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, 1995 (Fee Required) or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
___________ to ___________.
Commission File No. 1-9249
Graco Inc.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422-5332
(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 8, 1996, 17,434,828 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 [ X ].
The aggregate market value of approximately 11,282,000 shares held by non-
affiliates of the registrant was approximately $221 million on March 8, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 7, 1996, are incorporated by reference into
Part III, as specifically set forth in said Part III.
1
GRACO INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
Page
Part I
Item 1 Business 3
Item 2 Properties 5
Item 3 Legal Proceedings 6
Item 4 Submission of Matters to a Vote of Security Holders 6
Executive Officers of the Company 6
Part II
Item 5 Market for the Company's Common Stock
and Related Stockholder Matters 8
Item 6 Selected Financial Data 8
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8 Financial Statements and Supplementary Data 13
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 26
Part III
Item 10 Directors and Executive Officers of the Company 27
Item 11 Executive Compensation 27
Item 12 Security Ownership of Certain Beneficial
Owners and Management 27
Item 13 Certain Relationships and Related Transactions 27
Part IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 27
Signatures 29
NOTE: Certain exhibits listed in the Index to Exhibits
beginning on page 30, and filed with the Securities and
Exchange Commission, have been omitted. Copies of such
exhibits may be obtained upon written request directed
to:
2
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. Based in Minneapolis,
Minnesota, Graco serves customers around the world in the
manufacturing, processing, construction and maintenance
industries. It designs, manufactures and markets systems and
equipment to move, measure, control, dispense and apply fluid
materials. The Company helps customers solve difficult
manufacturing problems, increase productivity, improve quality,
conserve energy, save expensive materials, control environmental
emissions and reduce labor costs. Primary uses of the Company's
equipment include the application of coatings and finishes to
various industrial and commercial products; the mixing, metering,
dispensing and application of adhesive, sealant and chemical
bonding materials; the application of paint and other materials
to architectural structures; the lubrication and maintenance of
vehicles and industrial machinery; and the transferring and
dispensing of various fluids. Graco is the successor to Gray
Company, Inc., which was incorporated in 1926 as a manufacturer
of auto lubrication equipment, and became a public company in
1969.
It is Graco's goal to become the highest quality, lowest cost,
most responsive supplier in the world for its principal products.
In working to achieve these goals to become a world class
manufacturer, Graco has been converting its Minneapolis
manufacturing operations to focused factories organized around
team-directed manufacturing cells, a process expected to be
completed in 1997. Substantial investments in new manufacturing
technology have reduced cycle time and improved quality.
The Company operates in one industry segment, namely the design,
manufacture, marketing, sale and installation of systems and
equipment for the management of fluids. Financial information
concerning geographic operations and export sales for the last
three fiscal years is set forth in Note B of the Notes to
Consolidated Financial Statements.
Recent Developments. In December, 1995, George Aristides was
named Chief Executive Officer of the Company to succeed David A.
Koch, who had held the position since 1962. Mr. Koch will remain
as Chairman of the Board. During 1995, the Company continued the
restructuring and consolidation of its operations in Europe and
Japan. Management of its European operations was centralized at
the Company's recently expanded facility in Maasmechelen,
Belgium. In 1995, Graco implemented recommendations generated by
an intensive evaluation of its marketing and sales groups
worldwide. Field sales groups were restructured and investments
in globally-focused marketing resources were increased. A
Customer Support Team, combining customer service, technical
assistance, product service and national account program
management, was created in the Lubrication Equipment Division and
an in-house telemarketing team was organized in the Contractor
Equipment Division. The size of the Russell J. Gray Technical
Center was more than doubled in 1995 to house additional testing
and product development activities and personnel. During 1995,
the Company's increased product development efforts resulted in
the introduction of approximately 110 new products. Graco
recently announced the construction of a world-class
manufacturing facility and global distribution center in Rogers,
Minnesota, to provide additional production capacity for
projected growth. All distribution operations currently being
conducted by the Company at its distribution center in Brooklyn
Center, Minnesota will be transferred to the new Rogers facility,
together with the engineering and manufacturing groups for the
Contractor Equipment Division and final assembly operations for
Industrial pumps. Manufacturing capacity met the Company's
production requirements during 1995, with excess capacity in the
last half of the year due to efforts to reduce inventories and
the slowdown in incoming orders.
Products. Graco Inc. manufactures a wide array of specialized
pumps, applicators, regulators, valves, meters, atomizing
devices, replacement parts, and accessories, which are used in
industrial and commercial applications in the movement,
measurement, control, dispensing and application of many fluids
and semi-solids, including paints, adhesives, sealants, and
lubricants. In addition, it offers an extensive line of portable
equipment which is used in construction and maintenance
businesses for the application of paint and other materials.
Graco fluid systems incorporate sophisticated paint circulating
and fluid application technology.
Commercial and industrial equipment offered by Graco includes
specialized pumps, air and airless spray units, manual finishing
equipment and fluid handling systems. A variety of pumps provide
fluid pressures ranging from 20 to more than 6,000 pounds per
square inch and flow rates from under 1 gallon to 140 gallons per
minute. In 1995, Graco introduced a new generation of pumps,
which produce higher pressures, have improved corrosion
resistance and are easier to service than existing products.
The Company sells accessories for use with its equipment,
including hoses, couplings, regulators, valves, filters, reels,
meters, and gauges, as well as a complete line of spray guns,
tips and applicators. These accessories increase the flexibility,
efficiency
3
and effectiveness of Graco equipment. Packings, seals,
hoses and other parts, which must be replaced periodically in
order to maintain efficiency and prevent loss of material, are
also sold by the Company.
Sales of replacement parts and accessories have averaged 46.5
percent of the Company's consolidated net sales and approximately
52.3 percent of gross profits during the last three years. The
following table summarizes the consolidated net sales and gross
profits (net sales less cost of products sold) by the Company's
principal product groups for that same period.
Product Group Sales and Gross Profit
(In thousands) 1995 1994 1993
---------------- ----------------- -----------------
NET SALES $ % $ % $ %
-------- ------ -------- ------ -------- ------
Commercial and industrial equipment $206,558 53.5% $204,584 56.8% $179,619 55.7%
Accessories and replacement parts 179,756 46.5 155,429 43.2 142,983 44.3
-------- ------ -------- ------ -------- ------
$386,314 100.0% $360,013 100.0% $322,602 100.0%
======== ====== ======== ====== ======== ======
GROSS PROFIT
Commercial and industrial equipment $ 90,526 47.7% $ 89,262 51.3% $ 76,325 49.8%
Accessories and replacement parts 99,101 52.3 84,749 48.7 76,802 50.2
-------- ------ -------- ------ -------- ------
$189,627 100.0% $174,011 100.0% $153,127 100.0%
======== ====== ======== ====== ======== ======
Marketing and Distribution. Graco's operations are organized to
allow its full line of products and systems to be offered in each
major geographic market: the Americas, Europe and Asia Pacific.
The Industrial Equipment Division, the Automotive Equipment
Division, the Contractor Equipment Division, and the Lubrication
Equipment Division provide worldwide marketing direction and
product design and application assistance to each of these
geographic markets.
Graco's equipment is sold worldwide principally through the
Company's international sales subsidiaries, direct sales
personnel and distributors. Manufacturers' representatives are
used with some product lines. In the Americas and Europe, the
Company maintains a specialized direct sales force, which handles
sales of large systems and sales to certain corporate accounts.
In 1995, Graco's net sales in the Americas were $238,874,000 or
approximately 62 percent of the Company's consolidated net sales;
in Europe (including the Middle East and Africa) net sales were
$82,552,000 or approximately 21 percent; and in the Asia Pacific
region, net sales were $64,888,000 or approximately 17 percent.
Research, Product Development and Technical Services. Graco's
research, development and engineering activities focus on new
product design, product improvements, applied engineering and
strategic technologies. A dedicated support group of application
engineers and technicians also provides specialized technical
assistance to customers in the design and evaluation of fluid
transfer and application systems. It is one of Graco's financial
goals to generate 30 percent of each year's sales from products
introduced in the prior three years. To achieve this goal, Graco
substantially increased its new product design and application
engineering staff, and more than doubled the size of the Russell
J. Gray Technical Center to provide space for engineering,
testing and laboratory activities. Occupancy of the new wing of
the Technical Center was completed in May 1995. Total research
and development expenditures were $15,715,000, $14,591,000 and
$12,382,000 for the 1995, 1994 and 1993 fiscal years,
respectively.
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 diversity of the Company's products.
Product quality, reliability, design, customer support and
service, specialized engineering and pricing are the major
competitive factors. Although no competitor duplicates all of
4
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. Graco believes it
is one of the world's leading producers of high-quality
specialized fluid management equipment and systems. It is
impossible, because of the absence of reliable industry-wide
figures, to determine its exact relative market position.
Environmental Protection. During the fiscal year ending December
29, 1995, the amounts incurred to comply with federal, state and
local legislation pertaining to environmental standards did not
have a material effect upon the capital expenditures or earnings
of the Company.
Employees. As of December 29, 1995, the Company employed
approximately 1,945 persons on a full-time basis. Of this total,
approximately 351 were employees based outside the United States,
and 763 were hourly factory workers in the United States.
Although Graco's U.S. employees are not covered by collective
bargaining agreements, various national industry-wide labor
agreements apply to certain employees in Europe. The Company
believes it has a good relationship with its employees.
