position, see Note A to the Consolidated Financial
Statements.
OUTLOOK
Management's view of 2001 is that while pursuing the Company's growth strategies
of developing new products, expanding distribution, entering new markets, and
strategic acquisitions, it believes that 2001 will be a difficult economic
environment for Graco and its industry. In the current environment, where sales
growth will be a challenge, Graco is committed to improved profitability.
Graco's strong and capable distribution channel, productive manufacturing
operation, commitment to developing new products, and global marketing
capabilities position it well to take advantage of a global economic recovery.
SAFE HARBOR CAUTIONARY STATEMENT
The information in this Annual Report on Form 10-K contains "forward-looking
statements" about the Company's expectations of the future, which are subject to
certain risk factors that could cause actual results to differ materially from
those expectations. These factors include economic conditions in the United
States and other major world economies, currency exchange fluctuations, and
additional factors identified in Exhibit 99 to the Company's Annual Report on
Form 10-K for fiscal year 2000.
SHAREHOLDER ACTIONS
Periodically, the Company initiates measures aimed at enhancing shareholder
value, broadening common stock ownership, improving the liquidity of its common
shares and effectively managing its cash balances. A summary of recent actions
follows:
o a seven percent increase in the regular dividend in 2001;
o three-for-two stock splits in 2001, 1998 and 1996;
o a 27 percent increase in the regular dividend paid in 2000;
o repurchase of 5.8 million shares in 1998 from Graco's largest shareholder,
the Trust under the Will of Clarissa L. Gray; and
o an 18 percent increase in the regular dividend in 1997
LIQUIDITY AND SOURCES OF CAPITAL
The following table highlights several key measures of asset performance.
(In thousands) 2000 1999
- ------------------------------------ ------ -----
Cash and cash equivalents $11,071 $6,588
Working capital $61,901 $59,726
Current ratio 1.8 1.8
Average days receivables outstanding 63 65
Inventory turnover 7.4 5.6
In 2000, working capital increased $2.2 million to $61.9 million. As a result of
strong cash flow from operations, the Company reduced its total debt by $46.5
million in 2000. Total debt at the end of 2000 was $35.1 million as compared to
$81.6 million at the end of 1999. Receivables increased $6.1 million in 2000
compared with year-end 1999 due to higher sales volume. Inventories decreased
$4.6 million in 2000, compared to year-end 1999, primarily as a result of a
build-up in inventory in late 1999 in conjunction with the launch of the home
center products.
Cash provided by operations was $79.6 million in 2000, versus $75.8 million in
1999 and $77.1 million in 1998. Significant uses of cash in 2000 included
retirement of debt, capital expenditures, dividends and share repurchases.
Significant uses of cash in 1999 included the retirement of debt, the
acquisition of certain assets of Bollhoff Verfahrenstechnik, capital
expenditures, dividends and share repurchases. In 1998, additional cash needs
were funded by bank borrowings and significant uses of cash included the
purchase of 5.8 million shares of Graco Inc. common stock for $191 million,
capital expenditures and dividends.
At December 29, 2000, Graco had various lines of credit totaling $95.3 million,
of which $66.0 million was unused. The Company believes that the combination of
present capital resources, internally generated funds and unused financing
sources are more than adequate to meet cash requirements for 2001. In 2001, the
Company is building a new factory and distribution center in Minneapolis,
Minnesota. The incremental capital required for this project is estimated to be
approximately $15 million.
Item 8. Financial Statements and Supplementary Data
Page
o Selected Quarterly Financial Data (See Part II, Item 5,
Market for the Company's Common Stock and Related
Shareholder Matters) 9
o Responsibility for Financial Reporting 14
o Independent Auditors' Report 15
o Consolidated Statements of Earnings for fiscal years 2000,
1999 and 1998 16
o Consolidated Balance Sheets for fiscal years 2000 and 1999 17
o Consolidated Statements of Cash Flows for fiscal years
2000, 1999 and 1998 18
o Consolidated Statements of Changes in Shareholders'
Equity for fiscal years 2000, 1999 and 1998 19
o Consolidated Statements of Comprehensive Income for fiscal
years 2000, 1999 and 1998 19
o Notes to Consolidated Financial Statements 20
RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the accuracy, consistency, and integrity of the
information presented in this Annual Report on Form 10-K. The consolidated
financial statements and financial statement schedule have been prepared in
accordance with generally accepted accounting principles and, where necessary,
include estimates based upon management's informed judgment.
In meeting this responsibility, management believes that its comprehensive
systems of internal control provide reasonable assurance that the Company's
assets are safeguarded and transactions are executed and recorded by qualified
personnel in accordance with approved procedures. Internal auditors periodically
review these accounting and control systems. Deloitte & Touche LLP, independent
certified public accountants, are retained to audit the consolidated financial
statements, and express an opinion thereon. Their opinion is included below.
The Board of Directors pursues its oversight role through its Audit Committee.
The Audit Committee, composed of directors who are not employees, meets twice a
year with management, internal auditors, and Deloitte & Touche LLP to review the
systems of internal control, accounting practices, financial reporting and the
results of auditing activities.
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Graco Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Graco Inc. and
Subsidiaries (the Company) as of December 29, 2000 and December 31, 1999 and the
related statements of earnings, shareholders' equity, comprehensive income, and
cash flows for each of the three years in the period ended December 29, 2000.
Our audits also included the financial statement schedule listed in the Index at
Item 14. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Graco Inc. and Subsidiaries as of
December 29, 2000 and December 31, 1999 and the results of their operations and
cash flows for each of the three years in the period ended December 29, 2000, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
January 22, 2001
CONSOLIDATED STATEMENTS OF EARNINGS Graco Inc. and Subsidiaries
Years Ended
-------------------------------------------------------------
(In thousands, except per share amounts) December 29, 2000 December 31, 1999 December 25, 1998
- ---------------------------------------- ----------------- ----------------- -----------------
Net Sales $494,373 $450,474 $440,585
Cost of products sold 243,521 219,339 221,184
----------------- ----------------- -----------------
Gross Profit 250,852 231,135 219,401
Product development 19,998 19,688 18,213
Selling, marketing and distribution 86,598 79,922 83,169
General and administrative 33,014 38,334 41,146
----------------- ----------------- -----------------
Operating Earnings 111,242 93,191 76,873
Interest expense 4,127 7,016 5,319
Other expense (income), net 1,207 (2,666) 191
----------------- ----------------- -----------------
Earnings before Income Taxes 105,908 88,841 71,363
Income taxes 35,800 29,500 24,100
----------------- ----------------- -----------------
Net Earnings $ 70,108 $ 59,341 $ 47,263
================= ================= =================
Basic Net Earnings per Common Share $ 2.31 $ 1.95 $ 1.37
================= ================= =================
Diluted Net Earnings per Common Share $ 2.27 $ 1.90 $ 1.34
================= ================= =================
All per share data has been restated for the three-for-two stock split declared
on December 8, 2000, to be distributed February 6, 2001.
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS Graco Inc. and Subsidiaries
(In thousands, except per share amounts) December 29, 2000 December 31, 1999
- ----------------------------------------------------------- ----------------- -----------------
Assets
Current Assets:
Cash and cash equivalents $ 11,071 $ 6,588
Accounts receivable, less allowances of $4,700 and $4,500 85,836 79,696
Inventories 33,079 37,702
Deferred income taxes 11,574 12,357
Other current assets 2,182 1,646
----------------- -----------------
Total current assets 143,742 137,989
Property, Plant and Equipment, net 83,989 86,493
Other Assets 10,245 11,551
----------------- -----------------
Total Assets $237,976 $236,033
================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable to banks $ 15,713 $ 14,640
Current portion of long-term debt 1,310 1,215
Trade accounts payable 12,899 13,500
Salaries, wages and commissions 14,532 12,832
Accrued insurance liabilities 10,622 10,332
Income taxes payable 4,642 2,323
Other current liabilities 22,123 23,421
----------------- -----------------
Total current liabilities 81,841 78,263
Long-Term Debt, less current portion 18,050 65,695
Retirement Benefits and Deferred Compensation 27,230 29,135
Commitments and Contingencies (Note K)
Shareholders' Equity
Common stock, $1 par value; 45,000,000 shares authorized;
shares outstanding, 20,273,561 and 20,415,827 in 2000
and 1999 20,274 20,416
Additional paid-in capital 39,954 31,755
Retained earnings 50,233 9,279
Accumulated comprehensive income 394 1,490
----------------- -----------------
Total shareholders' equity 110,855 62,940
----------------- -----------------
Total Liabilities and Shareholders' Equity $237,976 $236,033
================= =================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Graco Inc. and Subsidiaries
Years Ended
---------------------------------------------------------
(In thousands) December 29, 2000 December 31, 1999 December 25, 1998
- ----------------------------------------------------- ----------------- ----------------- -----------------
Cash Flows from Operating Activities
Net earnings $ 70,108 $ 59,341 $ 47,263
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 15,452 14,701 13,736
Deferred income taxes 1,644 1,152 (593)
(Gain) loss on sale of fixed assets (1,561) (2,936) (139)
Change in:
Accounts receivable (8,287) 2,097 6,293
Inventories 4,161 3,309 10,547
Trade accounts payable (516) 1,551 (761)
Salaries, wages and commissions 1,921 (946) (934)
Retirement benefits and deferred compensation (3,999) (2,112) (3,255)
Other accrued liabilities 1,416 (1,257) 2,695
Other (730) 921 2,257
----------------- ----------------- -----------------
Net cash provided by operating activities 79,609 75,821 77,109
----------------- ----------------- -----------------
Cash Flows from Investing Activities
Property, plant and equipment additions (14,523) (9,140) (11,962)
Proceeds from sale of property, plant and equipment 4,845 9,695 2,201
Acquisition of business -- (18,388) --
----------------- ----------------- -----------------
Net cash used in investing activities (9,678) (17,833) (9,761)
----------------- ----------------- -----------------
Cash Flows from (for) Financing Activities
Borrowing on notes payable and lines of credit 188,552 118,900 65,869
Payments on notes payable and lines of credit (187,144) (119,201) (54,376)
Borrowings on long-term debt 43,665 25,001 180,985
Payments on long-term debt (91,215) (73,711) (73,273)
Common stock issued 9,630 6,760 4,876
Retirement of common stock (19,182) (5,077) (190,899)
Cash dividends paid (11,361) (8,927) (10,701)
----------------- ----------------- -----------------
Net cash used in financing activities (67,055) (56,255) (77,519)
----------------- ----------------- -----------------
Effect of exchange rate changes on cash 1,607 1,300 203
----------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents 4,483 3,033 (9,968)
Cash and cash equivalents
Beginning of year 6,588 3,555 13,523
----------------- ----------------- -----------------
End of year $ 11,071 $ 6,588 $ 3,555
================= ================= =================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Graco Inc. and Subsidiaries
(In thousands) December 29, 2000 December 31, 1999 December 25, 1998
- ---------------------------------------- ----------------- ----------------- -----------------
Common Stock, $1 par value
Balance, beginning of year $ 20,416 $ 20,097 $ 25,553
Shares issued 475 466 344
Shares repurchased (617) (147) (5,800)
----------------- ----------------- -----------------
Balance, end of year 20,274 20,416 20,097
----------------- ----------------- -----------------
Additional Paid-In Capital
Balance, beginning of year 31,755 23,892 26,085
Shares issued 9,155 8,184 4,535
Shares repurchased (956) (321) (6,728)
----------------- ----------------- -----------------
Balance, end of year 39,954 31,755 23,892
----------------- ----------------- -----------------
Retained Earnings (deficit)
Balance, beginning of year 9,279 (35,878) 105,030
Net income 70,108 59,341 47,263
Dividends declared (11,545) (9,575) (10,102)
Change in accounting period -- -- 300
Shares repurchased (17,609) (4,609) (178,369)
----------------- ----------------- -----------------
Balance, end of year 50,233 9,279 (35,878)
----------------- ----------------- -----------------
Foreign Currency Translation Adjustments
Balance, beginning of year 1,490 1,817 1,817
Current period change (1,096) (327) --
----------------- ----------------- -----------------
Balance, end of year 394 1,490 1,817
----------------- ----------------- -----------------
Unearned Compensation
Balance, beginning of year -- (615) (976)
Current period change -- 615 361
----------------- ----------------- -----------------
Balance, end of year -- -- (615)
----------------- ----------------- -----------------
Total Shareholders' Equity $110,855 $ 62,940 $ 9,313
================= ================= =================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Graco Inc. and Subsidiaries
Years Ended
-----------------------------------------------------------
(In thousands) December 29, 2000 December 31, 1999 December 25, 1998
- --------------------------------------------- ----------------- ----------------- -----------------
Net Earnings $ 70,108 $ 59,341 $ 47,263
Other comprehensive income, net of tax:
Foreign currency translation adjustments (1,096) (327) --
Additional minimum pension liability
adjustment 16 (90) --
----------------- ----------------- -----------------
Comprehensive Income $69,028 $58,924 $47,263
================= ================= =================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GRACO Inc. & Subsidiaries
Years Ended December 29, 2000, December 31, 1999 and December 25, 1998
A. Summary of Significant Accounting Policies
Fiscal Year. The Company's fiscal year is 52 or 53 weeks, ending on the last
Friday in December. The year ended December 31, 1999 was a 53-week year. Years
ended December 29, 2000 and December 25, 1998 were 52-week years.
Basis of Statement Presentation. The Consolidated Financial Statements include
the accounts of the parent company and its subsidiaries after elimination of all
significant intercompany balances and transactions. As of December 29, 2000, all
subsidiaries are 100 percent owned. Subsidiaries in Japan and Korea have been
included on the basis of fiscal years ended November 30 to effect more timely
consolidated financial reporting.
Foreign Currency Translation. The U.S. dollar is the functional currency for all
foreign subsidiaries except Graco Verfahrenstechnik (GV) in Germany, whose
functional currency is the Euro. Accordingly, adjustments resulting from the
translation of GV's financial statements into U.S. dollars are charged or
credited to a separate component of shareholders' equity. Gains and losses from
the translation of foreign currency balances and transactions of other foreign
subsidiaries are included in other expense (income).
Accounting Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents. All highly liquid investments with a maturity of three months
or less at the date of purchase are considered to be cash equivalents.
Inventory Valuation. Inventories are stated at the lower of cost or market. The
last-in, first-out (LIFO) cost method is used for valuing all U.S. inventories.
Inventories of foreign subsidiaries are valued using the first-in, first-out
(FIFO) cost method.
Property, Plant and Equipment. For financial reporting purposes, plant and
equipment are depreciated over their estimated useful lives, primarily by using
the straight-line method as follows:
Buildings and improvements 10 to 30 years
Leasehold improvements 5 to 10 years
Manufacturing equipment and tooling 5 to 10 years
Office, warehouse and automotive equipment 3 to 10 years
Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment
whenever events or changes in business circumstances indicate the carrying value
of the assets may not be recoverable. There have been no write downs of any
long-lived assets in the periods presented.
Self-Insurance. The Company is self-insured for certain losses relating to
product liability, workers' compensation and employee medical benefits claims.
The Company has purchased stop-loss coverage in order to limit its exposure to
significant claims. Accrued insurance liabilities are based on claims filed and
estimates of claims incurred but not reported.
Revenue Recognition. The Company recognizes revenue when title passes, which is
usually upon shipment. The Company records provisions for anticipated returns
and warranty claims at the time revenue is recognized. Provisions for sales
returns are recorded as a reduction of net sales, and provisions for warranty
claims are recorded in selling, marketing and distribution expenses.
Freight Expense. Freight expenses for products shipped to customers are included
in cost of products sold, in accordance with EITF No. 00-10, "Accounting for
Shipping and Handling Fees and Costs." Such expenses were formerly reported as a
reduction of net sales. Freight-out expenses for 1999 and 1998 have been
reclassified to cost of products sold, which had no effect on previously
reported gross profit amounts or net earnings.
Earnings Per Common Share. Basic earnings per share is computed by dividing
earnings available to common shareholders by the weighted average number of
shares outstanding during the year. Diluted earnings per share is computed after
giving effect to the exercise of all dilutive outstanding option grants.
Comprehensive Earnings. Comprehensive earnings is a measure of all changes in
shareholders' equity except those resulting from investments by and
distributions to owners, and includes such items as net earnings, certain
foreign currency translation items, minimum pension liability adjustments and
changes in the value of available-for-sale securities.
Stock-Based Compensation. As allowed under SFAS No. 123 "Accounting for
Stock-Based Compensation," the Company has elected to apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock option and purchase plans and adopt the "disclosure only" provisions
of SFAS No. 123.
Derivative Instruments and Hedging Activities. As part of its risk management
program, the Company uses currency hedges and interest rate swaps to hedge known
market exposures. Terms of derivative instruments are structured to match the
terms of the risk being hedged and are generally held to maturity. The Company
does not hold or issue derivative financial instruments for trading purposes.
The Company periodically evaluates its monetary asset and liability positions
denominated in foreign currencies. The Company enters into forward contracts,
borrowings in various currencies or options, in order to hedge its net monetary
positions. These hedges and net monetary positions are recorded at current
market values and the gains and losses are included in other expense (income).
The Company believes it uses strong financial counterparts in these transactions
and that the resulting credit risk under these hedging strategies is not
significant. The notional amounts (which may not be indicative of credit or
market risk) of such contracts were $12 million and $23 million at December 29,
2000 and December 31, 1999.
The Company utilizes interest rate swaps to convert a portion of its underlying
debt from a variable rate to a fixed rate. Gains and losses on these agreements
are included in interest expense under the settlement method of accounting. The
notional amounts of such contracts were $1.5 million and $52 million at December
29, 2000 and December 31, 1999.
On December 30, 2000, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that all derivatives, including those embedded in other contracts,
be recognized as either assets or liabilities and that those financial
instruments be measured at fair value. The accounting for changes in the fair
value of derivatives depends on their intended use and designation.
The Company has reviewed the requirements of SFAS No. 133 and has determined
that the forward currency contracts and the interest rate swap discussed above
are freestanding derivatives. The forward currency contracts are used to hedge
the net monetary position of subsidiaries whose translation adjustments are
recorded in earnings and therefore no designated hedging strategy is required to
achieve the Company's economic strategy. The fair value of the interest rate
swap is insignificant.
All contracts that contain provisions meeting the definition of a derivative
also meet the requirements of, and have been designated as, normal purchases or
sales. The Company's policy is to not enter into contracts with terms that
cannot be designated as normal purchases or sales. The adoption of SFAS No. 133
on December 30, 2000, resulted in no transition adjustment.
B. Segment Information
The Company has three reportable segments: Industrial/Automotive, Contractor and
Lubrication. The Industrial/Automotive segment markets equipment and
pre-engineered packages for moving and applying paints, coatings, sealants,
adhesives and other fluids. Markets served include automotive and truck assembly
and components plants, wood products, rail, marine, aerospace, farm,
construction, bus, recreational vehicles, and various other industries. The
Contractor segment markets sprayers for architectural coatings for painting,
roofing, texture, corrosion control and line striping and also high-pressure
washers. The Lubrication segment markets products to move and dispense
lubricants for fast oil change facilities, service garages, fleet service
centers, automobile dealerships, the mining industry and industrial lubrication.
All segments market parts and accessories for their products.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The cost of manufacturing for each
segment is based on product cost, and expenses are based on actual costs
incurred along with cost allocations of shared and centralized functions.
Certain products are sold across segments, in which case the segment marketing
the product is credited with the sale. Assets of the Company are not tracked
along reportable segment lines.
Reportable segments are defined by product and type of customer. Segments are
responsible for the sales, marketing and development of their products and
market channel. This allows for focused marketing and efficient product
development. The segments share common purchasing, manufacturing, distribution
and administration functions.
Unallocated
(In thousands) Industrial/ Corporate
Reportable Segments Automotive Contractor Lubrication Expenses Total
- ----------------------------------- ----------- ---------- ----------- ----------- --------
2000
Net sales to unaffiliated customers $227,963 $221,538 $44,872 $494,373
Segment operating earnings 57,798 47,935 10,600 (5,091) 111,242
1999
Net sales to unaffiliated customers 227,772 178,616 44,086 450,474
Segment operating earnings 48,143 41,736 10,307 (6,995) 93,191
1998
Net sales to unaffiliated customers 235,328 160,718 44,539 440,585
Segment operating earnings 42,973 35,836 8,829 (10,765) 76,873
----------- ---------- ----------- ----------- --------
Geographic Information 2000 1999 1998
- ------------------------ -------- -------- --------
Sales
United States $329,068 $286,483 $270,337
Other countries 165,305 163,991 170,248
-------- -------- --------
Total $494,373 $450,474 $440,585
-------- -------- --------
Long-lived assets
United States $80,811 $80,259 $91,068
Belgium 10,437 11,298 5,554
Other countries 3,555 5,972 4,569
-------- -------- --------
Total $94,803 $97,529 $101,191
======== ======== ========
Sales to Major Customers
No customer represented 10 percent or more of consolidated sales in 2000 or
1998. In 1999, sales to a paint manufacturer and retailer in the Contractor
segment totaled 11 percent of consolidated sales.
C. Inventories
Major components of inventories were as follows:
(In thousands) 2000 1999
------------------------------------------------------- ------- -------
Finished products and components $26,812 $25,748
Products and components in various stages of completion 20,153 23,560
Raw materials and purchased components 19,259 21,961
------- -------
66,224 71,269
Reduction to LIFO cost (33,145) (33,567)
------- -------
Total $33,079 $37,702
======= =======
Inventories valued under the LIFO method were $20,585,000 and $22,990,000 for
2000 and 1999. All other inventory was valued on the FIFO method.
In 2000 and 1999, certain inventory quantities were reduced, resulting in
liquidation of LIFO inventory quantities carried at lower costs from prior
years. The effect on net earnings was not significant.
D. Property, Plant and Equipment
Property, plant and equipment were as follows:
(In thousands) 2000 1999
- ------------------------------------------ --------- --------
Land $ 4,062 $ 3,923
Buildings and improvements 50,512 54,607
Manufacturing equipment 105,509 101,044
Office, warehouse and automotive equipment 22,652 22,196
Construction in progress 4,137 386
--------- --------
Total property, plant and equipment 186,872 182,156
Accumulated depreciation (102,883) (95,663)
--------- --------
Net property, plant and equipment $ 83,989 $ 86,493
========= ========
E. Income Taxes
Earnings before income tax expense consist of:
(In thousands) 2000 1999 1998
- -------------- -------- ------- -------
Domestic $ 95,440 $87,292 $61,709
Foreign 10,468 1,549 9,654
-------- ------- -------
Total $105,908 $88,841 $71,363
======== ======= =======
Income tax expense consists of:
(In thousands) 2000 1999 1998
- ------------------ ------- ------- -------
Current:
Domestic:
Federal $28,532 $23,081 $17,374
State and local 2,164 2,323 1,600
Foreign 3,018 2,867 5,628
------- ------- -------
$33,714 $28,271 $24,602
------- ------- -------
Deferred:
Domestic 2,414 1,778 (423)
Foreign (328) (549) (79)
------- ------- -------
2,086 1,229 (502)
------- ------- -------
Total $35,800 $29,500 $24,100
======= ======= =======
Income taxes paid were $30,919,000, $31,272,000 and $22,922,000 in 2000, 1999
and 1998.
A reconciliation between the U.S. federal statutory tax rate and the effective
tax rate is as follows:
2000 1999 1998
- ------------------------------------- ---- ---- ----
Statutory tax rate 35% 35% 35%
Earnings from non-U.S. sales at lower (1) (2) (1)
tax rates
State taxes, net of federal effect 1 2 2
U.S. general business tax credits (1) (2) (1)
Other -- -- (1)
---- ---- ----
Effective tax rate 34% 33% 34%
==== ==== ====
Deferred income taxes are provided for all temporary differences between the
financial reporting and the tax basis of assets and liabilities. The deferred
tax assets (liabilities) resulting from these differences are as follows:
(In thousands) 2000 1999
- -------------------------------------------------------- ------- -------
Inventory valuations $ 2,847 $ 3,365
Insurance accruals 3,247 3,202
Vacation accruals 1,435 1,207
Bad debt reserves 1,321 1,247
Net operating loss carryforward 334 653
Other 2,390 2,683
------- -------
Current 11,574 12,357
------- -------
Unremitted earnings of consolidated foreign subsidiaries (1,950) (2,544)
Excess of tax over book depreciation (7,494) (6,597)
Postretirement benefits 5,721 5,363
Pension and deferred compensation 1,880 3,239
Other 1,275 1,054
------- -------
Non-current (568) 515
------- -------
Net deferred tax assets $11,006 $12,872
======= =======
Total deferred tax assets were $20,923,000 and $22,319,000 and total deferred
tax liabilities were $9,917,000 and $9,447,000 on December 29, 2000 and December
31, 1999.
F. Debt
(In thousands) 2000 1999
- -------------------------------------------------------------- ------- -------
Reducing revolving credit facility, 7.14% at December 29, 2000 $17,500 $63,834
Other 1,860 3,076
------- -------
Total long-term debt 19,360 66,910
Less current portion 1,310 1,215
------- -------
Long-term portion $18,050 $65,695
======= =======
Aggregate annual scheduled maturities of long-term debt for the next five years
are as follows: 2001-$1,310,000; 2002-$550,000; 2003-$17,500,000; zero in 2004
and 2005. Interest paid on debt during 2000, 1999 and 1998 amounted to
$4,171,000, $6,843,000 and $4,742,000. The fair value of the Company's long-term
debt at December 29, 2000 and December 31, 1999 is not materially different than
its recorded value.
In July 1998, the Company entered into a five-year $190 million reducing
revolving credit facility (the "Revolver") with a syndicate of ten banks
including the lead bank, U.S. Bank National Association. The Revolver was
subsequently reduced to $132 million by December 31, 1999 and was further
reduced to $72 million by December 29, 2000. The $17,500,000 outstanding balance
bears interest at the London Interbank Offered Rate plus a spread of 0.45
percent. This spread changes as the ratio of total debt to earnings before
interest, taxes and depreciation and amortization declines. The Revolver
specifies quarterly reductions of the maximum amount of the credit line, and
requires the Company to maintain certain financial ratios as to net worth, cash
flow leverage and fixed charge coverage. The Revolver effectively restricts
dividend payments that would cause a violation of the tangible net worth ratio
covenant. The amount of the restriction on future dividend payments was $51
million at December 29, 2000.
The Company had an interest rate swap agreement in place whereby it fixed the
underlying interest rate on $50 million of the Revolver at 5.76 percent. This
contract matured on July 3, 2000. The cash flows related to the swap agreement
were recorded as an adjustment to interest expense.
On December 29, 2000, the Company had lines of credit with U.S. and foreign
banks of $95 million, including the $72 million Revolver. The unused portion of
these credit lines was $66 million at December 29, 2000. Borrowing rates under
these credit lines vary with the prime rate, rates on domestic certificates of
deposit and the London interbank market. The weighted short-term borrowing rates
were 6.2 percent, 5.4 percent and 6.3 percent for the years ended December 29,
2000, December 31, 1999, and December 25, 1998. The Company pays commitment fees
of up to 0.175 percent per annum on the daily average unused amounts on certain
of these lines. No compensating balances are required.
The Company is in compliance with the financial covenants of its debt
agreements.
G. Shareholders' Equity
In July 1998 the Company repurchased 5.8 million shares of common stock for
$190,887,000 from its largest shareholder, the Trust under the Will of Clarissa
L. Gray. The stock repurchase was funded with cash of $32,887,000 and
$158,000,000 from the Revolver.
The Board of Directors declared a three-for-two stock split on December 8, 2000,
to be distributed February 6, 2001, for shares outstanding on January 15, 2001.
All stock option, share and per share data has been restated to reflect the
split.
At December 29, 2000, the Company had 22,549 authorized, but not issued,
cumulative preferred shares. The Company also has authorized, but not issued, a
separate class of 3 million shares of preferred stock, $1 par value.
The Company maintains a plan in which one preferred share purchase right
("Right") exists for each common share of the Company. Each Right will entitle
its holder to purchase one four-hundredth of a share of a new series of junior
participating preferred stock at an exercise price of $180, subject to
adjustment. The Rights are exercisable only if a person or group acquires
beneficial ownership of 15 percent or more of the Company's outstanding common
stock. The Rights expire in March 2010 and may be redeemed earlier by the Board
of Directors for $.001 per Right.
H. Stock Option and Purchase Plans
Stock Option Plans. In 1999, the Board of Directors approved an Employee Stock
Incentive Plan, under which the Company grants stock options to employees who
are not officers of the Company. The option price is the market price on the
date the grant is approved and the options vest three years from the date of the
grant and expire after ten years. 1,500,000 shares have been reserved for
issuance under the Plan, with 1,497,600 remaining reserved at December 29, 2000.
The Company has a Long-Term Stock Incentive Plan, under which a total of
7,818,750 common shares have been reserved for issuance, with 3,547,620 shares
remaining reserved at December 29, 2000. Grants under this Plan are in the form
of restricted share awards and stock options. The option price is the market
price on the date the grant is approved. Options become exercisable at such time
and in such installments as set by the Company, and expire ten years from the
date of grant. Restricted share awards of 963,914 common shares have been made
to certain key employees under the Plan. No restricted share awards are
outstanding at December 29, 2000 and there is no related compensation cost in
2000. Compensation cost charged to operations for the restricted share awards
was $615,000 and $361,000 in 1999 and 1998.
The Company has a Non-employee Director Stock Option Plan, under which the
Company makes initial and annual grants to the non-employee directors of the
Company. Non-employee directors receive an initial option grant of 3,000 shares
upon first appointment or election and an annual option grant of 2,500 shares.
There are 450,000 common shares authorized for issuance under the Plan; 444,936
remained reserved at the end of 2000. The exercise price of each option is the
fair market value at the date of grant. The options have a ten-year duration and
may be exercised in equal installments over four years, beginning one year from
the date of grant.
Options on common shares granted and outstanding, as well as the weighted
average exercise price, are shown below:
Weighted Weighted
Average Average
Exercise Options Exercise
Options Price Exercisable Price
- ------------------------------ --------- -------- ----------- --------
Outstanding, December 26, 1997 1,655,577 $ 7.77 690,219 $ 5.82
Granted 479,625 19.86
Exercised (213,083) 5.73
Canceled (149,437) 11.89
--------- -------- ----------- --------
Outstanding, December 25, 1998 1,772,682 $10.86 766,329 $ 6.59
Granted 706,748 14.57
Exercised (424,580) 4.82
Canceled (55,705) 15.69
--------- -------- ----------- --------
Outstanding, December 31, 1999 1,999,145 $12.69 1,117,539 $10.00
Granted 438,000 20.59
Exercised (387,597) 10.69
Canceled (87,258) 15.39
--------- -------- ----------- --------
Outstanding, December 29, 2000 1,962,290 $14.74 943,151 $11.46
========= ======== =========== ========
The following table summarizes information for options outstanding and
exercisable at December 29, 2000:
Options
Options Exercisable
Options Outstanding Weighted
Outstanding Weighted Avg. Avg.