Item 2. Properties
The Company's principal operations that occupy more than 10,000
square feet are conducted in the following facilities:
Type of Facility Location Square Footage
---------------- -------- --------------
Owned
-----
Manufacturing/Office Minneapolis, Minnesota 237,600
Manufacturing/Office Minneapolis, Minnesota 207,000
Engineering/Research & Development Minneapolis, Minnesota 138,200
Engineering/Manufacturing/Office Plymouth, Michigan 106,000
Engineering/Manufacturing/Office Franklin Park, Illinois 82,000
Assembly/European Headquarters/Warehouse Maasmechelen, Belgium 75,800
Corporate Headquarters Golden Valley, Minnesota 68,000
Manufacturing/Office Sioux Falls, South Dakota 55,000
Sales Office/Warehouse Atlanta, Georgia 21,700
Sales Office/Warehouse Los Angeles, California 21,000
Office/Warehouse Mississauga, Ontario, Canada 20,000
Leased
------
Distribution/Office/Warehouse Brooklyn Center, Minnesota 123,800
Engineering/Office/Warehouse Yokohama, Japan 48,724
Sales Office Rungis, France 46,600
Assembly/Engineering/Office/Warehouse Neuss, Germany 41,765
Technical Publications Minneapolis, Minnesota 18,200
Sales Office West Midlands, United Kingdom 16,320
Research & Development/Office Arvada, Colorado 11,600
An 80,000 square foot expansion of the Company's Russell J. Gray
Technical Center in Minneapolis was completed and occupied during
the first quarter of 1995. An expansion of 8,800 square feet to
the Maasmechelen facility was completed in 1995 to accommodate
the relocation of European headquarters operations from France to
Belgium.
The Company's distribution operations, currently located in
123,800 square feet of space in a Minneapolis suburb under a
lease which expires at the end of 1996, will be transferred to a
manufacturing and global distribution center under construction
in Rogers, Minnesota. The Rogers facility will have 324,000
square feet of space, including office, engineering, research and
development, manufacturing, and distribution.
A 55,000 square foot building in Farmington Hills, Michigan and a
57,000 square foot building in Wixom, Michigan were sold during
the last quarter of 1995.
The Company leases space for subsidiary sales or liaison offices
around the world, some of which have demonstration areas and/or
warehouse space.
5
Graco's facilities are in satisfactory condition, suitable for
their respective uses and are sufficient and adequate to meet
current needs, with the recent and planned expansions.
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 1995.
Executive Officers of the Company
The following are all the executive officers of the Company as of
March 8, 1996. There are no family relationships between any of
the officers named.
David A. Koch, 65, is Chairman of the Board, a position he has
held since 1985. Prior to January 1, 1996, he was also the Chief
Executive Officer of the Company, a position he had held since
1962. He joined the Company in 1956 and held various sales and
marketing positions with the Company prior to assuming the office
of President in 1962. For a five month period from January to
June 1993, he also held the office of President. He has served as
a director of the Company since 1962.
George Aristides, 60, was elected President and Chief Executive
Officer effective January 1, 1996. He became President and Chief
Operating Officer in June 1993. From March 1993 to June 1993, he
was Executive Vice President, Industrial/Automotive Equipment
Division, Manufacturing, Distribution and Eurafrican Operations.
From 1985 until 1993, he was Vice President, Manufacturing
Operations and Controller. 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.
James A. Graner, 51, 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.
Clyde W. Hansen, 63, was elected Vice President, Human Resources
and Quality Management Systems, in December 1993. He joined the
Company in 1984 as Employee Relations Director, a position he
held until his election.
John L. Heller, 59, was elected Vice President, Latin America &
Developing Markets, effective January 4, 1996. From July 1993 to
December 1995, he was Senior Vice President and General Manager -
Contractor Equipment Division. He became Vice President, Far East
Operations and Latin America, in 1992. Prior to becoming Vice
President, Far East Operations in 1984, he held various
management and staff positions in sales and human resources. He
joined the Company in 1972.
Roger L. King, 50, was named Vice President & General Manager,
European Operations, effective January 4, 1996. From July 1993 to
December 1995, he was Senior Vice President and General Manager -
International Operations. He became Senior Vice President and
Chief Financial Officer in March 1993, and Vice President and
Treasurer in 1987. Prior to becoming Vice President, Treasurer
and Secretary in 1980, he held the position of Treasurer and
Secretary and various treasury management positions with Graco.
He joined the Company in 1970.
David M. Lowe, 40, was elected to the position of Treasurer in
February 1995. Prior to joining the Company, he was employed by
Ecolab Inc., where he held various positions in the Treasury
Department, including Manager-Corporate Finance; Director,
Corporate Finance and most recently Director, Corporate
Development.
Robert M. Mattison, 48, was elected Vice President, General
Counsel and Secretary, in January 1992. Prior to joining the
Company, he held various legal positions with Honeywell Inc.,
most recently as Associate General Counsel.
Robert A. Wagner, 45, was elected Vice President, Asia Pacific,
of Graco Inc. and President, Graco K.K. effective January 1995.
He became Vice President and Treasurer, Graco Inc., in February
1994. He joined the Company in December 1991, as Vice President,
Corporate Development and Planning. Prior to joining the Company,
he was employed by Texas Instruments for nearly five years, where
he held various managerial positions, most recently as Vice
President and Manager, Corporate Development.
6
Clayton R. Carter, 57, was appointed to the position of Vice
President, Worldwide Lubrication Equipment Division, effective
January 1, 1995. He became Director, Vehicle Services Division,
in February 1994. He joined the Company in 1962 and has held
various sales management positions, most recently in the
Contractor Equipment Division.
Thomas J. Fay, 45, was appointed to the position of Vice
President, Worldwide Automotive Equipment Division, effective
January 4, 1996. During 1995, he was Vice President, European
Operations. Prior to becoming General Manager of European
Operations in March 1994, he held the position of General
Manager, Region III, in Europe. Mr. Fay joined the Company in
1984 and held various sales management positions before moving to
Europe in 1990.
Charles L. Rescorla, 44, is Vice President, Manufacturing
Operations, a position to which he was appointed on January 1,
1995. Prior to becoming the Director of Manufacturing in March
1994, he was the Director of Engineering, Industrial Division, a
position which he assumed in 1988 when he joined the Company.
With the exception of Clayton R. Carter, Thomas J. Fay, and
Charles L. Rescorla, the officers identified were elected by the
Board of Directors on May 2, 1995, to hold office until the next
annual meeting of directors or until their successors are elected
and qualify. George Aristides was elected to the office of
President and Chief Executive Officer on December 15, 1995,
effective January 1, 1996. Additionally, John L. Heller was
elected to the office of Vice President, Latin America &
Developing Markets, and Roger L. King was elected to the office
of Vice President & General Manager, European Operations on
December 15, 1995 effective January 4, 1996. Messrs. Carter, Fay,
and Rescorla were appointed to their positions by management
effective January 1, 1995, January 4, 1996, and January 1, 1995,
respectively.
7
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters
Graco Common Stock. Graco common stock is traded on the New York
Stock Exchange under the ticker symbol "GGG." As of March 8,
1996, there were 17,434,828 shares outstanding and 1,800 common
shareholders of record, with another estimated 3,000 shareholders
whose stock is held by nominees or broker dealers.
Quarterly Financial Information.
(In thousands, except per share amounts)
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- ---- -------- -------- -------- --------
Net Sales $ 95,527 $103,402 $ 94,797 $ 92,588
Gross Profit 46,527 51,415 46,287 45,398
Net Earnings (Loss) 5,436 8,532 6,569 7,169
Per Common Share:
Net Earnings (Loss) 0.31 0.49 0.37 0.41
Dividends Declared 0.11 0.11 0.11 0.12
-------- -------- -------- --------
Stock Price (per share)
High $ 16.17 $ 19.50 $ 23.17 $ 25.50
Low 13.17 16.00 17.42 20.00
Volume (# of shares) 457.9 569.4 1020.4 930.0
-------- -------- -------- --------
1994
- ----
Net Sales $ 80,930 $ 94,179 $ 89,048 $ 95,856
Gross Profit 38,436 44,227 43,269 48,079
Net Earnings (Loss) 1,836 4,195 4,248 5,047
Per Common Share:
Net Earnings (Loss) 0.11 0.24 0.25 0.29
Dividends Declared 0.09 0.09 0.09 0.11
-------- -------- -------- --------
Stock Price (per share)
High $ 16.11 $ 15.33 $ 12.59 $ 14.50
Low 13.33 12.50 11.25 12.00
Volume (# of shares) 3,085.5 561.0 904.5 432.0
-------- --------- -------- --------
1 All per share data has been restated for the three-for-two stock splits declared
December 15, 1995 and December 17, 1993 and paid February 7, 1996 and February 2, 1994,
respectively.
Item 6. Selected Financial Data
Graco Inc. & Subsidiaries
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
- ---------------------------------------- -------- -------- -------- -------- --------
Net Sales $386,314 $360,013 $322,602 $320,334 $311,874
Earnings Before Change
in Accounting Principles 27,706 15,326 9,493 11,145 8,946
Net Earnings 27,706 15,326 9,493 5,301 8,946
-------- -------- -------- -------- --------
Per Common Share:
Earnings Before Change
in Accounting Principles $ 1.59 $ 0.88 $ 0.55 $ 0.65 $ 0.53
Net Earnings 1.59 0.88 0.55 0.31 0.53
-------- -------- -------- -------- --------
Total Assets $217,833 $228,385 $216,365 $220,418 $205,929
Long-term Debt (including current portion) 12,009 32,483 19,480 22,762 23,898
Redeemable Preferred Stock 0 1,474 1,485 1,487 1,493
-------- -------- -------- -------- --------
Cash Dividends Declared
per Common Share $ 0.44 $ 0.39 $ 2.15 $ 0.33 $ 0.30
-------- -------- -------- -------- --------
8
1 All per share data has been restated for the three-for-two stock splits declared December 15, 1995
and December 17, 1993 and paid February 7, 1996 and February 2, 1994, respectively.