Range of Options Weighted Avg. Exercise Options Exercise
Prices Outstanding Remaining Life Price Exercisable Price
- ---------- ----------- -------------- ------------- ----------- -----------
$ 4-10 515,519 2 $ 6.74 512,091 $ 6.72
11-18 626,699 4 13.99 195,921 13.38
19-24 820,072 5 20.34 235,139 20.17
----------- -------------- ------------- ----------- -----------
$ 4-24 1,962,290 4 $14.74 943,151 $11.46
Stock Purchase Plans. Under the Company's Employee Stock Purchase Plan,
8,775,000 common shares have been reserved for sale to employees, 1,169,840 of
which remained unissued at the end of 2000. The purchase price of the shares
under the Plan is the lesser of 85 percent of the fair market value on the first
day or the last day of the Plan year.
Non-employee Director Stock Plan. The Plan enables individual non-employee
directors of the Company to elect to receive or defer all or part of a
director's annual retainer, and/or payment for attendance at Board or Committee
meetings, in the form of shares of the Company's common stock instead of cash.
The Company issued 6,927, 6,161 and 5,035 shares under this Plan during 2000,
1999 and 1998. The expense related to this Plan is not significant.
Stock-Based Compensation. No compensation cost has been recognized for the
Employee Stock Purchase Plan and stock options granted under the Employee Stock
Incentive Plan, the Long-Term Stock Incentive Plan and the Non-employee Director
Stock Option Plan. Had compensation cost for the stock option plans been
determined based upon fair value at the grant date for awards under these plans,
the Company's net earnings and earnings per share would have been reduced as
follows:
2000 1999 1998
- ------------------------------ ------- ------- -------
Net earnings
As reported $70,108 $59,341 $47,263
Pro forma 65,506 55,998 45,144
Net earnings per common share
Basic as reported $ 2.31 $ 1.95 $ 1.37
Diluted as reported 2.27 1.90 1.34
Pro forma basic 2.16 1.84 1.31
Pro forma diluted 2.09 1.79 1.28
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
2000 1999 1998
- ---------------------- ---- ---- ----
Expected life in years 6.1 5.3 8.0
Interest rate 6.4% 5.1% 5.5%
Volatility 44.5% 43.5% 40.2%
Dividend yield 1.8% 1.9% 1.5%
Based upon these assumptions, the weighted average fair value at grant date of
options granted in 2000, 1999 and 1998 was $8.16, $5.19 and $8.25.
The fair value of the employees' purchase rights under the Employee Stock
Purchase Plan was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
2000 1999 1998
- ---------------------- ---- ---- ----
Expected life in years 1.0 1.0 1.0
Interest rate 6.4% 5.2% 5.5%
Volatility 45.2% 43.8% 40.2%
Dividend yield 1.9% 2.0% 1.5%
The benefit of the 15 percent discount from the lesser of the fair market value
per common share on the first day and the last day of the Plan year was added to
the fair value of the employees' purchase rights determined using Black-Scholes.
The weighted average fair value per common share was $5.95, $4.08 and $5.23 in
2000, 1999 and 1998.
I. Earnings per Share
Earnings per share for all years presented has been calculated to reflect the
three-for-two stock split to be distributed February 6, 2001. The following
table sets forth the computation of basic and diluted earnings per share:
(In thousands, except per share amounts) 2000 1999 1998
- -------------------------------------------------------------------- ------- ------- -------
Numerator:
Net earnings available to common shareholders $70,108 $59,341 $47,263
------- ------- -------
Denominators:
Denominator for basic earnings per share - weighted average shares 30,407 30,372 34,412
Dilutive effect of stock options computed based on the treasury
stock method using the average market price 498 927 909
------- ------- -------
Denominator for diluted earnings per share 30,905 31,299 35,321
======= ======= =======
Basic earnings per share $ 2.31 $ 1.95 $ 1.37
======= ======= =======
Diluted earnings per share $ 2.27 $ 1.90 $ 1.34
======= ======= =======
J. Retirement Benefits
The Company has a defined contribution plan, under Section 401(k) of the
Internal Revenue Code, which provides additional retirement benefits to all U.S.
employees who elect to participate. The Company matches employee contributions
at a 100 percent rate, up to 3 percent of the employee's compensation. Employer
contributions were $2,162,000, $2,008,000 and $1,989,000 in 2000, 1999 and 1998.
The Company's postretirement medical plan provides certain medical benefits for
retired employees. U.S. employees are eligible for these benefits upon
retirement and fulfillment of other eligibility requirements as specified by the
Plan.
The Company has non-contributory defined benefit pension plans covering
substantially all U.S. employees and directors and some of the employees of the
Company's non-U.S. subsidiaries. For the U.S. plans, the benefits are based on
years of service and the highest five consecutive years' earnings in the ten
years preceding retirement. The Company funds these plans annually in amounts
consistent with minimum funding requirements and maximum tax deduction limits
and invests primarily in common stocks and bonds, including the Company's common
stock. The market value of the Plans' investment in the common stock of the
Company was $16,090,000 and $19,472,000 at December 29, 2000 and December 31,
1999. The following tables provide a reconciliation of the changes in the Plans'
benefit obligations and fair value of assets over the periods ending December
29, 2000 and December 31, 1999, and a statement of the funded status as of the
same dates.
Pension Benefits Other Benefits
------------------- -------------------
(In thousands) 2000 1999 2000 1999
- ------------------------------------ -------- -------- -------- --------
Reconciliation of benefit obligation
Obligation, beginning of year $102,040 $ 95,141 $ 15,430 $ 15,623
Service cost 3,733 3,517 459 482
Interest cost 6,961 6,267 1,063 995
Acquisition -- 2,671 -- --
Curtailment -- (541) -- --
Actuarial (gain) loss 211 (2,162) 537 (573)
Benefit payments (3,363) (2,853) (1,191) (1,097)
-------- -------- -------- --------
Obligation, end of year $109,582 $102,040 $ 16,298 $ 15,430
-------- -------- -------- --------
Reconciliation of fair value of plan assets
Fair value, beginning of year $135,997 $103,106 $ -- $ --
Actual return on assets 3,770 35,454 -- --
Employer contribution 412 264 1,191 1,097
Benefit payments (3,363) (2,827) (1,191) (1,097)
-------- -------- -------- --------
Fair value, end of year $136,816 $135,997 $ -- $ --
-------- -------- -------- --------
Funded status
Funded status over (under), end of year $ 27,234 $ 33,957 $(16,298) $(15,430)
Unrecognized transition (asset) obligation (64) (68) -- --
Unrecognized prior service cost 1,734 1,954 -- --
Unrecognized (gain) loss (35,946) (46,058) 645 107
-------- -------- -------- --------
Net $ (7,042) $(10,215) $(15,653) $(15,323)
======== ======== ======== ========
The following table provides the amounts included in the Statement of Financial
Position as of December 29, 2000 and December 31, 1999.
Pension Benefits Other Benefits
-------------------- -------------------
(In thousands) 2000 1999 2000 1999
- ------------------------- -------- -------- -------- --------
Accrued benefit liability $(10,018) $(10,659) $(15,653) $(15,323)
Other assets 2,976 427 -- --
-------- -------- -------- --------
Net $ (7,042) $(10,232) $(15,653) $(15,323)
======== ======== ======== ========
The components of net periodic benefit cost for the plans for 2000, 1999 and
1998 were as follows:
Pension Benefits Other Benefits
------------------------------ --------------------------
(In thousands) 2000 1999 1998 2000 1999 1998
- ------------------------------------------------ -------- -------- -------- ------ ------ ------
Service cost - benefits earned during the period $ 3,733 $ 3,517 $ 2,959 $ 459 $ 482 $ 442
Interest cost on projected benefit obligation 6,961 6,267 5,595 1,063 995 954
Expected return on assets (12,086) (11,189) (9,711) -- -- --
Amortization of transition (asset) obligation (3) (4) (3) -- -- --
Amortization of prior service cost 220 231 230 -- -- --
Amortization of net (gain) loss (2,707) (629) (1,067) -- -- --
Cost of pension plans which are not significant
and have not adopted SFAS No. 87 130 266 371 N/A N/A N/A
-------- -------- -------- ------ ------ ------
Net periodic benefit (credit) cost (3,752) (1,541) (1,626) 1,522 1,477 1,396
-------- -------- -------- ------ ------ ------
Curtailment gain -- (541) (239) -- -- --
Settlement gain -- -- (271) -- -- --
-------- -------- -------- ------ ------ ------
Net periodic benefit (credit) cost after
curtailments and settlements $ (3,752) $ (2,082) $ (2,136) $1,522 $1,477 $1,396
======== ======== ======== ====== ====== ======
The Company's retirement medical plan limits the annual cost increase that will
be paid by the Company. In measuring the Accumulated Postretirement Benefit
Obligation (APBO), a 6 percent maximum annual trend rate for healthcare costs
was assumed for the year ending December 29, 2000. This rate is assumed to
remain constant through the year 2001, decline to 5.5 percent in 2002 and 4.5
percent in 2003, and remain at that level thereafter. The other assumptions used
in the measurement of the Company's benefit obligation are shown below:
Pension Benefits Other Benefits
-------------------- --------------------
Weighted average assumptions 2000 1999 1998 2000 1999 1998
- ---------------------------- ---- ---- ---- ---- ---- ----
Discount rate 7.0% 6.5% 6.5% 7.0% 6.5% 7.0%
Expected return on assets 9.0% 11.0% 11.0% N/A N/A N/A
Rate of compensation increase 3.6% 3.6% 3.3% N/A N/A N/A
==== ==== ==== ==== ==== ====
At December 29, 2000, a 1 percent change in assumed healthcare cost trend rates
would have the following effects:
(In thousands) 1% Increase 1% Decrease
- ---------------------------------------------------------- ----------- -----------
Effect on total of service and interest cost components of
net periodic postretirement healthcare benefit cost $ 247 $ (200)
Effect on the healthcare component of the accumulated
postretirement benefit obligation $2,276 $(1,882)
----------- -----------
K. Commitments and Contingencies
Lease Commitments. Aggregate annual rental commitments at December 29, 2000,
under operating leases with non-cancelable terms of more than one year, were
$6,230,000, payable as follows:
Vehicles &
(In thousands) Buildings Equipment Total
- -------------- --------- --------- ------
2001 $1,533 $1,128 $2,661
2002 969 692 1,661
2003 930 454 1,384
2004 280 183 463
2005 46 15 61
Thereafter -- -- --
--------- --------- ------
Total $3,758 $2,472 $6,230
========= ========= ======
Total rental expense was $2,499,000 for 2000, $3,492,000 for 1999 and $3,307,000
for 1998.
Contingencies. The Company is party to various legal proceedings arising in the
normal course of business activities, none of which, in management's opinion, is
expected to have a material adverse impact on the Company's consolidated results
of operations or its financial position.
L. Acquisition
In 1999, the Company formed Graco Verfahrenstechnik which on June 1, 1999
purchased certain assets and assumed certain liabilities of Bollhoff
Verfahrenstechnik (BV), located in Bielefeld, Germany. BV designed, manufactured
and sold fluid application equipment for industrial and automotive markets,
primarily in Germany, and had 1998 sales of approximately $20 million.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information under the heading "Executive Officers of the Company" in Part I
of this 2000 Annual Report on Form 10-K and the information under the headings
"Election of Directors, Nominees and Other Directors" on pages 2 through 4 and
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on
page 15, of the Company's Proxy Statement for its 2001 Annual Meeting of
Shareholders, to be held on May 1, 2001 (the "Proxy Statement"), is incorporated
herein by reference.
Item 11. Executive Compensation
The information contained under the heading "Executive Compensation" on pages 6
through 13 of the Proxy Statement is incorporated herein by reference, other
than the subsection thereunder entitled "Report of the Management Organization
and Compensation Committee" and "Comparative Stock Performance Graph."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Beneficial Ownership of Shares" on
pages 14 through 15 of the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the heading "Certain Business Relationships" on page 14 of
the Company's Proxy Statement for its 2001 Annual Meeting of Shareholders, to be
held on May 1, 2001 (the "Proxy Statement"), is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Part II
(2) Financial Statement Schedule Page
----
o Schedule II - Valuation and Qualifying Accounts..............31
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
Consolidated Financial Statements or Notes thereto.
(3) Management Contract, Compensatory Plan or Arrangement.
(See Exhibit Index).............................................33
Those entries marked by an asterisk are Management Contracts,
Compensatory Plans or Arrangements.
(b) Reports on Form 8-K
There were no reports on Form 8-K for the thirteen weeks ended
December 29, 2000.
(c) Exhibit Index ....................................................33
Schedule II - Valuation and Qualifying Accounts
Graco Inc. and Subsidiaries
Additions
Balance at charged to Deductions Change Balance
beginning costs and From Add at end of
Description of year expenses Reserves (Deduct) end of year
- ----------------------------------- ----------- ---------- ---------- -------- -----------
Year ended December 29, 2000:
Allowance for doubtful accounts $2,500 $ 100 $ 300 $2,300
Allowance for returns and credits 2,000 7,300 6,900 2,400
----------- ---------- ---------- -------- -----------
$4,500 $7,400 $7,200 $4,700
----------- ---------- ---------- -------- -----------
Year ended December 31, 1999:
Allowance for doubtful accounts $2,600 $ 300 $ 600 $200 $2,500
Allowance for returns and credits 1,800 6,000 5,800 2,000
----------- ---------- ---------- -------- -----------
$4,400 $6,300 $6,400 $200 $4,500
=========== ========== ========== ======== ===========
Year ended December 25, 1998:
Allowance for doubtful accounts $2,200 $ 900 $ 500 $2,600
Allowance for returns and credits 1,900 3,400 3,500 1,800
----------- ---------- ---------- -------- -----------
$4,100 $4,300 $4,000 $4,400
=========== ========== ========== ======== ===========
1 Accounts determined to be uncollectible and charged against reserve, net of
collections on accounts previously charged against reserves.
2 Credits issued and returns processed.
3 Assumed or established in connection with acquisition.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/GEORGE ARISTIDES March 16, 2001
------------------- --------------
George Aristides
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/GEORGE ARISTIDES March 16, 2001
------------------- --------------
George Aristides
Chief Executive Officer
(Principal Executive Officer)
/s/MARK W. SHEAHAN March 16, 2001
------------------ --------------
Mark W. Sheahan
Vice President and Treasurer
(Principal Financial Officer)
/s/JAMES A. GRANER March 16, 2001
------------------ --------------
James A. Graner
Vice President and Controller
(Principal Accounting Officer)
D. A. Koch Director, Chairman of the Board
G. Aristides Director
R. O. Baukol Director
R. G. Bohn Director
W. J. Carroll Director
D. D. Johnson Director
L. R. Mitau Director
M. A.M. Morfitt Director
M. H. Rauenhorst Director
J. L. Scott Director
W. G. Van Dyke Director
George Aristides, by signing his name hereto, does hereby sign this document on
behalf of himself and each of the above named directors of the Registrant
pursuant to powers of attorney duly executed by such persons.
/s/GEORGE ARISTIDES March 16, 2001
------------------- --------------
George Aristides
(For himself and as attorney-in-fact)
Exhibit Index
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation as amended December 8,
2000.
3.2 Restated Bylaws as amended September 29, 2000.
4.1 Rights Agreement dated as of February 25, 2000, between the
Company and Norwest Bank Minnesota, National Association, as
Rights Agent, including as Exhibit A the form of the
Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Shares. (Incorporated by
reference to Exhibit 4 to the Company's Report on Form 8-K
dated February 25, 2000.)
4.2 Credit Agreement dated July 2, 1998, between the Company and
U.S. Bank National Association, as Agent for a combination of
banks. (Incorporated by reference to Exhibit 4 to the
Company's Report on Form 10-Q for the thirty-nine weeks ended
September 25, 1998.)
4.3 Amendment dated August 31, 1999 to Credit Agreement dated June
26, 1998 between the Company and Wachovia Bank, N.A.
(Incorporated by reference to Exhibit 4 to the Company's
Report on Form 10-Q for the thirty-nine weeks ended September
24, 1999.)
*10.1 2000 Corporate and Business Unit Annual Bonus Plan.
(Incorporated by reference to Exhibit 10 to the Company's
Report on Form 10-Q for the thirteen weeks ended March 31,
2000.)
*10.2 Deferred Compensation Plan Restated, effective December 1,
1992. (Incorporated by reference to Exhibit 2 to the Company's
Report on Form 8-K dated March 11, 1993.) Amendment 1 dated
September 1, 1996. (Incorporated by reference to the Company's
Report on Form 10-Q for the twenty-six weeks ended June 27,
1997.)
*10.3 Executive Deferred Compensation Agreement. Form of
supplementary agreement entered into by the Company which
provides a retirement benefit to selected executive officers,
as amended by Amendment 1, effective September 1, 1990.
(Incorporated by reference to Exhibit 3 to the Company's
Report on Form 8-K dated March 11, 1993.)
*10.4 Chairman's Award Plan. (Incorporated by reference to Exhibit 3
to the Company's Report on Form 8-K dated March 7, 1988.)
*10.5 Long Term Stock Incentive Plan, as amended and restated
December 10, 1999. (Incorporated by reference to Exhibit 10.5
to the Company's 1999 Annual Report on Form 10-K.)
*10.6 Retirement Plan for Non-Employee Directors. (Incorporated by
reference to Attachment C to Item 5 to the Company's Report on
Form 10-Q for the thirteen weeks ended March 29, 1991.)
*10.7 Restoration Plan 1998 Restatement. (Incorporated by reference
to Exhibit 10.8 to the Company's 1997 Annual Report on Form
10-K.)
*10.8 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to executive officers, dated May
2, 1994. (Incorporated by reference to Exhibit 10.3 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
July 1, 1994.)
*10.9 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to selected officers, dated
December 15, 1994, December 27, 1994 and February 23, 1995.
(Incorporated by reference to Exhibit 10.16 to the Company's
1994 Annual Report on Form 10-K.)
*10.10 Stock Option Agreement. Form of agreement used for award of
non-incentive stock option to one executive officer, dated
December 15, 1995. (Incorporated by reference to Exhibit 10.18
to the Company's 1995 Annual Report on Form 10-K.)
*10.11 Form of salary protection arrangement between the Company and
executive officers. (Incorporated by reference to Exhibit
10.21 to the Company's 1995 Annual Report on Form 10-K.)
*10.12 Non-employee Director Stock Option Plan, as amended and
restated November 6, 1997. (Incorporated by reference to
Exhibit 10.18 to the Company's 1997 Annual Report on Form
10-K.)
*10.13 Stock Option Agreement. Form of agreement used for award of
nonstatutory stock options to non-employee directors, dated
May 7, 1996. (Incorporated by reference to Exhibit 10.4 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
June 28, 1996.)
*10.14 Stock Option Agreement Amendment. Form of amendment, dated
March 8, 1997, used to remove alternative stock appreciation
right from incentive stock option agreement dated February 25,
1993, for selected officers. (Incorporated by reference to
Exhibit 10.25 to the Company's 1996 Annual Report on Form
10-K.)
*10.15 Stock Option Agreement Amendment. Form of amendment, dated
March 8, 1997, used to remove alternative stock appreciation
right from non-incentive stock option agreement dated May 4,
1993, for selected officers. (Incorporated by reference to
Exhibit 10.26 to the Company's 1996 Annual Report on Form
10-K.)
*10.16 Key Employee Agreement. Form of agreement with officers and
other key employees relating to change of control, dated April
2, 1997. (Incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
June 27, 1997.)
*10.17 Stock Option Agreement Amendment. Form of amendment, dated
April 14, 1997, used to add change of control provision to
non-incentive stock options to executive officer dated May 2,
1994, March 1, 1995 and March 1, 1996. (Incorporated by
reference to Exhibit 10.6 to the Company's Report on Form 10-Q
for the twenty-six weeks ended June 27, 1997.)
*10.18 Stock Option Agreement Amendment. Form of amendment, dated
April 14, 1997, used to add change of control provision to
non-incentive stock options to selected officers dated
December 15, 1994. (Incorporated by reference to Exhibit 10.7
to the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.19 Stock Option Agreement Amendment. Form of amendment, dated
April 14, 1997, used to add change of control provision to
non-incentive stock options to one executive officer dated
December 15, 1995. (Incorporated by reference to Exhibit 10.8
to the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.20 Stock Option Agreement. Form of agreement used for award of
non-incentive stock option to one executive officer, dated
April 23, 1997. (Incorporated by reference to Exhibit 10.9 to
the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.21 Stock Option Agreement. Form of agreement used for award of
nonstatutory stock options to non-employee directors, dated
May 6, 1997. (Incorporated by reference to Exhibit 10.10 to
the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.22 Executive Long Term Incentive Agreement. Form of restricted
stock award agreement used for award to one executive officer,
dated May 6, 1997. (Incorporated by reference to Exhibit 10.11
to the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.23 Stock Option Agreement. Form of agreement used for award of
non-incentive stock option to two executive officers, dated
May 6, 1997. (Incorporated by reference to Exhibit 10.12 to
the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.24 Stock Option Agreement. Form of agreement used for award of
nonstatutory stock options to non-employee director, dated
September 5, 1997. (Incorporated by reference to Exhibit 10.1
to the Company's Report on Form 10-Q for the thirty-nine weeks
ended September 26, 1997.)
*10.25 Trust Agreement dated September 30, 1997, between the Company
and Norwest Bank Minnesota, N.A. (Incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q for the
thirty-nine weeks ended September 26, 1997.)
*10.26 Key Employee Agreement Amendment. Form of amendment dated
January 9, 1998, revising payment reduction provisions.
(Incorporated by reference to Exhibit 10.33 to the Company's
1997 Annual Report on Form 10-K.)
*10.27 Non-employee Director Stock Plan, as amended and restated June
18, 1999. (Incorporated by reference to Exhibit 10 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
June 25, 1999.)
*10.28 Retirement and Release Agreement between Clayton R. Carter and
the Company dated June 26, 1999. (Incorporated by reference to
Exhibit 10 to the Company's Report on Form 10-Q for the
thirty-nine weeks ended September 24, 1999.)
*10.29 Separation and Release Agreement between Roger L. King and the
Company dated August 10, 1999. (Incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q for the
thirty-nine weeks ended September 24, 1999.)
*10.30 Separation and Release Agreement between James A. Earnshaw and
the Company dated December 31, 1999. (Incorporated by
reference to Exhibit 10.30 to the Company's 1999 Annual Report
on Form 10-K.)
*10.31 Stock Option Agreement. Form of agreement under the Long Term
Stock Incentive Plan dated December 12, 1997. (Incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q
for the thirteen weeks ended March 26, 1999.)
*10.32 Executive Long Term Incentive Agreement between the Company
and one executive officer dated February 22, 1999.
(Incorporated by reference to Exhibit 10.2 to the Company's
Report on Form 10-Q for the thirteen weeks ended March 26,
1999.)
*10.33 Key Employee Agreement between the Company and one executive
officer dated March 1, 1999. (Incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 10-Q for the
thirteen weeks ended March 26, 1999.)
*10.34 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer, dated
March 1, 1999. (Incorporated by reference to Exhibit 10.4 to
the Company's Report on Form 10-Q for the thirteen weeks ended
March 26, 1999.)
*10.35 Executive Officer Annual Incentive Bonus Plan. (Incorporated
by reference to Exhibit 10.35 to the Company's 1999 Annual
Report on Form 10-K.)
*10.36 Stock Option Agreement. Form of agreement under the Long Term
Stock Incentive Plan dated December 12, 1997. (Incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q
for the thirteen weeks ended March 31, 2000.)
*10.37 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 9, 2000. (Incorporated by reference to Exhibit 10.2
to the Company's Report on Form 10-Q for the thirteen weeks
ended March 31, 2000.)
*10.38 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 24, 2000. (Incorporated by reference to Exhibit 10.3
to the Company's Report on Form 10-Q for the thirteen weeks
ended March 31, 2000.)
*10.39 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 23, 2001.
*10.40 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 23, 2001.
*10.41 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to selected officers, dated
February 23, 2001.
11 Statement of Computation of Earnings per share included in
Note I on page 27.
21 Subsidiaries of the Registrant included herein on page 37.
23 Independent Auditors' Consent included herein on page 37.
24 Power of Attorney included herein on page 38.
99 Cautionary Statement Regarding Forward-Looking Statements.
*Management Contracts, Compensatory Plans or Arrangements.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments
defining the rights of holders of certain long-term debt of the Company and its
subsidiaries are not filed as exhibits because the amount of debt authorized
under any such instrument does not exceed 10 percent of the total assets of the
Company and its subsidiaries. The Company agrees to furnish copies thereof to
the Securities and Exchange Commission upon request.
Exhibit 21
Subsidiaries of Graco Inc.
The following are subsidiaries of the Company:
Jurisdiction Percentage of Voting
of Securities Owned by
Subsidiary Organization the Company
---------------------------- ------------ --------------------
Equipos Graco Argentina S.A. Argentina 100%*
Graco Barbados FSC Limited Barbados 100%
Graco Canada Inc. Canada 100%
Graco do Brasil Limitada Brazil 100%*
Graco Europe N.V. Belgium 100%*
Graco GmbH Germany 100%
Graco Hong Kong Limited Hong Kong 100%*
Graco K.K. Japan 100%
Graco Korea Inc. Korea 100%
Graco Limited England 100%*
Graco Minnesota Inc. United States 100%
Graco N.V. Belgium 100%*
Graco S.A.S. France 100%
Graco South Dakota Inc. United States 100%***
Graco S.r.l. Italy 100%*
Graco Verfahrenstechnik GmbH Germany 100%**
---------------------------- ------------ --------------------
* Includes shares held by selected directors and/or executive officers of the
Company or the relevant subsidiary to satisfy the requirements of local law.
** Shares 100% held by Graco N.V.
***Shares 100% held by Graco Minnesota Inc.
Exhibit 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statements No.
333-17691, No. 333-17787, No. 33-54205, No. 333-03459, and No. 333-7530 on Form
S-8 of our report dated January 22, 2001, appearing in this Annual Report on
Form 10-K of Graco Inc. for the year ended December 29, 2000.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
March 16, 2001
Exhibit 24
Power of Attorney
Know all by these presents, that each person whose signature appears below
hereby constitutes and appoints George Aristides or Mark W. Sheahan, that
person's true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for that person and in that person's name, place
and stead, in any and all capacities, to sign the Report on Form 10-K for the
year ended December 29, 2000, of Graco Inc. (and any and all amendments thereto)
and to file the same with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as that person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
In witness whereof, this Power of Attorney has been signed by the following
persons on the date indicated.
Date
------------------
/s/G. Aristides February 23, 2001
- --------------------------------- ------------------
G. Aristides
/s/R. O. Baukol February 23, 2001
- --------------------------------- ------------------
R. O. Baukol
/s/R. G. Bohn February 23, 2001
- --------------------------------- ------------------
R. G. Bohn
/s/W. J. Carroll February 23, 2001
- --------------------------------- ------------------
W. J. Carroll
/s/J. K. Gilligan February 23, 2001
- --------------------------------- ------------------
J. K. Gilligan
/s/D. D. Johnson February 23, 2001
- --------------------------------- ------------------
D. D. Johnson
/s/D. A. Koch February 23, 2001
- --------------------------------- ------------------
D. A. Koch
/s/L. R. Mitau February 23, 2001
- --------------------------------- ------------------
L. R. Mitau
/s/M. A.M. Morfitt February 23, 2001
- --------------------------------- ------------------
M. A.M. Morfitt
/s/M. H. Rauenhorst February 23, 2001
- --------------------------------- ------------------
M. H. Rauenhorst
/s/J. L. Scott February 23, 2001
- --------------------------------- ------------------
J. L. Scott
/s/W. G. Van Dyke February 23, 2001
- --------------------------------- ------------------
W. G. Van Dyke
ARTICLES OF AMENDMENT
RESTATING
ARTICLE OF INCORPORATION OF
GRACO INC.
INCIDENT TO A STOCK SPLIT BY
BOARD OF DIRECTORS
The undersigned, Robert M. Mattison, Secretary of Graco Inc., a Minnesota
corporation, (the "Company"), hereby certifies:
(i) that Article 4.1(a) of the Company's Articles of Incorporation has
been amended to read in its entirety as follows:
"4.1(a) The total number of shares which this corporation shall be
authorized to issue is Forty-eight Million Twenty-two Thousand Five
Hundred Forty-nine (48,022,549) shares of which Forty-five Million
(45,000,000) shares of the par value of $1.00 per share shall be
Common Shares, Three Million (3,000,000) shares of the par value of
$1.00 per share shall be Preferred Shares and Twenty-two Thousand
Five Hundred Forty-nine (22,249) shares of the par value of $100.00
per share shall be Cumulative Preferred Shares."
(ii) That such amendment has been adopted in accordance with the
requirements of, and pursuant to, Chapter 302A of the Minnesota
Statutes;
(iii) That such amendment was adopted pursuant to Section 302A.402 of the
Minnesota Statutes in connection with a division of the Company's
Common Stock; and
(iv) That such amendment will not adversely affect the rights or
preferences of the holders of the outstanding shares of any class or
series of the Company and will not result in the percentage of
authorized shares of any class or series that remains unissued after
such division exceeding the percentage of authorized shares of the
same class or series remaining unissued before the division.
The division giving rise to the amendment set forth above concerns a three
for two split of the Common Stock of the Company. Such division is being
effected as follows:
(i) on February 6, 2001, (the "Effective Date") each share of Common
Stock outstanding on January 15, 2001 (the "Record Date") will be
split and converted into one and one-half (1-1/2) shares of Common
Stock of the Company; and
(ii) on or before the Effective Date, the Company's transfer agent and
registrar will sign and register a certificate or certificates
representing one share of the authorized but unissued Common Stock
of the Company for every two shares of Common Stock held of record
by each common shareholder of record on the Record Date, and will
deliver or mail such certificates to each holder; and
(iii) in settlement of fractional interests which may arise as a result of
common shareholders of record on the Record Date holding a number
shares not divisible by two, such common shareholders of record will
be entitled to cash in an amount equal to the product of (a) the
fraction one-half (1/2) multiplied by (b) 66-2/3% of the closing
sale price of the Company's Common Stock as reported by the New York
Stock Exchange on the Effective Date.
The document entitled "Restated Articles of Incorporation of Graco Inc."
marked as Exhibit A and attached hereto contains the full text of the Articles
of Incorporation of Graco Inc., incorporating in its entirety the amendment of
Article 4.1(a) adopted by the Board of Directors on December 8, 2000.
The document entitled "Restated Articles of Incorporation of Graco Inc.",
attached hereto as Exhibit A, correctly sets forth, without change, the
corresponding provisions of the existing articles as previously amended and
merely restates the existing articles, plus the instant amendment to Article
4.1(a), in their entirety.
The "Restated Articles of Incorporation of Graco Inc.", attached hereto as
Exhibit A, supersede the prior restated Articles of Incorporation and all
amendments thereto.
IN WITNESS WHEREOF, the undersigned, the Secretary of Graco Inc., being
duly authorized on behalf of Graco Inc., has executed this document this 15th
day of December, 2000.
/s/Robert M. Mattison
-----------------------------
Robert M. Mattison
Secretary
STATE OF MINNESOTA
SS
COUNTY OF HENNEPIN
The foregoing instrument was acknowledged before me on December 15, 2000, by
Robert M. Mattison, as Secretary of Graco Inc., on behalf of such corporation.
/s/Brenda L. Colsch
-------------------------------------
Brenda L. Colsch
Notary Public
Exhibit A
RESTATED ARTICLES OF INCORPORATION
OF
GRACO INC.