2 Includes the special one-time dividend of $1.80 per post-split share declared December 17,
1993 and paid March 21, 1994.
Above information includes Lockwood Technical, Inc. (LTI) and
Graco Robotics Inc. (GRI), former wholly-owned subsidiaries, sold
in 1992 and 1991, respectively.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
MANAGEMENT'S REVIEW AND DISCUSSION
The following is Management's Review and Discussion and is not
covered by the Independent Auditors' Report. All per share data
has been restated for the three-for-two stock splits declared
December 15, 1995 and December 17, 1993 and paid February 7, 1996
and February 2, 1994, respectively.
Graco's net earnings of $27.7 million in 1995 are 81 percent
higher than the $15.3 million earned in 1994 and are
significantly higher than the $9.5 million recorded in 1993. The
large increases in 1995 and 1994 primarily reflect higher global
sales and enhanced profit margins. Operating costs include
increased product development expenditures and restructuring
charges.
The following table indicates the percentage relationship between
income and expense items, included in the Consolidated Statements
of Earnings for the three most recent fiscal years and the
percentage changes in those items for such years.
Revenue & Expense Item Revenue & Expense Item
As a % of Net Sales % Increase (Decrease)
----------------------- ----------------------
1995 1994 1993 1995/94 1994/93
----- ----- ----- ------- -------
Net Sales 100.0 100.0 100.0 7 12
----- ----- ----- ------- -------
Cost of Products Sold 50.9 51.7 52.6 6 10
Product Development 4.1 4.0 3.8 8 18
Selling 22.4 25.8 26.6 (7) 8
General & Administrative 10.9 11.2 11.8 4 6
Operating Profit 11.7 7.3 5.2 71 56
----- ----- ----- ------- -------
Interest Expense (0.6) (0.5) (0.7) 21 (16)
Other Income (Expense), Net 0.2 (0.3) (0.3) nmf nmf
----- ----- ----- ------- -------
Earnings Before Income Taxes 11.3 6.5 4.2 86 70
Income Taxes 4.1 2.2 1.3 96 88
----- ----- ----- ------- -------
Net Earnings 7.2 4.3 2.9 81 61
===== ===== ===== ======= =======
nmf - No Meaningful Figure
NET SALES
In 1995, Graco posted a year of record net sales, with a 7
percent increase over 1994 to $386 million. The 1995 increase was
principally due to higher worldwide sales in all divisions except
Contractor Equipment. Geographically, net sales in the Americas
of $239 million in 1995 decreased by 1 percent when compared to
1994. With improving economies and strong currencies during most
of the year, European sales increased 25 percent in 1995 to $82
million (a 15 percent volume increase and a 10 percent gain due
to foreign currency exchange rates). Sales in Asia Pacific were
up 23 percent in 1995 to $65 million (a 15 percent volume
increase and an 8 percent gain due to foreign currency exchange
rates). The impact of foreign currency exchange rate translations
on sales was not significant in 1994 when compared to 1993.
Consolidated backlog at December 29, 1995 was $20 million
compared to $25 million at the end of 1994 and $20 million at the
end of 1993.
Sales increased 7 percent in 1995 when compared to 1994 and 12
percent in 1994 compared to 1993.
9
% Increase (Decrease)
(In thousands) 1995 1994 1993 1995/94 1994/93
- ------------------------ -------- -------- -------- ------- -------
Division Sales:
Industrial Equipment $151,016 $136,995 $118,155 10 16
Automotive Equipment 75,637 67,457 64,765 12 4
Contractor Equipment 118,818 121,478 110,802 (2) 10
Lubrication Equipment 40,843 34,083 28,880 20 18
-------- -------- -------- ------- -------
Consolidated $386,314 $360,013 $322,602 7 12
======== ======== ======== ======= =======
Geographic Sales:
Americas $238,874 $241,169 $206,464 (1) 17
Europe 82,552 65,888 60,546 25 9
Asia Pacific 64,888 52,956 55,592 23 (5)
-------- -------- -------- ------- -------
Consolidated $386,314 $360,013 $322,602 7 12
======== ======== ======== ======= =======
COST OF PRODUCTS SOLD
The cost of products sold, as a percent of net sales, declined in
1995 to 50.9 percent from 51.7 percent in 1994. This decrease was
the result of a combination of factors, including modest price
increases. In 1994, cost of products sold, as a percent of net
sales, declined from 52.6 percent in 1993, primarily due to
manufacturing efficiencies gained from continued investment in
state-of-the-art manufacturing technology and increased
manufacturing volumes.
Periodic price increases have generally permitted the Company to
recover increases in the cost of products sold. The Company's
most recent U.S. price increase was effective in January of 1996,
and represented an average 4 percent increase from its January
1995 price lists. The January 1995 price change was an average 2
percent increase from April 1994 prices.
OPERATING EXPENSES
Operating expenses in 1995 decreased 2.2 percent from 1994, due
primarily to the impact of Graco's worldwide cost restructuring
initiatives and reduced restructuring charges in 1995. Operating
expenses in 1994 increased 8.4 percent from 1993, due primarily
to continuing investment in product development and ongoing
restructuring initiatives. In 1994, restructuring and workforce
reduction charges accounted for over half of the increase from
1993 operating expenses.
Product development expenses in 1995 increased 7.7 percent over
1994 to $15.7 million. In 1994, product development costs were
17.8 percent higher than 1993. These increases reflect Graco's
commitment to expanding sales through new product introductions.
FOREIGN CURRENCY EFFECTS
The costs of the Company's products are generally denominated in
U.S. dollars, with approximately 16 percent sourced in non-U.S.
currencies. A greater proportion of sales, approximately 38
percent, is denominated in currencies other than the U.S. dollar.
As a result, a weakening of the U.S. dollar increases sales more
than costs and expenses, improving the Company's gross margin and
operating profits. During both 1995 and 1994, the U.S. dollar was
generally weaker against other major currencies.
The gains and losses that resulted from the translation of the
financial statements for all non-U.S. subsidiaries and the gains
and losses on the forward and option contracts the Company uses
to hedge these exposures, are included in Other income (expense).
In total, the effect of the changes in foreign currency exchange
rates on operating profits and the gains and losses included in
Other income (expense) increased earnings before income taxes by
$3.5 million in 1995 when compared to 1994, and by $2.3 million
in 1994 when compared to 1993.
10
OTHER INCOME (EXPENSE)
The Company's interest expense grew in 1995, reflecting an
increase in the average levels of debt during the year and
slightly higher interest rates. This increase was principally
used to support the funding of Graco's working capital
requirements and capital expenditures during the first half of
the year. Strong cash flows from operations during the second
half of the year resulted in long term debt (including the
current portion thereof) declining to $12 million as compared to
$32 million at the end of 1994 and $19 million at the end of
1993.
Other income of $0.7 million, and other expense of $1 million and
$0.8 million for 1995, 1994, and 1993, respectively, include,
among other things, the foreign currency exchange gains and
losses discussed above and a $0.9 million gain from the sale of
unutilized real estate in 1995.
INCOME TAXES
The Company's net effective tax rate of 36 percent in 1995 is 1
percentage point higher than the 1995 U.S. federal tax rate of 35
percent. The increase from the 35 percent effective tax rate in
1994 was due primarily to the reduced relative effect of U.S.
general business tax credits. The effective tax rate of 31
percent in 1993 was less than the 1994 rate of 35 percent,
principally as a result of a non-recurring tax benefit. Detailed
reconciliations of the U.S. federal tax rate to the effective
rates for 1995, 1994, and 1993 are discussed in Note D to the
consolidated financial statements.
EARNINGS
In 1995, earnings increased by 81 percent to $27.7 million, or
$1.59 per share as compared to 1994, when earnings increased by
61 percent to $15.3 million or $.88 per share as compared to
1993.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation," which encourages a fair value
based method of accounting for stock based compensation plans and
requires adoption of disclosure provisions no later than fiscal
years beginning after December 15, 1995. Graco has not yet
determined if it will elect to change to the fair value method,
nor has it determined the effect the new standard will have on
net income and earnings per share should it elect to make such a
change. Adoption of this new standard will have no effect on
Graco's cash flows.
OUTLOOK
Graco is cautiously optimistic about improved financial
performance in 1996 given softness in the North American and
German economies. Graco has successfully undertaken significant
restructuring efforts in recent years and anticipates
implementing additional measures in 1996. These efforts have
resulted in improving customer service and profit margins along
with providing resources that will be used for investments in
product development and capital additions.
Margins are expected to improve slightly in 1996, subject to
fluctuations in the U.S. dollar and increased sales volumes.
Operating expenses as a percentage of net sales are expected to
decline, even though product development expenses will increase
as the Company continues to invest in its long-term strategic
initiatives in product development.
DIVIDEND 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:
- a three-for-two stock split declared in 1995;
- a 13 percent increase in the regular dividend in 1995;
- a 14 percent increase in the regular dividend in 1994;
- a three-for-two stock split declared in 1993;
- a special one-time dividend of $1.80 per post-split share declared in
1993 ($31.2 million in total); and
- a 10 percent increase in the regular dividend in 1993.
11
ASSETS
The following table highlights several key measures of asset
performance.
($ in thousands) 1995 1994 1993
- ---------------------------------------------- ------- ------- -------
Cash, Cash Equivalents & Marketable Securities $ 1,643 $ 2,444 $37,440
Working Capital $56,899 $54,405 $47,648
Current Ratio 1.8 1.6 1.5
Average Days Receivables Outstanding 73 71 71
Inventory Turnover 4.3 4.3 4.0
Average inventory balances increased during 1995 when compared to
1994; however, year-end inventory decreased 17.5 percent to $41.7
million. The year-end decline in inventories was primarily due to
shipments of several large engineered systems in the last quarter
and efforts to bring inventory levels in line with reduced sales
volume. Accounts receivable decreased 3.2 percent to $73.2
million. The decrease was due to a combination of factors,
including lower sales during the last quarter of 1995.
LIABILITIES
During 1995, total debt (notes payable plus long-term debt,
including the current portion) was reduced by $27.1 million. At
the end of 1995, the Company's long-term debt (including the
current portion thereof) was 10 percent of capital (long-term
debt plus shareholders' equity) compared to 28 percent in 1994
and 21 percent in 1993. The Company's total debt to total capital
(notes payable plus long-term debt plus shareholders' equity)
fell to 14 percent at the end of 1995; down from 35 percent in
1994. The Company had $67.5 million in unused credit lines
available at December 29, 1995. While the Company believes that
available credit lines plus operating cash flows are adequate to
fund its short and long-term initiatives, additional credit lines
may be arranged from time to time as deemed necessary.
SHAREHOLDERS' EQUITY
Shareholders' equity totaled $103.6 million on December 29, 1995,
$21.7 million higher than 1994, and $28.9 million higher than
1993.
CASH FLOWS FROM OPERATING ACTIVITIES
During 1995, the Company's operating cash flow of $51.7 million
increased significantly over 1994 due to higher net earnings and
changes in working capital requirements. Cash flow from operating
activities in 1994 was $8.6 million, $14.5 million less than the
$23.1 million recorded in 1993.
Cash flows from operating activities have been, and are expected
to be, the principal source of funds required for future
additions to property, plant and equipment, and working capital,
as well as for other corporate purposes.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures were $19.8 million in 1995, $23.1 million in
1994, and $16.2 million in 1993. These expenditures have enhanced
the Company's engineering and manufacturing capabilities,
improved product quality, increased capacity, and lowered costs.
Substantial expenditures in 1995 included the completion of the
Russell J. Gray Technical Center expansion located in
Minneapolis, Minnesota and the addition of major manufacturing
equipment assets.
The Company expects to spend approximately $35 million on capital
improvements in 1996. This amount includes approximately $17
million for the construction of the new manufacturing and
distribution facility in Rogers, Minnesota. The balance of
capital expenditures in 1996 will be primarily for manufacturing
equipment and cellular manufacturing initiatives.
During 1995, the Company realized cash proceeds of $3.0 million
from sales of unutilized real estate. In 1994, the Company sold
its marketable securities to fund a special one-time dividend of
$31.2 million paid to shareholders on March 21, 1994.
12
CASH FLOWS FROM FINANCING ACTIVITIES
The amount of common stock issued represents the funds received
for shares sold through the Company's dividend reinvestment plan,
its Employee Stock Purchase Plan, and the distribution of shares
pursuant to its Long Term Stock Incentive Plan, more fully
described in Note F to the Consolidated Financial Statements.
Graco offers an Automatic Dividend Reinvestment Plan, which
provides shareholders with a simple and convenient way to
reinvest quarterly cash dividends in additional shares of Graco
common stock. Brokerage and service charges are paid by the
Company.
All Graco employees in the U.S. participate in the Graco Employee
Stock Ownership Plan. Eligible employees may also purchase Graco
common stock through the Company's Employee Stock Purchase Plan.
From time to time, the Company may make open market purchases of
its common shares. On February 25, 1994, the Company's Board of
Directors authorized management to repurchase up to 600,000
shares for a period not to exceed two years. As of December 29,
1995, under this repurchase program, the Company has repurchased
380,100 shares at an average price per share of $11.96. No shares
were acquired in 1995. On February 23, 1996, the Board of
Directors authorized management to repurchase up to 800,000
shares for a period ending on February 28, 1998.
Graco is currently paying 12 cents per share as its regular
quarterly dividend. Annual cash dividends paid on the Company's
common and preferred stock, including a special one-time dividend
of $31.2 million paid on March 21, 1994, were $7.5 million in
1995, $37.7 million in 1994, and $5.9 million in 1993. The
Company expects to continue paying regular quarterly dividends to
its common shareholders at amounts which will be adjusted
periodically to reflect earnings performance and management
expectations.
In 1995, the Company redeemed all of its 5 percent cumulative
preferred stock for approximately $1.5 million.
During 1995, debt was reduced by $27.1 million, reflecting strong
cash flows from operations attributable to higher net income and
lower working capital requirements.
Item 8. Financial Statements and Supplementary Data
Page
- Responsibility for Financial Reporting 14
- Independent Auditors' Report 14
- Consolidated Statements of Earnings for fiscal
years 1995, 1994 and 1993 15
- Consolidated Statements of Changes in
ShareholdersO Equity Accounts (See Footnote F,
Notes to Consolidated Financial Statements) 22
- Consolidated Balance Sheets for fiscal years
1995, 1994 and 1993 16
- Consolidated Statements of Cash Flows for
fiscal years 1995, 1994 and 1993 17
- Notes to Consolidated Financial Statements 18
- Selected Quarterly Financial Data (See Part II,
Item 5, Market for the Company's Common Stock
and Related Stockholder Matters) 8
13
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 schedules 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
internal control structure provides 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 the internal
control structure. Deloitte & Touche LLP, independent certified
public accountants, are retained to audit the consolidated
financial statements, and express an opinion thereon. Their
opinion follows.
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 internal
control structure, 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,
1995, December 30, 1994, and December 31, 1993, and the related
consolidated statements of earnings and consolidated cash flows
for each of the three years in the period ended December 29,
1995. Our audit 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 generally accepted
auditing standards. 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, 1995, December 30, 1994,
and December 31, 1993, and the results of their operations and
their cash flows for each of the three years in the period ended
December 29, 1995, in conformity with generally accepted
accounting principles. 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 23, 1996
14
CONSOLIDATED STATEMENTS OF EARNINGS GRACO INC. & Subsidiaries
Years Ended
------------------------------------------
December 29, December 30, December 31,
(In thousands, except per share amounts) 1995 1994 1993
- ---------------------------------------- ------------ ------------ ------------
Net Sales $386,314 $360,013 $322,602
Cost of products sold 196,687 186,002 169,475
------------ ------------ ------------
Gross Profit 189,627 174,011 153,127
Product development 15,715 14,591 12,382
Selling 86,634 92,752 85,757
General and administrative 42,044 40,279 38,086
------------ ------------ ------------
Operating Profit 45,234 26,389 16,902
Interest expense (2,335) (1,923) (2,288)
Other income (expense), net 657 (1,040) (821)
------------ ------------ ------------
Earnings before Income Taxes 43,556 23,426 13,793
Income taxes 15,850 8,100 4,300
------------ ------------ ------------
Net Earnings $ 27,706 $ 15,326 $ 9,493
============ ============ ============
Net Earnings Per Common Share $ 1.59 $ 0.88 $ 0.55
============ ============ ============
See Notes to Consolidated Financial Statements.
15
CONSOLIDATED BALANCE SHEETS GRACO INC. & Subsidiaries
December 29, December 30, December 31,
(In thousands, except share amounts) 1995 1994 1993
- ------------------------------------ ------------ ------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 1,643 $ 2,444 $ 11,095
Marketable securities - - 26,345
Accounts receivable, less allowances
of $4,800, $4,700, and $4,100 73,205 75,589 62,178
Inventories 41,693 50,529 35,719
Deferred income taxes, net 10,608 11,755 8,843
Other current assets 1,333 3,628 3,079
------------ ------------ ------------
Total current assets 128,482 143,945 147,259
Property, Plant and Equipment, at Cost:
Land 3,502 3,547 3,125
Buildings and improvements 50,534 46,777 41,526
Manufacturing equipment 71,437 60,014 53,629
Office, warehouse & automotive equipment 28,578 27,337 29,092
Construction in progress 2,117 7,489 2,504
------------ ------------ ------------
156,168 145,164 129,876
Accumulated depreciation (79,310) (75,124) (72,132)
------------ ------------ ------------
76,858 70,040 57,744
Other Assets 12,493 14,400 11,362
------------ ------------ ------------
$217,833 $228,385 $216,365
============ ============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable to banks $ 5,051 $ 11,675 $ 3,234
Current portion of long-term debt 1,935 5,685 5,543
Trade accounts payable 13,849 19,764 16,737
Salaries, wages and commissions 14,260 13,433 12,115
Dividends payable 2,072 1,857 32,535
Accrued insurance liabilities 10,792 9,918 8,783
Income taxes payable 4,229 5,761 5,658
Other current liabilities 19,395 21,447 15,006
------------ ------------ ------------
Total current liabilities 71,583 89,540 99,611
Long-term Debt, less current portion 10,074 26,798 13,937
Retirement Benefits & Deferred Compensation 32,605 30,196 28,132
Commitments and Contingencies (Note H)
Shareholders' Equity
5% Cumulative Preferred Stock, $100 par
value; 22,549 shares authorized; 0,
14,740, and 14,845 shares outstanding - 1,474 1,485
Common stock, $1 par value; 22,500,000
shares authorized; 17,264,509,
11,377,004, and 11,449,623
shares outstanding 17,265 11,377 11,449
Additional paid-in capital 20,397 18,289 19,813
Retained earnings 64,949 50,702 42,430
Other, net 960 9 (492)
------------ ------------ ------------
103,571 81,851 74,685
------------ ------------ ------------
$217,833 $228,385 $216,365
============ ============ ============
See Notes to Consolidated Financial Statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS GRACO INC. & Subsidiaries
Years Ended
------------------------------------------
December 29, December 30, December 31,
(In thousands) 1995 1994 1993
- ------------------------------------------------ ------------ ------------ ------------
Cash Flows from Operating Activities:
Net earnings $ 27,706 $ 15,326 $ 9,493
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 11,082 10,447 9,292
Deferred income taxes 1,938 (4,042) 827
Change in:
Accounts receivable 4,499 (10,806) (730)
Inventories 9,693 (13,967) 14,901
Trade accounts payable (6,193) 2,358 (3,226)
Accrued salaries 999 1,439 (749)
Retirement benefits and
deferred compensation 2,448 1,670 2,481
Other accrued liabilities (3,417) 6,858 (4,782)
Other 2,955 (696) (4,391)
------------ ------------ ------------
51,710 8,587 23,116
------------ ------------ ------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (19,848) (23,100) (16,178)
Proceeds from sale of property, plant and equipment 3,036 693 795
Purchases of marketable securities - (5,464) (25,703)
Proceeds from sales of marketable securities - 31,809 18,675
------------ ------------ ------------
(16,812) 3,938 (22,411)
------------ ------------ ------------
Cash Flows from Financing Activities:
Borrowing on notes payable and lines of credit 44,248 10,411 15,098
Payments on notes payable and lines of credit (50,927) (2,395) (15,567)
Proceeds from long-term debt - 16,632 1,297
Payments on long-term debt (20,333) (5,380) (5,739)
Common stock issued 2,485 3,102 3,390
Retirement of common & preferred stock (1,547) (4,564) (1,750)
Cash dividends paid (7,490) (37,732) (5,879)
------------ ------------ ------------
(33,564) (19,926) (9,150)
------------ ------------ ------------
Effect of exchange rate changes on cash (2,135) (1,250) 671
------------ ------------ ------------
Net decrease in cash and cash equivalents (801) (8,651) (7,774)
Cash and cash equivalents:
Beginning of year 2,444 11,095 18,869
------------ ------------ ------------
End of year $ 1,643 $ 2,444 $ 11,095
============ ============ ============
See Notes to Consolidated Financial Statements.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GRACO INC. & Subsidiaries
Years Ended December 29, 1995, December 30, 1994, and December 31,
1993
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.