(Approved by the Board of Directors on December 8, 2000)
ARTICLE I
1. The name of this corporation shall be Graco Inc.
ARTICLE 2
2. Corporation Service Company, is this corporation's registered
agent in the State of Minnesota, and Multifoods Tower, 33 South Sixth Street,
Minneapolis, Minnesota 55402, the business office address of Corporation Service
Company, is the registered office of this corporation.
ARTICL6E 3
3. Any action required or permitted to be taken at a meeting of the
Board of Directors of this corporation not needing approval by the shareholders
under Minnesota Statutes, Chapter 302A, may be taken by written action signed by
the number of directors that would be required to take such action at a meeting
of the Board of Directors at which all directors are present.
ARTICLE 4
4.1 (a) The total number of shares which this corporation shall be
authorized to issue is Forty-eight Million Twenty-two Thousand Five
Hundred Forty-nine (48,022,549) shares of which Forty-five Million
(45,000,000) shares of the par value of $1.00 per share shall be Common
Shares, Three Million (3,000,000) shares of the par value of $1.00 per
share shall be Preferred Shares and Twenty-two Thousand Five Hundred
Forty-nine (22,249) shares of the par value of $100.00 per share shall be
Cumulative Preferred Shares.
(b) Preferred Shares may be issued from time to time in one or more
series as the Board of Directors may determine, as hereinafter provided.
The Board of Directors is hereby authorized by resolution or resolutions,
to provide from time to time for series of Preferred Shares out of the
unissued Preferred Shares not then allocated to any series of Preferred
Shares. Before any shares of any such series are issued, the Board of
Directors shall fix and determine, and is hereby expressly empowered to
fix and determine, by resolution or resolutions, the designations and the
relative rights and preferences thereof, of the shares of such series.
Preferred Shares will be senior to the Cumulative Preferred Shares in
terms of dividend and liquidation rights unless the Board of Directors
specifically provides otherwise in the resolution or resolutions
establishing a series of Preferred Shares.
The Board of Directors is expressly authorized to vary the
provisions relating to the foregoing matters among the various series of
Preferred Shares.
Preferred Shares of any series that shall be issued and thereafter
acquired by the corporation through purchase, redemption (whether through the
operation of a sinking fund or otherwise), conversion, exchange or otherwise,
shall, upon appropriate filing and recording to the extent required by law, have
the status of authorized and unissued Preferred Shares and may be reissued as
part of such series or as part of any other series of Preferred Shares. Unless
otherwise provided in the resolution or resolutions of the Board of Directors
providing for the issue thereof, the number of authorized shares of any series
of Preferred Shares may be increased or decreased (but not below the number of
shares thereof then outstanding) by resolution or resolutions of the Board of
Directors and appropriate filing and recording to the extent required by law. In
case the number of shares of any such series of Preferred Shares shall be
decreased, the shares representing such decrease shall, unless otherwise
provided in the resolution or resolutions of the Board of Directors providing
for the issuance thereof, resume the status of authorized but unissued Preferred
Shares, undesignated as to series.
4.2 The designations, relative rights, voting powers, preferences
and restrictions granted to or imposed upon the Common Shares and Cumulative
Preferred Shares, which shall be subject to the rights granted to any series of
Preferred Shares in the resolutions authorizing the series, are as follows:
(a) Voting. Except as expressly set forth in sub-division (f) below
and except as otherwise provided in the resolutions authorizing any series
of Preferred Shares or by law, the holders of Common Shares shall have the
sole voting rights of shareholders of the corporation and shall be
entitled to one vote for each share held. The shareholders of the
corporation shall have no right to cumulate votes for the election of
directors.
(b) No Pre-emptive Rights. Except as provided in the resolutions
authorizing any series of Preferred Shares, no holders of any share of
stock of any class of this corporation shall have any pre-emptive right to
subscribe to any issue of shares of any class of this corporation now or
hereafter authorized or any security hereafter issued by this corporation
convertible into shares of this corporation.
(c) Dividends. The holders of Cumulative Preferred Shares shall be
entitled to receive out of any assets legally available therefor, when and
as declared by the Board of Directors, fixed cumulative dividends at the
rate of five percent (5%) per annum upon the par value thereof, and no
more, payable semiannually on January 1 and July 1 of each year. Such
dividends shall be cumulative from January 1, 1969.
In no event shall any dividend be paid or declared (other than
dividends payable in Common Shares of any class), nor shall any
distribution be made on the Common Shares of any class of the corporation,
nor shall any Common Shares of any class be purchased, redeemed or
otherwise acquired by the corporation for value unless all dividends on
the Cumulative Preferred Shares for all past semiannual dividend periods
and for the then current semiannual dividend period shall have been paid,
or declared and a sum sufficient for the payment thereof set apart for
payment.
Subject to the provisions of this Article 5 and not otherwise,
dividends may be declared by the Board of Directors and paid from time to
time, out of any funds legally available therefor, upon the Common Shares,
and the holders of Cumulative Preferred Shares shall not be entitled to
participate in any such dividends.
(d) Redemption. The Cumulative Preferred Shares of the corporation
may be redeemed as a whole at any time or in part from time to time at the
option of the corporation by resolution of the Board of Directors at the
redemption price of $105 per share together with an amount equal to all
accrued and unpaid cumulative dividends thereon from the date on which
dividends thereon became cumulative to the redemption date. If less than
all of the outstanding Cumulative Preferred Shares are to be redeemed, the
shares to be redeemed shall be selected by the Board of Directors or by a
person appointed for such purpose by the Board of Directors.
Notice of every redemption of Cumulative Preferred Shares shall be
mailed addressed to the holders of record of the shares to be redeemed at
their respective addresses as they appear on the stock books of the
corporation not less than thirty (30) and not more than sixty (60) days
prior to the date fixed for redemption.
If notice of redemption shall have been duly given as aforesaid and
if on or before the redemption date specified in the notice, all funds
necessary for the redemption shall have been deposited in trust with a
bank or trust company in good standing and doing business at any place
within the United States, and designated in the notice of redemption, for
the pro rata benefit of the shares so called for redemption, so as to be
and continue to be available therefor, then, from and after the date of
such deposit, notwithstanding that any certificate for Cumulative
Preferred Shares so called for redemption shall not have been surrendered
for cancellation, the shares represented thereby shall no longer be deemed
outstanding, and the dividends thereon shall cease to accumulate from and
after the date fixed for redemption, and all rights with respect to the
Cumulative Preferred Shares so called for redemption shall forthwith, on
the date of such deposit, cease and terminate except only the right of the
holders thereof to receive the redemption price of the shares so redeemed,
including accrued cumulative dividends to the redemption date, but without
interest. Any funds deposited by the corporation pursuant to this
paragraph and unclaimed at the end of six (6) years after the date fixed
for redemption shall be repaid to the corporation upon its request
expressed in a resolution of its Board of Directors, after which repayment
the holders of the shares so called for redemption shall look only to the
corporation for the payment thereof.
(e) Dissolution, Liquidation, etc. In the event of any dissolution,
liquidation or winding up of the affairs of the corporation, before any
distribution or payment shall be made to the holders of Common Shares, the
holders of the Cumulative Preferred Shares shall be entitled to be paid in
full the par value thereof if such liquidation, dissolution or winding up
shall be involuntary, and the sum of $105 per share if such liquidation,
dissolution or winding up shall be voluntary, together, in either event,
with a sum, in the case of each share, equal to the cumulative accrued and
unpaid dividends thereon to the date fixed for such distribution or
payment. If such distribution or payment shall have been made to the
holders of the Cumulative Preferred Shares or moneys made available for
such payment in full, the remaining assets and funds of the corporation
shall be distributed ratably to the holders of the Common Shares. If there
shall be insufficient assets to make full payment to the holders of
Cumulative Preferred Shares as above provided, the assets of the
corporation shall be distributed among the holders of Cumulative Preferred
Shares ratably. Except as herein otherwise expressly provided, the
Cumulative Preferred Shares shall not be entitled to participate in any of
the profits, surplus or assets of the corporation. The consolidation or
merger of the corporation into or with any other corporation or
corporations pursuant to the statutes of the State of Minnesota shall not
be deemed a liquidation, dissolution or winding up of the affairs of the
corporation within the meaning of any of the provisions of this paragraph.
(f) Special Voting Rights. The holders of Cumulative Preferred Shares
shall not be entitled as such to vote at any meeting of the shareholders of
the corporation except as required by law or as hereinafter otherwise
provided.
(i) If an amendment to the Articles of Incorporation of the
corporation would adversely affect the rights of the holders
of Cumulative Preferred Shares, then in addition to the vote
thereon by the holders of the Common Shares, the holders of
Cumulative Preferred Shares shall be entitled to vote
separately as a class thereon, and such amendment shall be
adopted only if it receives the affirmative vote of the
holders of a majority of the Cumulative Preferred Shares.
(ii) After an amount equivalent to three (3) full semi-annual
dividend installments of the Cumulative Preferred Shares shall
be in default, the holders of Cumulative Preferred Shares at
the time outstanding, voting separately as a class shall, at
any annual meeting of the shareholders or any special meeting
of the shareholders called as herein provided occurring during
such period, elect two (2) members of the Board of Directors,
and the holders of the Common Shares, voting separately as a
class, shall elect the remaining directors of the corporation.
(iii) After an amount equivalent to six (6) full semi-annual
dividend installments of the Cumulative Preferred Shares shall
be in default, the holders of Cumulative Preferred Shares,
voting separately as a class, shall, at any annual meeting of
the shareholders or any special meeting of the shareholders
called as herein provided occurring during such period, elect
the smallest number of directors necessary to constitute a
majority of the full Board of Directors, and the holders of
the Common Shares, voting separately as a class, shall elect
the remaining directors of the corporation.
At any annual meeting or special meeting of shareholders for the
election of directors occurring after all cumulative dividends then in
default on the Cumulative Preferred Shares then outstanding, including the
dividend for the then current semi-annual period, shall have been paid, or
declared and set apart for payment, the Cumulative Preferred Shares shall
thereupon be divested of any rights with respect to the election of
directors as above provided, but always subject to the same provisions for
the revesting of such voting power in the Cumulative Preferred Shares in
the case of a future like default or defaults in dividends on Preferred
Shares.
Voting power for the election of directors vested in the holders of
the Cumulative Preferred Shares as above provided may be exercised at any
annual meeting of shareholders or at a special meeting of shareholders
held for such purpose, which special meeting of shareholders shall be
called by the proper officers of the corporation at any time when such
voting power shall be vested within twenty (20) days after written request
therefor signed by the holder or holders of not less than ten percent
(10%) of the Cumulative Preferred Shares then outstanding, the date of
such special meeting to be not more than twenty (20) days from the date of
giving notice thereof, and such notice shall be given to all holders of
Cumulative Preferred Shares and Common Shares not less than ten (10) days
prior to said meeting. In each such case such notice shall direct
attention to the voting rights of the holders of Cumulative Preferred
Shares. At any such meeting the presence in person or by proxy of the
holders of a majority of the Cumulative Preferred Shares outstanding shall
be required to constitute a quorum for the election of directors whom the
holders of Cumulative Preferred Shares are entitled to elect and,
likewise, the presence in person or by proxy of the holders of a majority
of the Common Shares outstanding shall be required to constitute a quorum
for the election of directors whom the holder of Common Shares are
entitled to elect; provided that either the Cumulative Preferred
shareholders or the Common shareholders who are present in person or by
proxy at such a meeting shall have power to adjourn such meeting for the
election of directors to be elected by them from time to time, without
notice other than announcement at the meeting and, provided further, that
the adjournment of the meeting for lack of a quorum of the Common
shareholders shall not prevent the election at that meeting of the
directors whom the Cumulative Preferred shareholders are entitled to elect
if there is a quorum of the Cumulative preferred shareholders.
If at any time the holders of Cumulative Preferred Shares shall
become entitled to elect two (2) directors or a majority of the Board of
Directors as aforesaid, the terms of all incumbent directors shall expire
whenever such two (2) directors or such majority have been duly elected
and qualified.
Whenever the Cumulative Preferred Shares shall be divested of voting
power with respect to the election of directors the terms of all then
incumbent directors shall expire upon the election of a new board by the
holders of Common Shares at the next annual or special meeting for the
election of directors.
If a vacancy or vacancies in the Board of Directors shall exist with
respect to a director or directors elected by the Cumulative Preferred
shareholders, the remaining director or directors elected by the
Cumulative Preferred shareholders may, by the vote of such remaining
director if there be but one, or by the vote of a majority of such
remaining directors if there be more than one, elect a successor or
successors to hold office for the unexpired term. Likewise, a vacancy or
vacancies existing with respect to directors elected by the Common
shareholders may be filled by the remaining director or directors elected
by the Common shareholders.
ARTICLE 5
5.1 Whether or not a vote of shareholders is otherwise required, the
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of "Voting Stock" (as hereafter defined) of the corporation shall be
required for the approval or authorization of any "Business Combination" (as
hereafter defined) with any Related Person (as hereafter defined) involving the
corporation or the approval or authorization by the corporation in its capacity
as a shareholder of any Business Combination involving a "Subsidiary" (as
hereafter defined) which requires the approval or authorization of the
shareholders of the Subsidiary; provided, however, that the two-thirds voting
requirement shall not be applicable if:
(a) The "Continuing Directors" (as hereafter defined) by a majority
vote have expressly approved the Business Combination; or
(b) The Business Combination is a merger, consolidation, exchange of
shares or sale of all or substantially all of the assets of the
corporation and the cash or fair market value (determined as of the
effective date of such Business Combination or, in the case of a sale of
assets as of the date of the distribution of the proceeds of the sale to
the shareholders of the corporation) of the property, securities or other
consideration to be received per share by holders of common stock of the
corporation other than the Related Person is not less than the highest per
share price (with appropriate adjustments for recapitalizations, stock
splits, stock dividends and like distributions), paid by the Related
Person in acquiring any of its holdings of the corporation's common stock
during the two-year period prior to the effective date of the Business
Combination or the distribution of the proceeds of a sale of assets.
5.2 For the purposes of this Article 6:
(a) The term "Business Combination" shall mean
(i) any merger or consolidation of the corporation or a
Subsidiary with or into a Related Person,
(ii) any exchange of shares of the corporation or a Subsidiary
for shares of a Related Person which, in the absence of this
Article, would have required the affirmative vote of at least
a majority of the voting power of the outstanding shares of
the corporation entitled to vote or the affirmative vote of
the corporation, in its capacity as a shareholder of the
Subsidiary,
(iii) any sale, lease, exchange, transfer or other disposition
(in one transaction or a series of transactions), including,
without limitation, a mortgage or any other security device,
of all or any "Substantial Part" (as hereinafter defined) of
the assets either of the corporation (including, without
limitation, any voting securities of a Subsidiary) or of a
Subsidiary, to or with a Related Person,
(iv) any sale, lease, exchange, transfer or other disposition
(in one transaction or a series of transactions) of all or any
Substantial Part of the assets of a Related Person to or with
the corporation or a Subsidiary,
(v) the issuance of any securities to a Related Person (except
pursuant to stock dividends, stock splits or similar
transactions which would not have the effect of increasing the
proportionate voting power of a Related Person) of the
corporation, or of a Subsidiary (except pursuant to a pro rata
distribution to all holders of common stock of the
corporation),
(vi) any recapitalization or reclassification that would have
the effect of increasing the voting power of a Related Person,
and
(vii) any agreement, contract or other arrangement providing
for any of the transactions described in this definition of
Business Combination.
(b) The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with
its "Affiliates" and "Associates" (as defined on February 24, 1984 by Rule
12b-2 under the Securities Exchange Act of 1934), "Beneficially Owns" (as
defined on February 24, 1984 by Rule 13d-3 under the Securities Exchange
Act of 1934) in the aggregate 15 percent or more of the outstanding Voting
Stock of the corporation, and any Affiliate or Associate (other than the
corporation or a wholly-owned subsidiary of the corporation) of any such
individual, corporation, partnership or other person or entity.
(c) The term "Substantial Part" shall mean more than 30 percent of
the fair market value of the total assets of the corporation in question,
as of the end of its most recent fiscal year ending prior to the time the
determination is being made.
(d) Without limitation, any shares of common stock of the
corporation that any Related Person has the right to acquire pursuant to
any agreement, or upon exercise of conversion rights, warrants or options,
or otherwise, shall be deemed beneficially owned by the Related Person.
(e) The term "Subsidiary" shall mean any corporation, a majority of
the equity securities of any class of which are owned by the corporation,
by another Subsidiary, or in the aggregate by the corporation and one or
more of its Subsidiaries.
(f) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the corporation entitled to vote generally in the
election of directors and each reference to a proportion of shares of
Voting Stock shall refer to such proportion of the votes entitled to be
cast by such shares.
(g) The term "Continuing Director" shall mean (i) a director who was
a member of the Board of Directors of the corporation either on February
24, 1984 or immediately prior to the time that any Related Person involved
in the Business Combination in question became a Related Person and (ii)
any person becoming a director whose election, or nomination for election
by the corporation's shareholders, was approved by a vote of a majority of
the Continuing Directors; provided, however, that in no event shall a
Related Person involved in the Business Combination in question be deemed
to be a Continuing Director.
5.3 For the purposes of this Article 6 the Continuing Directors by a
majority vote shall have the power to make a good faith determination, on the
basis of information known to them, of: (i) the number of shares of Voting Stock
of the corporation that any person or entity Beneficially Owns, (ii) whether a
person or entity is an Affiliate or Associate of another, (iii) whether the
assets subject to any Business Combination constitute a Substantial Part, (iv)
whether any business transaction is one in which a Related Person has an
interest, (v) whether the cash or fair market value of the property, securities
or other consideration to be received per share by holders of capital stock of
the corporation other than the Related Person in a Business Combination is an
amount at least equal to the highest per share price paid by the Related Person
and (vi) such other matters with respect to which a determination is required
under this Article 6.
5.4 The provisions set forth in this Article 6 may not be repealed
or amended in any respect, unless such action is approved by the affirmative
vote of the holders of not less than two-thirds of the outstanding shares of
Voting Stock of the corporation.
ARTICLE 6
6.1 The number of directors shall initially be ten and, thereafter,
shall be fixed from time to time by the Board of Directors or by the affirmative
vote of the holders of two-thirds of the voting power of the outstanding capital
stock of the corporation, voting together as a single class. The directors shall
be divided into three classes, as nearly equal in number as reasonably possible,
with the term of office of the first class to expire at the 1988 annual meeting
of shareholders, the term of office of the second class to expire at the 1989
annual meeting of shareholders and the term of office of the third class to
expire at the 1990 annual meeting of shareholders. At each annual meeting of
shareholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of shareholders
after their election.
6.2 Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled by a majority vote of the directors then in
office though less than a quorum, and directors so chosen shall hold office for
a term expiring at the next annual meeting of shareholders. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
6.3 Any directors, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of the proportion or number of the voting power of the shares of the
classes or series the director represents sufficient to elect them.
6.4 The provisions of this Article 7 may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of the capital
stock of the corporation entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE 7
7. No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article 8
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 302A.559 of the Minnesota Business
Corporation Act or Section 80A.23 of the Minnesota Securities Law, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article 8 shall apply to or have any effect on
the liability or alleged liability of any director of the corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
ARTICLE 8
8. The Board of Directors of the corporation (the "Board"), when
evaluating any offer of another party, (a) to make a tender or exchange offer
for any Voting Stock (as defined in Article 6) of the corporation or (b) to
effect a Business Combination (as defined in Article 6), shall, in connection
with the exercise of its judgment in determining what is in the best interests
of the corporation as a whole, be authorized to give due consideration to such
factors as the Board determines to be relevant, including, without limitation:
(i) the interests of the corporation's shareholders;
(ii) the social, legal and economic effects upon employees,
suppliers, customers and others having similar relationships
with the corporation, and the communities in which the
corporation conducts its business;
(iii) whether the proposed transaction might violate federal
or state laws; and
(iv) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for
the outstanding capital stock of the corporation, but also the
market price for the capital stock of the corporation over a
period of years, the estimated price that might be achieved in
a negotiated sale of the corporation as a whole or in part of
through orderly liquidation, the premiums over market price
for the securities of other corporations in similar
transactions, current political, economic or other factors
bearing on securities prices and the corporation's financial
condition and future prospects.
In connection with any such evaluation, the Board is authorized to
conduct such investigations and to engage in such legal proceedings as the Board
may determine.
RESTATED BYLAWS
GRACO INC.
(Adopted September 29, 2000)
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Offices. The principal executive office of the corporation
shall be at 88 - 11th Avenue NE, Minneapolis, Minnesota 55413. The corporation
may have such other offices, within or without the State of Minnesota, as the
directors shall, from time to time, determine.
Section 1.02. Corporate Seal. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the corporation and the
word "Minnesota" and the words "Corporate Seal".
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meetings. Meetings of the shareholders shall be
held at the principal executive office of the corporation or at such other place
as may be designated by the directors, except that any meeting called by or at
the demand of a shareholder shall be held in the county in which the principal
executive office of the corporation is located.
Section 2.02. Regular Meetings. A regular meeting of the shareholders
shall be held on an annual basis on such date and at such time as the Board of
Directors shall by resolution establish. At a regular meeting the shareholders
shall elect qualified successors for directors whose terms have expired or are
due to expire within six months after the date of the meeting and shall transact
such other business as may properly come before them.
Section 2.03. Special Meetings. Special meetings of the shareholders may
be held at any time and for any purpose and may be called by the chief executive
officer, the chief financial officer, two or more directors or a shareholder or
shareholders holding 10% or more of the voting power of all shares entitled to
vote, except that a special meeting called by a shareholder or shareholders for
the purpose of considering any action to directly or indirectly facilitate or
effect a business combination, including any action to change or otherwise
affect the composition of the Board of Directors for that purpose, must be
called by a shareholder or shareholders holding 25% or more of the voting power
of all shares entitled to vote. A shareholder or shareholders holding the
requisite percentage of the voting power may demand a special meeting of the
shareholders by written notice given to the chief executive officer or chief
financial officer of the corporation stating the purposes of the meeting. Within
30 days after receipt of such a demand by one of those officers, the Board of
Directors shall cause a special meeting of shareholders to be called and held on
notice not later than 90 days after receipt of the demand, at the expense of the
corporation. Special meetings shall be held on the date and at the time and
place fixed by the chief executive officer, the chief financial officer or the
Board of Directors, except that a special meeting called by or at demand of a
shareholder or shareholders shall be held in the county where the principal
executive office is located. The business transacted at a special meeting shall
be limited to the purposes stated in the notice of the meeting.
Section 2.04. Quorum, Action by Shareholders. The holders of a majority of
the shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. All questions shall be decided by a
majority vote of the number of shares entitled to vote and represented at the
meeting at the time of the vote unless otherwise required by statute, the
Articles of Incorporation, or these Bylaws.
Section 2.05. Adjourned Meetings. In case a quorum shall not be present at
a meeting, those present may adjourn the meeting to such day as they shall, by
majority vote, agree upon, and a notice of such adjournment and the date and
time at which such meeting shall be reconvened shall be mailed to each
shareholder entitled to vote at least 5 days before such adjourned meeting. If a
quorum is present, a meeting may be adjourned from time to time without notice
other than announcement at the meeting. At adjourned meetings at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally noticed. If a quorum is present, the shareholders may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.06. Voting. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder shall have one vote for each share having voting
power registered in such shareholder's name on the books of the corporation.
Jointly owned shares may be voted by any joint owner unless the corporation
receives written notice from any one of them denying the authority of that
person to vote the shares. Upon the demand of any shareholder, the vote upon any
question before the meeting shall be by ballot.
Section 2.07. Closing of Books. The Board of Directors may fix a date not
more than 60 days preceding the date of any meeting of shareholders, as the date
(the "record date") for the determination of the shareholders entitled to notice
of, and to vote at, such meeting. When a record date is so fixed, only
shareholders as of that date are entitled to notice of and permitted to vote at
that meeting of shareholders.
Section 2.08. Notice of Meetings. Except as otherwise specified in Section
2.05 or required by law, written notice of each meeting of the shareholders,
stating the date, time and place and, in the case of a special meeting, the
purpose or purposes, shall be given at least ten days and not more than sixty
days prior to the meeting to every holder of shares entitled to vote at such
meeting. The business transacted at a special meeting of shareholders is limited
to the purposes stated in the notice of the meeting.
Section 2.09. Waiver of Notice. Notice of any regular or special meeting
may be waived by any shareholder either before, at or after such meeting orally
or in a writing signed by such shareholder or a representative entitled to vote
the shares of such shareholder. Attendance by a shareholder, at any meeting of
shareholders, is a waiver of notice of such meeting, except where the
shareholder objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened or the item may
not lawfully be considered at that meeting and the shareholder does not
participate in the consideration of the item at that meeting.
Section 2.10. Advance Notice of Shareholder Proposals. As provided in
Section 2.03, the business conducted at any special meeting of shareholders of
the corporation shall be limited to the purposes stated in the notice of the
special meeting pursuant to Section 2.08. At any regular meeting of shareholders
of the corporation, only such business (other than the nomination and election
of directors, which shall be subject to Section 3.15) may be conducted as shall
be appropriate for consideration at the meeting of shareholders and shall have
been brought before the meeting (i) by or at the direction of the Board of
Directors, or (ii) by any shareholder of the corporation entitled to vote at the
meeting who complies with the notice procedures hereinafter set forth in this
section.
(a) Timing of Notice. For such business to be properly brought before
any regular meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the secretary of the
corporation. To be timely, a shareholder's notice of any such
business to be conducted at an annual shareholders meeting must
be delivered to the secretary of the corporation, or mailed and
received at the principal executive office of the corporation,
not less than 90 days before the first anniversary of the date of
the preceding year's annual shareholders meeting of shareholders.
If, however, the date of the annual shareholders meeting of
shareholders is more than 30 days before or after such
anniversary date, notice by a shareholder shall be timely only if
so delivered or so mailed and received not less than 90 days
before such annual shareholders meeting or, if later, within 10
days after the first public announcement of the date of such
annual shareholders meeting. To be timely, a shareholder's notice
of any such business to be conducted at a regular meeting other
than an annual shareholders meeting must be delivered to the
secretary of the corporation, or mailed and received at the
principal executive office of the corporation, not less than 90
days before such regular meeting or, if later, within 10 days
after the first public announcement of the date of such regular
meeting. Except to the extent otherwise required by law, the
adjournment of a regular meeting of shareholders shall not
commence a new time period for the giving of a shareholder's
notice as required above.
(b) Content of Notice. A shareholder's notice to the corporation
shall set forth as to each matter the shareholder proposes to
bring before the regular meeting (i) a brief description of the
business desired to be brought before the meeting and the reasons
for conducting such business at the meeting, (ii) the name and
address, as they appear on the corporation's books, of the
shareholder proposing such business, (iii) the class of series
(if any) and number of shares of the corporation that are
beneficially owned by the shareholder, (iv) any material interest
of the shareholder in such business, and (v) a representation
that the shareholder is a holder of record of shares entitled to
vote at the meeting and intends to appear in person or by proxy
at the meeting to make the proposal.
(c) Consequences of Failure to Give Timely Notice. Notwithstanding
anything in these Bylaws to the contrary, no business (other than
the nomination and election of directors) shall be conducted at
any regular meeting except in accordance with the procedures set
forth in this Section. The officer of the corporation chairing
the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the
meeting in accordance with the procedures described in this
Section and, if such officer should so determine, such officer
shall so declare to the meeting, and any such business not
properly brought before the meeting shall not be transacted.
Nothing in this Section shall be deemed to preclude discussion by
any shareholder of any business properly brought before the
meeting in accordance with these Bylaws.
(d) Public Announcement. For purposes of this Section and Section
3.15, "public announcement" means disclosure (i) when made in a
press release reported by the Dow Jones News Service, Associated
Press, or comparable national news service, (ii) when filed in a
document publicly filed by the corporation with the Securities
and Exchange Commission pursuant to Section 13, 14, or 15(d) of
the Securities Exchange Act of 1934, as amended, or (iii) when
mailed as the notice of the meeting pursuant to Section 2.08.
(e) Compliance with Law. Notwithstanding the foregoing provisions of
this Section, a shareholder shall also comply with all applicable
requirements of Minnesota law and the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors.
Section 3.02. Number, Qualification and Term of Office. The number of
directors shall initially be ten and, thereafter, shall be fixed from time to
time by the Board of Directors or by the affirmative vote of the holders of
two-thirds of the voting power of the outstanding capital stock of the
corporation, voting together as a single class. The directors shall be divided
into three classes, as nearly equal in number as reasonably possible, with the
term of office of the first class to expire at the 1988 annual meeting of
shareholders, the term of office of the second class to expire at the 1989
annual meeting of shareholders and the term of office of the third class to
expire at the 1990 annual meeting of shareholders. At each annual meeting of
shareholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of shareholders
after their election.
Section 3.03. Board Meetings. Meetings of the Board of Directors may
be held from time to time at such time and place as may be designated in the
notice of such meeting.
Section 3.04. Calling Meetings; Notice. Meetings of the Board of Directors
may be called by the chief executive officer by giving at least twenty-four
hours' notice, or by any other director by giving at least five day's notice, of
the date, time and place thereof to each director by mail, telephone, telegram
or in person. If the day or date, time and place of a Board meeting have been
announced at a previous meeting of the Board, no notice is required. Notice of
an adjourned meeting need not be given other than by announcement at the meeting
at which adjournment is taken of the date, time and place at which the meeting
will be reconvened.
Section 3.05. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by any director either before, at, or after such meeting
orally or in a writing signed by such director. A director, by his attendance at
any meeting of the Board of Directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting or conference of the Board of Directors, or of any
duly constituted committee thereof, by any means of communication through which
the directors may simultaneously hear each other during such meeting. For the
purposes of establishing a quorum and taking any action, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting.
Section 3.09. Vacancies. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
by a majority vote of the directors then in office though less than a quorum,
and directors so chosen shall hold office for a term expiring at the next annual
meeting of shareholders. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
Section 3.10. Removal. Any directors, or the entire Board of Directors,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of the proportion or number of the voting power
of the shares of the classes or series the director represents sufficient to
elect them.
Section 3.11. Committees. A resolution approved by the affirmative vote of
a majority of the Board of Directors may establish committees having the
authority of the Board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors, except as provided by Section 3.12 and by Minnesota Statutes Section
302A.243. A majority of the members of the committee holding office immediately
prior to a meeting of the committee shall constitute a quorum for the
transaction of business, unless a larger or smaller proportion or number is
provided in the resolution establishing the committee.
Section 3.12. Committee of Disinterested Persons. Pursuant to the
procedure set forth in Section 3.11, the Board may establish a committee
composed of two or more disinterested directors or other disinterested persons
to determine whether it is in the best interests of the corporation to pursue a
particular legal right or remedy of the corporation and whether to cause the
dismissal or discontinuance of a particular proceeding that seeks to assert a
right or remedy on behalf of the corporation. The committee, once established,
is not subject to the direction or control of, or termination by, the Board. A
vacancy on the committee may be filled by a majority of the remaining committee
members. The good faith determinations of the committee are binding upon the
corporation and its directors, officers and shareholders. The committee
terminates when it issues a written report of its determination to the Board.
Section 3.13. Written Action. Any action which might be taken at a meeting
of the Board of Directors, or any duly constituted committee thereof, may be
taken without a meeting if done in writing and signed by all of the directors or
committee members, unless the Articles provide otherwise and the action need not
be approved by the shareholders.