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, 1995,
all subsidiaries are 100 percent owned. Subsidiaries outside
North America have been included principally on the basis of
fiscal years ended November 30 to effect more timely consolidated
financial reporting. The U.S. dollar was the functional currency
for all foreign subsidiaries. Prior to 1995, the local currency
was the functional currency for Graco K.K. (Japan), and prior to
1994 for Graco N.V. (Belgium).
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES. All
highly liquid investments with a maturity of three months or less
at the date of purchase are considered to be cash equivalents.
Marketable securities include debt securities of various
maturities. Realized gains and losses are computed based on the
specific identified cost method. At December 31, 1993, the
securities were reported at fair value, which approximated cost.
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.
CURRENCY HEDGES. The Company periodically evaluates its
monetary asset and liability positions denominated in foreign
currencies. Subsequently, the Company enters into forward
contracts, borrowings in various currencies, or options, in order
to hedge its net monetary positions. Consistent with financial
reporting requirements, these hedges of net monetary positions
are recorded at current market values and the gains and losses
are included in Other income (expense). The Company believes it
uses strong financial counterparties in these transactions and
that the resulting credit risk under these hedging strategies is
not significant. The notional amounts (which do not represent
credit or market risk) of such contracts were (in U.S. dollars)
$10,226,000, $9,086,000, and $15,258,000, at December 29, 1995,
December 30, 1994, and December 31, 1993, respectively.
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 3 to 10 years
Manufacturing equipment and tooling 3 to 10 years
Office, warehouse and automotive equipment 4 to 10 years
REVENUE RECOGNITION. Revenue is recognized on large
contracted systems using the percentage-of-completion method of
accounting. The Company recognizes revenue on other products when
title passes, which is usually upon shipment.
INCOME TAXES. The Company provides taxes on unremitted
earnings of subsidiaries.
EARNINGS PER COMMON SHARE. The Board of Directors
approved three-for-two stock splits on December 15, 1995 and on
December 17, 1993 effected in the form of 50 percent stock
dividends payable February 7, 1996 and February 2, 1994,
respectively, to shareholders of record on January 3, 1996 and
January 5, 1994, respectively. All share and per share data has
been restated to reflect the splits. Earnings per common share
are computed on earnings reduced by dividend requirements on
preferred stock and based upon the weighted average number of
common shares and common equivalent shares, consisting of the
dilutive effect of stock options outstanding during each year.
Earnings per common share, assuming full dilution, are
substantially the same.
STOCK BASED COMPENSATION. In October 1995, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," which encourages a fair value based method
of accounting for stock based compensation plans and requires
adoption of disclosure provisions no later than fiscal years
18
beginning after December 15, 1995. The new standard encourages a
fair value method of accounting for stock options and other
equity instruments. Under the fair value method, compensation
cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually
the vesting period. The Company has not yet determined if it will
elect to change to the fair value method, nor has it determined
the effect the new standard will have on net income and earnings
per share should it elect to make such a change. Adoption of the
new standard would have no effect on the Company's cash flows.
B. INDUSTRY SEGMENT AND FOREIGN OPERATIONS
The Company operates in one industry segment, namely the design,
manufacture, marketing, sale and installation of systems, and
equipment for the management of fluids.
The Company's operations by geographical area for the last three
years are shown below.
(In thousands) 1995 1994 1993
- -------------------------------- -------- -------- --------
Sales to unaffiliated customers:
Americas $238,874 $241,169 $206,464
Europe 82,552 65,888 60,546
Asia Pacific 64,888 52,956 55,592
-------- -------- --------
386,314 360,013 322,602
Intercompany sales between geographic areas:
Americas 56,703 51,939 38,902
Europe 32 14 3,798
Asia Pacific 1,398 450 402
Eliminations (58,133) (52,403) (43,102)
-------- -------- --------
Total sales $386,314 $360,013 $322,602
======== ======== ========
Operating profit:
Americas $ 70,037 $ 62,650 $ 46,260
Europe 1,916 (5,463) (2,780)
Asia Pacific 4,384 1,639 654
Eliminations 1,139 (2,205) 1,627
-------- -------- --------
77,476 56,621 45,761
General corporate expenses (31,585) (31,272) (29,680)
Interest expense (2,335) (1,923) (2,288)
-------- -------- --------
Earnings before income taxes $ 43,556 $ 23,426 $ 13,793
======== ======== ========
Assets:
Americas $152,831 $163,201 $128,713
Europe 46,618 50,503 30,737
Asia Pacific 26,985 26,605 25,680
Corporate 1,643 2,444 37,440
Eliminations (10,244) (14,368) (6,205)
-------- -------- --------
Total assets $217,833 $228,385 $216,365
======== ======== ========
1 Included are U.S. export sales to unaffiliated customers of
$29,549, $23,408, and $25,251 in 1995, 1994, and 1993, respectively.
2 Transfers between entities are made at prices which allow
appropriate markups to the manufacturing and selling unit.
Net earnings (loss) for subsidiaries operating outside the U.S.
were $12,506,000, ($5,624,000), and ($2,261,000) for 1995, 1994,
and 1993, respectively.
Retained earnings for subsidiaries operating outside the U.S.
were $4,373,000, $8,860,000, and $9,760,000 for 1995, 1994, and
1993, respectively.
Transaction and translation net gains or losses, included in
Other income (expense), net were $528,000, $366,000, and
($1,294,000) for 1995, 1994, and 1993, respectively.
19
C. INVENTORIES
Major components of inventories for the last three years were as
follows:
(In thousands) 1995 1994 1993
- ------------------------------------------------------- --------- --------- ---------
Finished products and components $ 40,335 $ 46,694 $ 42,010
Products and components in various stages of completion 22,597 24,826 21,410
Raw materials 13,152 13,918 8,642
--------- --------- ---------
76,084 85,438 72,062
Reduction to LIFO cost (34,391) (34,909) (36,343)
--------- --------- ---------
$ 41,693 $ 50,529 $ 35,719
========= ========= =========
Inventories valued under the LIFO method were $23,783,000,
$32,743,000, and $19,700,000 for 1995, 1994, and 1993,
respectively. The balance of the inventory was valued on the FIFO
method.
In 1995 and 1993, certain inventory quantities were reduced,
resulting in liquidation of LIFO inventory quantities carried at
different costs from prior years. The effect was to decrease net
earnings in 1995 by approximately $100,000 and increase net
earnings in 1993 by approximately $900,000.
D. INCOME TAXES
Earnings before income tax expense consists of:
(In thousands) 1995 1994 1993
- -------------- ------- ------- -------
Domestic $27,247 $28,168 $13,796
Foreign 16,309 (4,742) (3)
------- ------- -------
Total $43,556 $23,426 $13,793
======= ======= =======
Income tax expense consists of:
(In thousands) 1995 1994 1993
- -------------------- ------- ------- -------
Current:
Domestic:
Federal $ 9,629 $ 9,383 $ 1,598
State and local 1,591 1,030 385
Foreign 3,479 2,596 1,551
------- ------- -------
14,699 13,009 3,534
------- ------- -------
Deferred:
Domestic 227 (3,617) (134)
Foreign 924 (1,292) 900
------- ------- -------
1,151 (4,909) 766
------- ------- -------
Total $15,850 $ 8,100 $ 4,300
======= ======= =======
Income taxes paid were $16,019,000, $12,136,000, and $4,620,000
in 1995, 1994, and 1993, respectively.