Section 3.14. Compensation. The Board may fix the compensation, if any, of
directors.
Section 3.15. Nomination of Director Candidates. Only persons who are
nominated in accordance with the procedures set forth in this Section 3.15 shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the corporation may be made at a meeting of
shareholders (i) by or at the direction of the Board of Directors, or (ii) by
any shareholder of the corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures hereinafter set
forth in this Section.
(a) Timing of Notice. Nominations by shareholders shall be made
pursuant to timely notice in writing to the secretary of the
corporation. To be timely, a shareholder's notice of nominations
to be made at an annual shareholders meeting of shareholders must
be delivered to the secretary of the corporation, or mailed and
received at the principal executive office of the corporation,
not less than 90 days before the first anniversary date of the
preceding year's annual shareholders meeting of shareholders. If,
however, the date of the annual shareholders meeting of
shareholders is more than 30 days before or after such
anniversary date, notice by a shareholder shall be timely only if
so delivered or so mailed and received not less than 90 days
before such annual shareholders meeting or, if later, within 10
days after the first public announcement of the date of such
annual shareholders meeting. If a special meeting of shareholders
of the corporation is called in accordance with Section 2.03 for
the purpose of electing one or more directors to the Board of
Directors or if a regular meeting other than an annual
shareholders meeting is held, for a shareholder's notice of
nominations to be timely it must be delivered to the secretary of
the corporation, or mailed and received at the principal
executive office of the corporation, not less than 90 days before
such special meeting or such regular meeting or, if later, within
10 days after the first public announcement of the date of such
special meeting or such regular meeting. Except to the extent
otherwise required by law, the adjournment of a regular or
special meeting of shareholders shall not commence a new time
period for the giving of a shareholder's notice as described
above.
(b) Content of Notice. A shareholder's notice to the corporation of
nominations for a regular or special meeting of shareholders
shall set forth (x) as to each person whom the shareholder
proposes to nominate for election or re-election as a director:
(i) such person's name, age, business address and residence
address and principal occupation or employment, (ii) all other
information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors,
or that is otherwise required, pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended, and (iii) such
person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; and (y) as to
the shareholder giving the notice: (i) the name and address, as
they appear on the corporation's books, or such shareholder, (ii)
the class or series (if any) and number of shares of the
corporation that are beneficially owned by such shareholder, and
(iii) a representation that the shareholder is a holder of record
of shares of the corporation entitled to vote for the election of
directors and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director
shall furnish to the secretary of the corporation the information
required to be set forth in a shareholder's notice of nomination
that pertains to a nominee.
(c) Consequences of Failure to Give Timely Notice. Notwithstanding
anything in these Bylaws to the contrary, no person shall be
eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this
Section. The officer of the corporation chairing the meeting
shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures
prescribed in this Section and, if such officer should so
determine, such officer shall so declare to the meeting, and the
defective nomination shall be disregarded.
ARTICLE IV.
OFFICERS
Section 4.01. Number and Designation. The corporation shall have one or
more natural persons exercising the functions of the offices of chief executive
officer and chief financial officer. The Board of Directors may elect or appoint
such other officers or agents as it deems necessary for the operation and
management of the corporation, with such powers, rights, duties and
responsibilities as may be determined by the Board, including, without
limitation, a Chairman of the Board, a President, one or more Vice Presidents, a
Secretary, A Treasurer, and such assistant officers or other officers as may
from time to time, be elected or appointed by the Board. Each such officer shall
have the powers, rights, duties and responsibilities set forth in these Bylaws
unless otherwise determined by the Board. Any number of offices may be held by
the same person.
Section 4.02. Chief Executive Officer. Either the Chairman of the Board,
the President or another officer of the corporation may be designated from time
to time by the Board to be the chief executive officer of the corporation.
Unless provided otherwise by a resolution adopted by the Board of Directors, the
chief executive officer (a) shall have general active management of the business
of the corporation; (b), shall, when present, preside at all meetings of the
shareholders; (c) shall see that all orders and resolutions of the Board are
carried into effect; (d) shall sign and deliver in the name of the corporation
any deeds, mortgages, bonds, contracts or other instruments pertaining to the
business of the corporation, except in cases in which the authority to sign and
deliver is required by law to be exercised by another person or is expressly
delegated by these Bylaws or the Board to some other officer or agent of the
corporation; (e) may maintain records of and certify proceedings of the Board
and shareholders; and (f) shall perform such other duties as may from time to
time be assigned to him by the Board.
Section 4.03. Chief Operating Officer. The chief operating officer (if one
is elected by the Board) shall be either the President or a Vice President. He
shall be responsible for the management of all of the operations of the
corporation's business and shall have such other authority and duties as the
Board of Directors or the chief executive officer from time to time may
prescribe. He shall report to the chief executive officer and be responsible to
him. He may also execute and deliver in the name of the corporation any
instruments or documents pertaining to the business of the corporation which
could be executed by the chief executive officer.
Section 4.04. Chief Financial Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the chief financial officer (a)
shall keep accurate financial records for the corporation; (b) shall deposit all
monies, drafts and checks in the name of and to the credit of the corporation in
such banks and depositories as the Board of Directors shall designate from time
to time; (c) shall endorse for deposit all notes, checks and drafts received by
the corporation as ordered by the Board, making proper vouchers therefor; (d)
shall disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation; and (f) shall perform such other duties as may be prescribed by the
Board of Directors or the chief executive officer from time to time.
Section 4.05. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside at all meetings of the directors and shall have such
other duties as may be prescribed, from time to time, by the Board of Directors.
Section 4.06. President. Unless otherwise determined by the Board, the
President shall be the chief executive officer of the corporation and shall
supervise and control the business affairs of the corporation. If an officer
other than the President is designated chief executive officer, the President
shall perform such duties as may from time to time be assigned to him by the
Board.
Section 4.07. Vice President. The Board of Directors may designate one or
more Vice Presidents, who shall have such designations and powers and shall
perform such duties as prescribed by the Board of Directors or by the President.
In the event of the absence or disability of the President, Vice Presidents
shall succeed to his power and duties in the order designated by the Board of
Directors.
Section 4.08. Secretary. The Secretary shall be secretary of and shall
attend all meetings of the shareholders and Board of Directors and shall record
all proceedings of such meetings in the minute book of the corporation. Except
as otherwise required or permitted by statute or by these Bylaws, the Secretary
shall give notice of meetings of shareholders and directors. The Secretary shall
perform such other duties as may, from time to time, be prescribed by the Board
of Directors or by the chief executive officer.
Section 4.09. Treasurer. Unless otherwise determined by the Board, the
Treasurer shall be the Chief Financial Officer of the Corporation. If an officer
other than the Treasurer is designated Chief Financial Officer, the Treasurer
shall perform such duties as may from time to time be assigned to him by the
Board.
Section 4.10. Authority and Duties. In addition to the foregoing authority
and duties, all officers of the corporation shall respectively have such
authority and perform such duties in the management of the business of the
corporation as may be determined from time to time by the Board of Directors.
Unless prohibited by a resolution of the Board of Directors, an officer elected
or appointed by the Board may, without specific approval of the Board, delegate
some or all of the duties and powers of an office to other persons.
Section 4.11. Removal and Vacancies. Any officer may be removed from his
office by the Board of Directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.12. Compensation. The officers of this corporation shall receive
such compensation for their services as may be determined by or in accordance
with resolutions of the Board of Directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation shall
be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the President or any Vice President and by the Secretary or an
Assistant Secretary or by such officers as the Board of Directors may designate.
If the certificate is signed by a transfer agent or registrar, such signatures
of the corporate officers may be facsimiles, engraved or printed. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 5.03.
Section 5.02. Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation, the person or persons in whose name shares are registered on the
books of the corporation. The Board of Directors may appoint one or more
transfer agents and registrars to maintain the share records of the corporation
and to effect share transfers on its behalf.
Section 5.03. Loss of Certificates. Any shareholder claiming a certificate
for shares to be lost, stolen or destroyed shall make an affidavit of that fact
in such form as the Board of Directors shall require and shall, if the Board of
Directors so requires, give the corporation a bond of indemnity in form, in an
amount, and with one or more sureties satisfactory to the Board of Directors, to
indemnify the corporation against any claim which may be made against it on
account of the reissue of such certificate, whereupon a new certificate may be
issued in the same tenor and for the same number of shares as the one alleged to
have been lost, stolen or destroyed.
ARTICLE VI.
DIVIDENDS, RECORD DATE
Section 6.01. Dividends. The Board of Directors shall have the authority to
declare dividends and other distributions upon shares to the extent permitted by
law.
Section 6.02. Record Date. The Board of Directors may fix a date not
exceeding 60 days preceding the date fixed for the payment of any dividend as
the record date for the determination of the shareholders entitled to receive
payment of the dividend and, in such case, only shareholders of record on the
date so fixed shall be entitled to receive payment of such dividend.
ARTICLE VII.
SECURITIES OF OTHER CORPORATIONS.
Section 7.01. Voting Securities Held by the Corporation. The chief
executive officer shall have full power and authority on behalf of the
corporation (a) to attend any meeting of security holders of other corporations
in which the corporation may hold securities and to vote such securities on
behalf of this corporation; (b) to execute any proxy for such meeting on behalf
of the corporation; or (c) to execute a written action in lieu of a meeting of
such other corporation on behalf of this corporation. At such meeting, the chief
executive officer shall possess and may exercise any and all rights and powers
incident to the ownership of such securities that the corporation possesses. The
Board of Directors or the chief executive officer may, from time to time, confer
or delegate such powers to one or more other persons.
Section 7.02. Purchase and Sale of Securities. The chief executive officer
shall have full power and authority on behalf of the corporation to purchase,
sell, transfer or encumber any and all securities of any other corporation owned
by the corporation, and may execute and deliver such documents as may be
necessary to effectuate such purchase, sale, transfer or encumbrance. The Board
of Directors or the chief executive officer may, from time to time, confer or
delegate such powers to one or more other persons.
ARTICLE VIII.
INDEMNIFICATION OF CERTAIN PERSONS
Section 8.01. The corporation shall indemnify officers and directors, for
such expenses and liabilities, in such manner, under such circumstances, and to
such extent as permitted by Minnesota Statutes Section 302A.521, as now enacted
or hereafter amended.
ARTICLE IX.
AMENDMENTS
Section 9.01. These Bylaws may be amended or altered by the Board of
Directors at any meeting if notice of such proposed amendment shall have been
given in the notice of such meeting. Such authority in the Board of Directors is
subject to (a) the limitations imposed by Minnesota Statutes Section 302A.181,
as now enacted or hereafter amended, or other applicable law and (b) the power
of the shareholders to change or repeal such Bylaws by a majority vote of the
shareholders present or represented at any meeting of shareholders called for
such purpose.
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 23nd day of February, 2001, by and between Graco
Inc., a Minnesota corporation (the "Company") and George Aristides (the
"Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Long-Term Stock Incentive 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 40,000 shares of Common Stock of the Company, par value
$1.00 per share, at the price of $26.35 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 one (1) year from the date of grant (except as provided in
Section 2B(ii) below). On the first anniversary of the date of
grant, 25% of the option shall become exercisable. This option
shall in all events terminate ten (10) years after the date of
grant.
B. If (i) on May 6, 2002, Employee is a member of the Board of
Directors, (ii) Employee resigns from the Board of Directors
prior to May 6, 2002, pursuant to a request of the Board of
Directors by resolution that the Employee resign from the Board
of Directors, or (iii) Employee dies while a member of the Board
of Directors, the option shall become fully exercisable if it has
not already become fully exercisable under Section 3C hereof, and
shall remain exercisable for a period equal to the duration of
the option (i.e., 10 years from the date of grant)
notwithstanding anything to the contrary in Section 3B or 3C
hereof.
C. 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
is entitled under this option, he 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.
During the lifetime of the Employee, the option shall be
exercisable only by him and shall not be assignable or
transferable by him otherwise than by will or the laws of descent
and distribution.
3. Effect of Termination of Employment or Board Membership
--------------------------------------------------------
A. In the event that Employee shall cease to be employed by the
Company or its subsidiaries, or ceases to be a member of the
Board of Directors, by reason of his gross and willful
misconduct, 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.
B. If the Employee shall die while in the employ of the Company and
shall not have fully exercised the option, all remaining shares
shall become immediately exercisable and such option may be
exercised at any time within twelve months after his 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.
C. If the Employee's termination of employment is due to retirement
or due to disability within the meaning of the provisions of the
Graco Long-Term Disability Plan, subject to the condition that no
option shall be exercisable after the expiration of the terms of
the option, all remaining shares shall become immediately
exercisable and the option may be exercised by the Employee at
any time within three years of the Employee's retirement, subject
to the condition that no option shall be exercisable after the
expiration of the term of the option. 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 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 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.
D. In the event of the death of the Employee prior to the option
becoming fully exercisable pursuant to Section 2B above, if the
Employee at the time of his death is a member of the Board of
Directors, the periods for exercisability of the option in the
event of death in Sections 3B and 3C shall be the term of the
option - i.e., 10 years from the date of grant.
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 shares of Common
Stock of the Company which have been held by the Employee for not
less than six (6) months with a fair market value equal to the
option price. For these purposes, the fair market value of the
Company's Common Stock shall be the closing price of the Common
Stock on the date of exercise on the New York Stock Exchange (the
"NYSE") or on the principal national securities exchange on which
such 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
Stock as reported by the National Association of Securities
Dealers Automated Quotation System. If the Common Stock is 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. If the Committee, as defined in the Company's Long
Term Stock Incentive Plan, has in its discretion determined that the
Employee may do so, such amount may be paid by the Employee by
delivering to the Company for cancellation shares of Common Stock of
the Company with a fair market value equal to the minimum amount of
such withholding tax requirement by (i) electing to have the Company
withhold common shares otherwise to be delivered with a fair market
value equal to the amount of such tax obligation, or (ii) electing to
surrender to the Company previously owned common shares with a fair
market value equal to the amount of such minimum tax obligation.
6. Change of Control
-----------------
A. Notwithstanding Section 2 hereof, the entire option shall become
immediately and fully exercisable on the day following a "Change
of Control" and shall remain fully exercisable until either
exercised or expiring by its terms. A "Change of Control" means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company
Voting Securities");
provided, however, that the following acquisitions will
not result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii) an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by the
Trust Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 6, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including, without
limitations, the Graco Employee Retirement Plan
and the Graco Employee Stock Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition that
causes such Person to own 25% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities
and be deemed a Change of Control; and provided further, that
in the event any acquisition or other transaction occurs
which results in the beneficial ownership of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person,
the Incumbent Board may by majority vote increase the
threshold beneficial ownership percentage to a percentage
above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least a majority of said Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding, however,
such a Business combination pursuant to which
(a) all or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding
Company Common Stock or Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's
assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities
of such corporation except to the extent that such
ownership existed prior to the Business Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent Board
at the time of the execution of the initial Agreement,
or of the action of the Board, providing for such
Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding Company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company shall
be beneficially owned, directly or indirectly, immediately
after a reorganization, merger, consolidation, statutory
share exchange, disposition of assets, liquidation or
dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Employee.
7. Adjustments
If there shall be any change in the number or character of the Common
Stock of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the option shall then be unexercised and not
yet expired, appropriate adjustments in the outstanding option shall
be made by the Company, in order to prevent dilution or enlargement of
option rights. Such adjustments shall include, where appropriate,
changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
8. Miscellaneous
A. This option is issued pursuant to the Company's Long-Term
Stock Incentive 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/her 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:
------------------------------
/S/GEORGE ARISTIDES
------------------------------
Employee
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 23nd day of February, 2001, by and between Graco
Inc., a Minnesota corporation (the "Company") and George Aristides ("Mr.