A reconciliation between the U.S. federal statutory tax rate and
the effective tax rate is as follows:
1995 1994 1993
---- ---- ----
Statutory tax rate 35% 35% 35%
Foreign earnings with (lower) higher tax rates (1) 2 1
State taxes, net of federal effect 2 3 2
Increase in deferred tax assets from
statutory tax rate increase - - (3)
U.S. general business tax credits (1) (3) (1)
Other 1 (2) (3)
---- ---- ----
Effective tax rate 36% 35% 31%
==== ==== ====
20
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) 1995 1994 1993
- -------------------------------------- ------- ------- -------
Inventory valuations $ 3,726 $ 4,616 $ 3,004
Cost reductions and severance accruals 1,115 1,377 742
Insurance accruals 3,505 3,232 2,876
Vacation accruals 1,378 1,428 1,398
Bad debt reserves 961 893 894
Other (77) 422 (71)
Valuation allowance - (213) -
------- ------- -------
Current $10,608 $11,755 $ 8,843
------ ------- -------
Unremitted earnings of consolidated foreign subsidiaries (3,529) (2,938) (4,141)
Excess of tax over book depreciation (3,896) (3,104) (2,845)
Postretirement benefits 4,653 4,447 4,194
Pension and deferred compensation 5,666 5,103 4,856
Net operating loss carry forward 4,404 6,715 2,066
Other 1,207 407 895
Valuation allowance (5,015) (6,680) (2,740)
------- ------- -------
Non-current 3,490 3,950 2,285
------- ------- -------
Net deferred tax assets $14,098 $15,705 $11,128
======= ======= =======
1 Payable at the time these earnings are distributed to the parent.
Net non-current deferred tax assets above are included in other
assets. Total deferred tax assets were $23,040,000, $22,506,000,
and $18,637,000, and total deferred tax liabilities were
$8,942,000, $6,801,000, and $7,509,000 on December 29, 1995,
December 30, 1994, and December 31, 1993, respectively. A
valuation allowance of $5,015,000, $6,893,000, and $2,740,000 has
been recorded as of December 29, 1995, December 30, 1994, and
December 31, 1993, respectively, primarily related to the
uncertainty of obtaining tax benefits for subsidiary operating
losses, which expire beginning in 1998 in Japan and in later
years for other subsidiaries. The effect of these allowances has
been considered in "Foreign earnings with (lower) higher tax
rates" in the Company's tax rate reconciliation.
E. DEBT
Long-term debt consists of the following:
(In thousands) 1995 1994 1993
- ---------------------------------------------------- ------- ------- -------
Term debt, 6.53%, payable in equal
annual installments through 1995 $ - $ 4,000 $ 8,000
Term debt, 5.36% at December 29, 1995, payable
in equal annual installments through 1997 600 900 1,200
Industrial development refunding revenue
bonds, 4.65% at December 29, 1995,
payable through 2002 (property carried at
$3,265 pledged as collateral) 4,500 5,000 5,500
Revolving credit agreement, 7% at December 30, 1994,
payable September 30, 1996 - 14,850 -
Obligations related to low income housing investments 4,063 4,534 2,867
Other 2,846 3,199 1,913
------- ------- -------
Total long-term debt 12,009 32,483 19,480
Less current portion 1,935 5,685 5,543
------- ------- -------
Long-term portion $10,074 $26,798 $13,937
======= ======= =======
Aggregate annual scheduled maturities of long-term debt for the
next five years are as follows: 1996, $1,935,000; 1997,
$1,781,000; 1998, $1,798,000; 1999, $3,433,000; 2000, $1,202,000.
Interest paid on debt during 1995, 1994, and 1993
21
amounted to $2,179,000, $1,923,000, and $3,230,000, respectively. The
fair value of the Company's long-term debt at December 29, 1995,
December 30, 1994, and December 31, 1993, is not materially
different than its recorded value.
The Company has an interest rate swap agreement in place whereby
it fixed the interest rate of the remaining principal amounts of
the Company's previously variable interest rate revenue bond debt
at 4.65 percent through 1997, at which time the debt will revert
back to a variable interest rate. The cash flows related to the
swap agreement are recorded as income when received and expense
when paid. Market and credit risk are not significant.
On December 29, 1995, the Company had lines of credit with U.S.
and foreign banks of $71,697,000, including a $25,000,000
revolving credit agreement. The unused portion of these credit
lines was $67,521,000 at December 29, 1995. Borrowing rates under
these facilities vary with the prime rate, rates on domestic
certificates of deposit, and the London interbank market. The
weighted short-term borrowing rates were 2.2 percent, 5.6
percent, and 4.4 percent at December 29, 1995, December 30, 1994,
and December 31, 1993, respectively. The Company pays commitment
fees of up to 3/16 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. Under the most restrictive terms of the
agreements, approximately $18,669,000 of retained earnings were
available for payment of cash dividends at December 29, 1995.
F. SHAREHOLDERS' EQUITY
During 1995, the Company redeemed all 14,740 outstanding shares
of cumulative preferred stock at the call price of $105 per
share, plus accrued and unpaid dividends. Prior to the
redemption, the holders of the cumulative preferred stock were
entitled to fixed cumulative dividends of 5 percent per annum on
the par value before cash dividends were paid or declared on
common stock. At December 29, 1995, the Company has 22,549
authorized, but not issued, cumulative preferred shares.
The Company has authorized, but not issued, a separate class of
3,000,000 shares of preferred stock, $1 par value.
The Company has a leveraged Employee Stock Ownership Plan (ESOP)
under which outstanding debt was $600,000, $900,000, and
$1,200,000 at December 29, 1995, December 30, 1994, and December
31, 1993, respectively. This is also the remaining balance of a
concurrent loan to the ESOP Trust from the Company on the same
terms. The Company's loan is included in long-term debt with the
receivable from the ESOP in a like amount recorded as a reduction
of shareholders' equity reflected in the Other, net category. The
Company is obligated to make annual contributions to the ESOP
Trust through 1997 sufficient to repay the loan and interest
thereon.
The Board of Directors approved three-for-two stock splits on
December 15, 1995, and on December 17, 1993, effected in the form
of 50 percent stock dividends payable February 7, 1996 and
February 2, 1994, respectively, to shareholders of record on
January 3, 1996 and January 5, 1994, respectively. Accordingly,
December 29, 1995, and December 31, 1993 balances reflect the
splits with an increase in common stock and reduction in retained
earnings of $5,754,000 and $3,817,000, respectively. All stock
option, share, and per share data has been restated to reflect
the splits.
On December 17, 1993, the Board of Directors approved a special
one-time dividend of $1.80 per common share to be paid March 21,
1994, on post-split shares to shareholders of record on March 7,
1994. Dividends payable at December 31, 1993, reflect the special
one-time dividend.
On May 3, 1994, the shareholders approved a Nonemployee Director
Stock Plan which enables individual nonemployee directors of the
Company to elect to receive all or part of a director's annual
retainer in the form of shares of the Company's common stock
instead of cash. For the year ended December 29, 1995, the
Company has issued 485 shares under this plan. No shares were
issued during 1994.
Under the Company's Employee Stock Purchase Plan, 3,150,000
common shares have been authorized for sale to employees, 478,219
of which remained unissued at the end of 1995. 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.
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 one-
hundredth of a share of a new series of junior participating
preferred stock at an exercise price of $80, subject to
adjustment. The Rights are exercisable only if a person or group
22
acquires beneficial ownership of 20 percent or more of the
Company's outstanding common stock. The Rights expire in March
2000 and may be redeemed earlier by the Board of Directors for
$.01 per Right.
The Company has a Long Term Stock Incentive Plan, under which a
total of 2,475,000 common shares have been reserved for issuance,
with 1,158,167 shares remaining reserved at December 29, 1995.
Grants under this plan are in the form of restrictive share
awards and stock options. Restrictive share awards of 597,609
common shares have been made to certain key employees under the
plan, with 48,551 shares still restricted for disposition, such
restrictions lapse in 1996 and 1997. Unearned compensation
expense relating to the remaining restricted shares is $256,000
at December 29, 1995, and is included as a reduction of
shareholders' equity in the Other, net category.
Stock options for 1,349,577 common shares have also been granted
under the plan. The option price is the market price at the date
of grant. Options become exercisable at such time and in such
installments as set by the Company, and expire in five to ten
years from the date of grant.
In 1993, the Company granted Stock Appreciation Rights (SARs) to
certain key employees, utilizing a portion of the above options.
Upon exercise of the SARs, the employee will surrender the
unexercised related option and will receive a cash payment equal
to the excess of the fair market value at the time of exercise
over the price of the related option. Compensation expense
related to the SARs is not significant.
Shares and options on common shares granted and exercisable, as
well as the exercise price, are shown for the last three years in
the table below:
Number Of Shares
---------------------------------------
Option Price
Reserved Granted Exercisable Per Share
----------- ----------- ----------- --------------
Balance at December 25, 1992 1,413,417 476,132 261,931 $ 7.73 - 10.73
Granted - 124,200 38,813 10.33 - 13.28
Exercised (195,948) (195,948) (195,948) 7.73 - 12.61
Canceled 34,983 (5,175) 7,425 8.44 - 11.83
----------- ----------- ----------- --------------
Balance at December 31, 1993 1,252,452 399,209 112,221 7.73 - 13.28
Granted - 387,555 80,753 7.72 - 15.09
Exercised (78,315) (78,315) (78,315) 7.72 - 12.61
Canceled 12,081 (23,906) (3,885) 7.72 - 12.61
----------- ----------- ----------- --------------
Balance at December 30, 1994 1,186,218 684,543 110,774 7.72 - 15.09
Granted 147,144 78,266 10.33 - 22.00
Exercised (38,985) (38,985) (38,985) 7.72 - 10.72
Canceled 10,934 (88,839) (10,813) 11.58 - 20.63
----------- ----------- ----------- --------------
Balance at December 29, 1995 1,158,167 703,863 139,242 $ 7.72 - 22.00
=========== =========== =========== ==============
23
The changes in shareholders' equity accounts are as follows:
(In thousands) 1995 1994 1993
- -------------------------- -------- -------- --------
Preferred stock
Balance, beginning of year $ 1,474 $ 1,485 $ 1,487
Shares repurchased (1,474) (11) (2)
-------- -------- --------
Balance, end of year - 1,474 1,485
-------- -------- --------
Common stock
Balance, beginning of year 11,377 11,449 7,547
Stock split 5,754 - 3,817
Shares issued 143 188 157
Shares repurchased (9) (260) (72)
-------- -------- --------
Balance, end of year 17,265 11,377 11,449
-------- -------- --------
Additional paid-in capital
Balance, beginning of year 18,289 19,813 18,569
Shares issued 2,342 2,914 3,198
Shares repurchased (234) (4,438) (1,954)
-------- -------- --------
Balance, end of year 20,397 18,289 19,813
-------- -------- --------
Retained earnings
Balance, beginning of year 50,702 42,430 73,697
Net Income 27,706 15,326 9,493
Cash Dividends (7,705) (7,054) (36,943)
Stock split (5,754) - (3,817)
-------- -------- --------
Balance, end of year 64,949 50,702 42,430
-------- -------- --------
Cumulative translation adjustment
Balance, end of year 1,816 1,654 1,958
-------- -------- --------
Other, net
Balance, end of year (856) (1,645) (2,450)
-------- -------- --------
Total Shareholders' Equity $103,571 $ 81,851 $ 74,685
======== ======== ========
G. 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. Currently, the Company matches employee
contributions at a 50 percent rate, up to 3 percent of the
employee's compensation. Employer contributions were $852,000 in
1995, $850,000 in 1994, and $819,000 in 1993.
The Company has non-contributory defined benefit pension plans
covering substantially all U.S. employees and directors and most
of the employees of the Company's non-U.S. subsidiairies. 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 plan's investment in the common stock of the Company was
$9,188,000, $6,550,000, and $7,305,000 at December 29, 1995,
December 30, 1994, and December 31, 1993, respectively. The
expenses for these plans consist of the following components:
(In thousands) 1995 1994 1993
- ------------------------------------------------ -------- -------- --------
Service cost - benefits earned during the period $ 2,385 $ 2,499 $ 2,244
Interest cost on projected benefit obligation 4,561 4,301 4,115
Actual return on assets (12,774) 579 (11,736)
Net amortization and deferral 7,879 (5,583) 7,354
Cost of pension plans which are not significant
and have not adopted SFAS No. 87 65 312 190
-------- -------- --------
Net periodic pension cost $ 2,116 $ 2,108 $ 2,167
======== ======== ========
24
The status of the Company's plans and the amounts recognized in
the financial statements are:
(In thousands) 1995 1994 1993
- -------------------------------------------------- ------- ------- -------
Actuarial present value:
Vested benefit obligation $56,710 $49,429 $43,492
======= ======= =======
Accumulated benefit obligation $62,408 $54,884 $48,644
======= ======= =======
Projected benefit obligation $71,677 $66,093 $60,144
Plan assets at fair value 66,182 55,057 57,151
------- ------- -------
Funded status (5,495) (11,036) (2,993)
Unrecognized net gain (10,607) (3,787) (10,910)
Unrecognized net liability being amortized 113 204 249
Adjustment required to recognize minimum liability (473) (1,192) (467)
------- ------- -------
Accrued pension cost ($16,462) ($15,811) ($14,121)
======= ======= =======
Major assumptions at year-end:
1995 1994 1993
---------- ---------- ----------
Discount rate 4 - 7% 4 - 7 1/2% 4 - 7 1/2%
Rate of increase in future compensation levels 2 1/2 - 7% 3 - 7% 3 - 7%
Expected long-term rate of return on plan assets 9% 9% 9%
In addition to providing pension benefits, the Company pays part of the health
insurance costs for its retired U.S. employees and their dependents.
The cost of retiree health benefit expense for 1995, 1994 and 1993 was as
follows:
(In thousands) 1995 1994 1993
- ------------------- ------ ------ ------
Service cost $ 496 $ 503 $ 454
Interest cost 890 947 976
------ ------ ------
Net benefit expense $1,386 $1,450 $1,430
====== ====== ======
The Company's policy is to fund these benefits on a pay-as-you-go basis. The
actuarial present value of these health benefit obligations and the amounts
recognized in the consolidated balance sheets were as follows:
(In thousands) 1995 1994 1993
- ---------------------------------------------- -------- -------- --------
Accumulated postretirement benefit obligation:
Retirees and beneficiaries ($ 4,684) ($ 5,502) ($ 5,387)
Fully eligible active plan participants (2,657) (2,168) (2,010)
Other active plan participants (6,067) (6,104) (6,090)
-------- -------- --------
Accumulated benefit obligations (13,408) (13,774) (13,487)
Unrecognized net loss 114 1,069 1,504
-------- -------- --------
Accrued postretirement benefit cost ($ 13,294) ($ 12,705) ($ 11,983)
======== ======== ========
The Company's retirement medical benefit 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 ended December 29, 1995. This rate is assumed to remain
constant through the year 2001, decline by 1/2 percent for each
of the following three years to 4.5 percent and remain at that
level thereafter. The discount rate assumption at year-end for
1995, 1994, and 1993 was 7.0 percent, 7.5 percent, and 7.5
percent, respectively. If the assumed healthcare cost trend rate
changed by 1 percent, the APBO as of December 29, 1995 would
change by 8.6 percent. The effect of a 1 percent change in the
cost trend rate on the service and interest cost components of
the net periodic postretirement benefits expense would be a
change of 10.3 percent.
25
H. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS:
Aggregate annual rental commitments at December 29, 1995, under
operating leases with noncancelable terms of more than one year,
were $10,051,000, payable as follows:
Vehicles &
(In thousands) Buildings Equipment Total
- -------------- --------- ---------- -------
1996 $ 3,121 $ 738 $ 3,859
1997 2,130 428 2,558
1998 1,606 150 1,756
1999 833 13 846
2000 461 3 464
Thereafter 568 - 568
------- ------- -------
$ 8,719 $ 1,332 $10,051
======= ======= =======
Total rental expense was $4,722,000 for 1995, $4,103,000 for
1994, and $4,276,000 for 1993.
CONTINGENCIES:
In 1993, the U.S. District Court for the Southern District of
Texas awarded the Company $2,750,000 in a patent infringement
judgment. A subsequent ruling has disallowed treble damages and
attorneys' fees, significantly reducing the potential recovery.
The Company no longer considers this event material.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
26
PART III
Part III, Items 10, 11, 12 and 13, except for certain information
relating to Executive Officers included in Part I, is omitted as
the Company intends to file with the Securities and Exchange
Commission within 120 days of the close of the fiscal year ended
December 29, 1995, a definitive proxy statement containing such
information pursuant to Regulation 14A of the Securities Exchange
Act of 1934 and such information shall be deemed to be
incorporated herein by reference from the date of filing such
document.
The Company knows of no contractual arrangements which may, at a
subsequent date, result in a change in control of the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules, 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
- Schedule II - Valuation and Qualifying Accounts 28
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. 30
(See Exhibit Index) 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, 1995.
(c) Exhibit Index. 30
27
Schedule II - Valuation and Qualifying Accounts
GRACO INC. & Subsidiaries
(In thousands)
- --------------------------------------------------
Additions
Balance at charged to Deductions
beginning costs and from Balance at
Description of year expenses reserves end of year
- -------------------------------------------------- ---------- ---------- ---------- -----------
Year ended December 29, 1995:
Allowance for doubtful accounts $ 2,700 $ 700 $ 600 $ 2,800
Allowance for obsolete and overstock inventory 6,400 1,400 1,900 5,900
Allowance for returns and credits 2,000 3,400 3,400 2,000
Valuation allowance for tax benefits 6,900 - 1,880 5,020
---------- ---------- ---------- ----------
$18,000 $ 5,500 $ 7,780 $15,720
========== ========== ========== ==========
Year ended December 30, 1994:
Allowance for doubtful accounts $ 2,200 $ 1,200 $ 700 $ 2,700
Allowance for obsolete and overstock inventory 5,500 3,100 2,200 6,400
Allowance for returns and credits 1,900 2,000 1,900 2,000
Valuation allowance for tax benefits 2,740 4,160 - 6,900
---------- ---------- ---------- ----------
$12,340 $10,460 $ 4,800 $18,000
========== ========== ========== ==========
Year ended December 31, 1993:
Allowance for doubtful accounts $ 2,700 $ 500 $ 1,000 $ 2,200
Allowance for obsolete and overstock inventory 6,100 1,300 1,900 5,500
Allowance for returns and credits 1,800 1,900 1,800 1,900
Valuation allowance for tax benefits - 2,740 - 2,740
---------- ---------- ---------- ----------
$10,600 $ 6,440 $ 4,700 $12,340
========== ========== ========== ==========
1 Accounts determined to be uncollectible and charged against
reserve, net of collections on accounts previously charged
against reserves.
2 Items scrapped or otherwise disposed of during the year.
3 Credits issued and returns processed, related to prior years.
28
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.
\George Aristides March 18, 1996
------------------------------------- --------------
George Aristides
President and 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.
\George Aristides March 18, 1996
------------------------------------- --------------
George Aristides
President and Chief Executive Officer
(Principal Executive Officer)
\David M. Lowe March 18, 1996
------------------------------------- --------------
David M. Lowe
Treasurer
(Principal Financial Officer)
\James A. Graner March 18, 1996
------------------------------------- --------------
James A. Graner
Vice President and Controller
(Principal Accounting Officer)
D. A. Koch Director, Chairman of the Board
G. Aristides Director, President and Chief Executive Officer
R. O. Baukol Director
J. R. Lee Director
R. D. McFarland Director
L. R. Mitau Director
M. A.M. Morfitt Director
D. R. Olseth Director
C. M. Osborne Director
G. C. Planchon 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.
\George Aristides March 18, 1996
------------------------------------- --------------
George Aristides
(For himself and as attorney-in-fact)
29
Exhibit Index
Exhibit
Number Description
3.1 Restated Articles of Incorporation. See also
Exhibit 4.3.