Aristides").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Long-Term Stock Incentive Plan wishes
to grant this stock option to Mr. Aristides;
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 Mr. Aristides the right and option
(hereinafter called the "option") to purchase all or any part of an
aggregate of 60,000 shares of Common Stock of the Company, par value
$1.00 per share, at the price of $26.35 per share on the terms and
conditions set forth herein.
2. Duration and Exercisability
---------------------------
A. This option shall become exercisable in full (i) on May 6, 2002,
if Mr. Aristides remains a member of the Board of Directors until
that date, or (ii) upon the date of the resignation of Mr.
Aristides from the Board of Directors prior to May 6, 2002, but
only if the Board of Directors has requested by resolution that
Mr. Aristides resign from the Board of Directors. If the option
becomes fully exercisable pursuant to this Section 2A, it shall
remain exercisable for a period equal to the duration of the
option (i.e., 10 years from the date of grant).
B. In the event that Mr. Aristides does not purchase in any one year
the full number of shares of Common Stock of the Company to which
he is entitled under this option, he 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. During the lifetime of Mr. Aristides, the option shall be
exercisable only by him and shall not be assignable or
transferable by him otherwise than by will or the laws of descent
and distribution.
3. Effect of Termination of Board Membership
-----------------------------------------
A. In the event that Mr. Aristides shall cease to be a member of the
Board of Directors, by reason of his gross and willful
misconduct, 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.
B. If Mr. Aristides shall die while a member of the Board of
Directors of the Company and the option granted hereunder shall
not have become fully exercisable, such option shall become fully
exercisable and may be exercised at any time within the term of
this option by the executors or administrators of Mr. Aristides
or by any person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution.
4. Manner of Exercise
------------------
A. The option can be exercised only by Mr. Aristides 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. Mr. Aristides may, at Mr. Aristides' election, pay the option
price either by check (bank check, certified check, or personal
check) or by delivering to the Company for cancellation shares of
Common Stock of the Company which have been held by Mr. Aristides
for not less than six (6) months with a fair market value equal
to the option price. For these purposes, the fair market value of
the Company's Common Stock shall be the closing price of the
Common Stock on the date of exercise on the New York Stock
Exchange (the "NYSE") or on the principal national securities
exchange on which such 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 Stock as reported by the National
Association of Securities Dealers Automated Quotation System. If
the Common Stock is 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. Mr. Aristides 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, Mr. Aristides 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. If the Committee, as defined in the
Company's Long Term Stock Incentive Plan, has in its discretion
determined that Mr. Aristides may do so, such amount may be paid by
Mr. Aristides by delivering to the Company for cancellation shares of
Common Stock of the Company with a fair market value equal to the
minimum amount of such withholding tax requirement by (i) electing to
have the Company withhold common shares otherwise to be delivered with
a fair market value equal to the amount of such tax obligation, or
(ii) electing to surrender to the Company previously owned common
shares with a fair market value equal to the amount of such minimum
tax obligation.
6. Change of Control
-----------------
A. Notwithstanding Section 2 hereof, the entire option shall become
immediately and fully exercisable on the day following a "Change
of Control" and shall remain fully exercisable until either
exercised or expiring by its terms. A "Change of Control" means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities");
provided, however, that the following acquisitions will
not result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii) an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by the
Trust Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does
not result in the beneficial ownership by such
Person of 32% or more of either the Outstanding
Company Common Stock or the Outstanding Company
Voting Securities, and provided further that for
purposes of this Section 6, a Trust Person shall
not be deemed to have beneficial ownership of the
Company common stock or other Company voting
securities owned by The Graco Foundation or any
employee benefit plan of the Company, including,
without limitations, the Graco Employee Retirement
Plan and the Graco Employee Stock Ownership Plan,
(v) an acquisition by Mr. Aristides or any group that
includes Mr. Aristides, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition that
causes such Person to own 25% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities
and be deemed a Change of Control; and provided further, that
in the event any acquisition or other transaction occurs
which results in the beneficial ownership of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person,
the Incumbent Board may by majority vote increase the
threshold beneficial ownership percentage to a percentage
above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least a majority of said Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding, however,
such a Business combination pursuant to which
(a) all or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding
Company Common Stock or Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's
assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities
of such corporation except to the extent that such
ownership existed prior to the Business Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent Board
at the time of the execution of the initial Agreement,
or of the action of the Board, providing for such
Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to Mr. Aristides if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes Mr. Aristides or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding Company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity)
acquiring all or substantially all of the assets of the
Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation,
statutory share exchange, disposition of assets, liquidation
or dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes Mr.
Aristides.
7. Adjustments
-----------
If there shall be any change in the number or character of the Common
Stock of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the option shall then be unexercised and not
yet expired, appropriate adjustments in the outstanding option shall
be made by the Company, in order to prevent dilution or enlargement of
option rights. Such adjustments shall include, where appropriate,
changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
8. Miscellaneous
-------------
A. This option is issued pursuant to the Company's Long-Term Stock
Incentive Plan and is subject to its terms. A copy of the Plan
has been given to Mr. Aristides. 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 Mr. Aristides 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. Mr.
Aristides 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/her 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:
------------------------------------
/s/GEORGE ARISTIDES
------------------------------------
George Aristides
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this 23rd day of February, 2001, by and between
Graco Inc., a Minnesota corporation (the "Company") and
------------------------
(the "Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to its Long-Term Stock Incentive 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 shares of Common Stock of the Company,
------------------
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 one (1) year from the date of grant, and this option shall in
all events terminate ten (10) years after the date of grant.
During the first year 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
---- --------------------
One Year after Date of Grant 25%
Two Years after Date of Grant 50%
Three Years after Date of Grant 75%
Four 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 exercisable 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 subject to the
conditions that no option shall be exercisable after the
expiration of the terms of the option, all remaining shares shall
become immediately exercisable and the option may be exercised by
the Employee at any time within three years of the Employee's
retirement, subject to the condition that no option shall be
exercisable after the expiration of the term of the option. 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.
E. Notwithstanding anything to the contrary contained in this
Section 3, if the Employee chooses to terminate his/her
employment by retirement (as defined in Section 3. D. above) and
has not given the Company written notice, by correspondence to
his/her immediate supervisor and the Chief Executive Officer, of
said intention to retire not less than six (6) months prior to
the date of his/her retirement, then in such event for purposes
of this Agreement said termination of employment shall be deemed
to be not a retirement but a termination subject to the
provisions of Section 3. A. above, provided, however, that in the
event that the Chief Executive Officer, in his/her sole
discretion and judgement, determines that termination of
employment by retirement of the Employee without six (6) months
prior written notice is in the best interests of the Company,
then such retirement shall be subject to Section 3. D. above.
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 shares of Common
Stock of the Company which have been held by the Employee for not
less than six (6) months with a fair market value equal to the
option price. For these purposes, the fair market value of the
Company's Common Stock shall be the closing price of the Common
Stock on the date of exercise on the New York Stock Exchange (the
"NYSE") or on the principal national securities exchange on which
such 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 Stock as reported by the National Association of
Securities Dealers Automated Quotation System. If the Common
Stock is 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. If the Committee, as defined in the Company's Long
Term Stock Incentive Plan, has in its discretion determined that the
Employee may do so, such amount may be paid by the Employee by
delivering to the Company for cancellation shares of Common Stock of
the Company with a fair market value equal to the minimum amount of
such withholding tax requirement by (i) electing to have the Company
withhold common shares otherwise to be delivered with a fair market
value equal to the amount of such tax obligation, or (ii) electing to
surrender to the Company previously owned common shares with a fair
market value equal to the amount of such minimum tax obligation.
6. Change of Control
-----------------
A. Notwithstanding Section 2(a) hereof, the entire option shall
become immediately and fully exercisable on the day following a
"Change of Control" and shall remain fully exercisable until
either exercised or expiring by its terms. A "Change of Control"
means:
(1) acquisition by any individual, entity, or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act
of 1934), (a "Person"), of beneficial ownership (within the
meaning of Rule 13d-3 under the 1934 Act) which results in
the beneficial ownership by such Person of 25% or more of
either
(a) the then outstanding shares of Common Stock of the
Company (the "Outstanding Company Common Stock") or
(b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company
Voting Securities");
provided, however, that the following acquisitions will not
result in a Change of Control:
(i) an acquisition directly from the Company,
(ii) an acquisition by the Company,
(iii) an acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the
Company or any corporation controlled by the
Company,
(iv) an acquisition by any Person who is deemed to have
beneficial ownership of the Company common stock
or other Company voting securities owned by the
Trust Under the Will of Clarissa L. Gray ("Trust
Person"), provided that such acquisition does not
result in the beneficial ownership by such Person
of 32% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting
Securities, and provided further that for purposes
of this Section 6, a Trust Person shall not be
deemed to have beneficial ownership of the Company
common stock or other Company voting securities
owned by The Graco Foundation or any employee
benefit plan of the Company, including, without
limitations, the Graco Employee Retirement Plan
and the Graco Employee Stock Ownership Plan,
(v) an acquisition by the Employee or any group that
includes the Employee, or
(vi) an acquisition by any corporation pursuant to a
transaction that complies with clauses (a), (b),
and (c) of subsection (4) below; and
provided, further, that if any Person's beneficial ownership
of the Outstanding Company Common Stock or Outstanding
Company Voting Securities is 25% or more as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional Outstanding Company Common Stock or Outstanding
Company Voting Securities as a result of a transaction other
than that described in clause (i) or (ii) above, such
subsequent acquisition will be treated as an acquisition that
causes such Person to own 25% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities
and be deemed a Change of Control; and provided further, that
in the event any acquisition or other transaction occurs
which results in the beneficial ownership of 32% or more of
either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by any Trust Person,
the Incumbent Board may by majority vote increase the
threshold beneficial ownership percentage to a percentage
above 32% for any Trust Person; or
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least a majority of said Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board will be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial membership on the Board occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(3) The commencement or announcement of an intention to make a
tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a Person of 25%
or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities; or
(4) The approval by the shareholders of the Company of a
reorganization, merger, consolidation, or statutory exchange
of Outstanding Company Common Stock or Outstanding Company
Voting Securities or sale or other disposition of all or
substantially all of the assets of the Company ("Business
Combination") or, if consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation) excluding, however,
such a Business combination pursuant to which
(a) all or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding
Company Common Stock or Outstanding Company Voting
Securities immediately prior to such Business
Combination beneficially own, directly or indirectly,
more than 80% of, respectively, the then outstanding
shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a
corporation that as a result of such transaction owns
the Company or all or substantially all of the Company's
assets either directly or through one or more
subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock or
Outstanding Company Voting Securities,
(b) no Person [excluding any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination] beneficially
owns, directly or indirectly, 25% or more of the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities
of such corporation except to the extent that such
ownership existed prior to the Business Combination, and
(c) at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent Board
at the time of the execution of the initial Agreement,
or of the action of the Board, providing for such
Business Combination; or
(5) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
B. A Change of Control shall not be deemed to have occurred with
respect to an Employee if:
(1) the acquisition of the 25% or greater interest referred to in
subparagraph A.(1) of this Section 6 is by a group, acting in
concert, that includes the Employee or
(2) if at least 25% of the then outstanding common stock or
combined voting power of the then outstanding Company voting
securities (or voting equity interests) of the surviving
corporation or of any corporation (or other entity) acquiring
all or substantially all of the assets of the Company shall
be beneficially owned, directly or indirectly, immediately
after a reorganization, merger, consolidation, statutory
share exchange, disposition of assets, liquidation or
dissolution referred to in subsections (4) or (5) of this
section by a group, acting in concert, that includes that
Employee.
7. Adjustments
-----------
If there shall be any change in the number or character of the Common
Stock of the Company through merger, consolidation, reorganization,
recapitalization, dividend in the form of stock (of whatever amount),
stock split or other change in the corporate structure of the Company,
and all or any portion of the option shall then be unexercised and not
yet expired, appropriate adjustments in the outstanding option shall
be made by the Company, in order to prevent dilution or enlargement of
option rights. Such adjustments shall include, where appropriate,
changes in the number of shares of Common Stock and the price per
share subject to the outstanding option.
8. Miscellaneous
-------------
A. This option is issued pursuant to the Company's Long-Term
Stock Incentive 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/her 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 Chief Executive Officer
---------------------------------------
---------------------------------------
Employee
Exhibit 99
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Graco Inc. (the "Company") wishes to take advantage of the "safe harbor"
provisions regarding forward-looking statements of the Private Securities
Litigation Reform Act of 1995 and is filing this Cautionary Statement in order
to do so.
From time to time various forms filed by the Company with the Securities
and Exchange Commission, including the Company's Form 10-K, Form 10-Q and Form
8-K, its Annual Report to Shareholders, and other written documents or oral
statements released by the Company, may contain forward-looking statements.
Forward-looking statements generally use words such as "expect," "foresee,"
"anticipate," "believe," "project," "should," "estimate," "will", and similar
expressions, and reflect the Company's expectations concerning the future. Such
statements are based upon currently available information, but various risks and
uncertainties may cause the Company's actual results to differ materially from
those expressed in these statements. Among the factors which management believes
could affect the Company's operating results are the following:
o With respect to the Company's business as a whole, the Company's
prospects and operating results may be affected by:
- changing economic conditions in the United States and other major
world economies, including economic downturns or recessions,
capital goods investment activity, interest rates and foreign
currency exchange rate fluctuations;
- international trade factors, including changes in international
trade policy, such as export controls, trade sanctions, increased
tariff barriers and other restrictions; weaker protection of the
Company's proprietary technology in certain foreign countries,
the burden of complying with foreign laws and standards; and
potentially burdensome taxes;
- the ability of the Company to develop new products and
technologies; maintain and enhance its market position relative
to its competitors; maintain and enhance its distribution
channels; identify and enter into new markets; successfully
conclude and integrate acquisitions; realize productivity and
product quality improvements; and continue to control expenses.
- disruption in operations, transportation, communication, sources
of supply, customer operations or payment, caused by political or
economic instability, acts of God, labor disputes, war, embargo,
fire or other cause beyond its reasonable control.
- changes in the markets in which the Company participates,
including consolidation of competitors and major customers, and
price competition
o The prospects and operating results of the Company's Contractor
Equipment Division may be affected by: variations in the level of
residential, commercial and institutional building and remodeling
activity; the availability and cost of financing; changes in the
environmental regulation of coatings; consolidation in the paint
equipment manufacturing industry; changes in the business practices
(including inventory management) of the major distributors of
contractor equipment; changes in construction materials and
techniques; the cost of labor in foreign markets; the regional market
strength of certain competitors; the level of government spending on
infrastructure development and road construction, maintenance and
repair; and the nature and extent of highway safety regulation.
o The prospects and operating results of the Company's
Industrial/Automotive Equipment Division may be affected by: the
capital equipment spending levels of industrial customers; the
availability and cost of customer financing; changes in the
environmental regulation of coatings; changes in the technical
characteristics of materials; changes in application technology; the
ability of the Company to meet changing customer requirements;
consolidation in the fluid handling equipment manufacturing industry;
the equipment purchase plans of major automobile manufacturers
worldwide (which are in turn impacted by the level of automotive sales
worldwide); changes in automotive manufacturing processes; the pricing
strategies of competitors; consolidation in the automobile
manufacturing industry worldwide; and the success of the Company in
moving its automotive customers from custom-designed systems to the
purchase of the Company's package modules sold through integrators and
distributors.
o The prospects and operating results of the Company's Lubrication
Equipment Division may be affected by consolidation in the oil
industry; the development of extended life lubricants for vehicles;
the reduction in the need for changing vehicle lubricants; consumer
trends in "do-it-yourself" vs. "do-it-for-me" oil changes;
consolidation of automotive dealerships; trends in spending by state
and local governments, and variations in the equipment spending levels
of the major oil companies.