3.2 Restated Bylaws. (Incorporated by reference
to Exhibit 2 to the Company's Report on Form 8-K
dated January 12, 1988.)
3.3 Bylaws Amendment. (Incorporated by reference
to Exhibit 1 to the Company's Report on Form 8-K
dated March 1, 1990.)
4.1 Credit Agreement dated October 1, 1990,
between the Company and First Bank National
Association. (Incorporated by reference to Exhibit
5 to the Company's Report on Form 10-Q for the
thirty-nine weeks ended September 28, 1990.)
4.2 Amendment 1 dated June 12, 1992, to Credit
Agreement dated October 1, 1990, between the
Company and First Bank National Association; and
Amendment 2 dated December 31, 1992, to the same
Agreement. (Incorporated by reference to Exhibit 1
to the Company's Report on Form 8-K dated March
11, 1993.) Amendment 3 dated November 8, 1993, and
Amendment 4, dated February 8, 1994. (Incorporated
by reference to Exhibit 4.2 to the Company's 1993
Annual Report on Form 10-K.) Amendment 5, dated
April 10, 1995.
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.
4.3 Rights Agreement dated as of March 9, 1990,
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 1 to the
Company's Report on Form 8-K dated March 19,
1990.)
*10.1 1995 Corporate and Business Unit Annual
Bonus Plan. (Incorporated by reference to Exhibit
10 to the Company's Report on Form 10-Q for the
twenty-six weeks ended June 30, 1995.)
*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.)
*10.3 Executive Deferred Compensation
Agreement. Form of supplementary agreement entered
into by the Company which provides a retirement
benefit to 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 Executive Long Term Incentive
Agreements. Form of restricted stock award
agreement used for awards to executive officers.
(Incorporated by reference to Attachment B to Item
5 to the Company's Report on Form 10-Q for the
thirteen weeks ended March 29, 1991.) Form of
restricted stock award agreement used for awards
to Chairman. (Incorporated by reference to
Attachment A to Item 5 to the Company's Report on
Form 10-Q for the twenty-six weeks ended June 28,
1991.)
30
*10.6 Executive Long Term Incentive Agreement.
Form of agreement used for restricted stock awards
to two new officers. (Incorporated by reference to
Attachment B to Company's Report on Form 10-Q for
the thirteen weeks ended March 27, 1992.)
*10.7 Executive Long Term Incentive Agreement.
Form of agreement used for one year restricted
stock award to one officer. (Incorporated by
reference to Exhibit 2 to Company's Report on Form
10-Q for the twenty-six weeks ended June 25,
1993.)
*10.8 Long Term Stock Incentive Plan
(Incorporated by reference to Attachment C to the
Company's Report on Form 10-Q for the thirteen
weeks ended March 27, 1992.)
*10.9 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.)
*10.10 Deferred Compensation Plan for Non-
Employee Directors. (Incorporated by reference to
Exhibit 2 to the Company's Report on Form 8-K
dated March 7, 1988.)
*10.11 Restoration Plan, restating Excess
Benefit Plan, effective as of July 1, 1988.
(Incorporated by reference to Exhibit 1 to the
Company's Report on Form 10-Q for the thirteen
weeks ended March 26, 1993.)
*10.12 Stock Option Agreement. Form of
agreement used for incentive stock
option/alternative stock appreciation right award
to selected officers, dated February 25, 1993.
(Incorporated by reference to Exhibit 10.14 to the
Company's 1993 Annual Report on Form 10-K.)
*10.13 Stock Option Agreement. Form of
agreement used for non-incentive stock
option/alternative stock appreciation right award
to selected officers, dated May 4, 1993.
(Incorporated by reference to Exhibit 10.15 to the
Company's 1993 Annual Report on Form 10-K.)
*10.14 Nonemployee Director Stock Plan
(Incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the twenty-six
weeks ended July 1, 1994.)
*10.15 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.)
*10.16 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.)
*10.17 Stock Option Agreement. Form of
agreement used for award of non-incentive stock
options to executive officers, dated March 1,
1995. (Incorporated by reference to Exhibit 10 to
the Company's Report on Form 10-Q for the thirteen
weeks ended March 31, 1995.)
*10.18 Stock Option Agreement. Form of
agreement used for award of non-incentive stock
option to one executive officer, dated December
15, 1995.
*10.19 Stock Option Agreement. Form of
agreement used for award of non-incentive stock
options to executive officers, dated March 1,
1996.
*10.20 Salary protection arrangement with one
executive officer.
*10.21 Form of salary protection arrangement
between the Company and executive officers.
11 Statement of Computation of Earnings per
share included herein on page 33.
31
21 Subsidiaries of the Registrant included
herein on page 34.
23 Independent Auditor's Consent included herein
on page 34.
24 Power of Attorney included herein on page 35.
27 Financial Data Schedule (EDGAR filing only).
*Management Contracts, Compensatory Plans or Arrangements.
32
Exhibit Number 11
Graco Inc. & Subsidiaries
Computation of Per Share Earnings
Years Ended
----------------------------------------
(In thousands, except per share amounts) December 29, December 30, December 31,
1995 1994 1993
PRIMARY ------------ ------------ ------------
Net earnings applicable to common stock:
Net earnings $27,706 $15,326 $ 9,493
Less dividends on preferred stock 61 74 74
------------ ------------ ------------
$27,645 $15,252 $ 9,419
============ ============ ============
Average number of common shares and
common equivalent shares outstanding:
Average number of common shares outstanding 17,214 17,309 17,079
Dilutive effect of stock options computed based on
the treasury stock method using average market price 206 63 119
------------ ------------ ------------
17,420 17,372 17,198
Net earnings per common share and common equivalent share $ 1.59 $ .88 $ .55
============ ============ ============
FULLY DILUTED
Net earnings applicable to common stock:
Net earnings $27,706 $15,326 $ 9,493
Less dividends on preferred stock 61 74 74
------------ ------------ ------------
$27,645 $15,252 $ 9,419
============ ============ ============
Average number of common shares and
common equivalent shares outstanding:
Average number of common shares outstanding 17,214 17,309 17,079
Dilutive effect of stock options computed based on
the treasury stock method using the year end
market price, if higher than average market price 227 73 137
------------ ------------ ------------
17,441 17,382 17,216
Net earnings per common share and common equivalent share $ 1.59 $ .88 $ .55
============ ============ ============
1 All share and per share data has been restated for the three-for-two stock splits declared
December 15, 1995, and December 17, 1993 and paid February 7, 1996 and February 2, 1994,
respectively.
33
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
------------------------- ------------ --------------------
Graco N.V. Belgium 100%*
Graco Canada Incorporated Canada 100%
Graco Chile Limitada Chile 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 A.S. Norway 100%
Graco S.A. France 100%*
Graco S.r.l. Italy 100%*
Graco Limited England 100%*
Graco Barbados FSC Limited Barbados 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.
The Registrant has additional subsidiaries, which considered in the
aggregate as a single subsidiary, do not constitute a significant
subsidiary.
Exhibit 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration
Statement No. 33-47829 on Form S-8 (the Company's Long Term
Stock Incentive Plan), in Registration Statement No. 33-44821 on
Form S-8 (the Company's Employee Stock Purchase Plan) and in
Registration Statement No. 33-54205 on Form S-8 (the Company's
Nonemployee Director Stock Plan) of our report dated January 23,
1996, on the audit of the consolidated financial statements and
financial statement schedule of Graco Inc. and Subsidiaries for
each of the three years in the period ended December 29, 1995,
included in the Annual Report on Form 10-K for the year ended
December 29, 1995.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
March 15, 1996
34
Exhibit 24
Power of Attorney
Know all by these presents, that each person whose signature
appears below hereby constitutes and appoints George Aristides
or David M. Lowe, 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, 1995, 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
-----------------
\G.Aristides February 23, 1996
-------------------- -----------------
G.Aristides
\R. O. Baukol February 23, 1996
-------------------- -----------------
R. O. Baukol
\D. A. Koch February 23, 1996
-------------------- -----------------
D. A. Koch
\J. R. Lee February 23, 1996
-------------------- -----------------
J. R. Lee
\R. D. McFarland February 23, 1996
-------------------- -----------------
R. D. McFarland
\L. R. Mitau February 23, 1996
-------------------- -----------------
L. R. Mitau
\M. A.M. Morfitt February 23, 1996
-------------------- -----------------
M. A.M. Morfitt
\D. R. Olseth February 23, 1996
-------------------- -----------------
D. R. Olseth
\C. M. Osborne February 23, 1996
-------------------- -----------------
C. M. Osborne
\G. C. Planchon February 23, 1996
-------------------- -----------------
G. C. Planchon
\W. G. Van Dyke February 23, 1996
-------------------- -----------------
W. G. Van Dyke
35
ARTICLES OF AMENDMENT
RESTATING
ARTICLES OF INCORPORATION OF
GRACO INC.
1. The name of the corporation is Graco Inc., a Minnesota
corporation.
2. On December 15, 1995, the Board of Directors of Graco Inc.
amended Article 5.1(a) of its Articles of Incorporation, pursuant
to the Minnesota Business Corporation Act, Minnesota Statutes,
Section 302A.402, subd. 3, to read as follows:
5.1 (a) The total number of shares which
this corporation shall be authorized to issue
is Twenty-five Million Five Hundred Twenty-
two Thousand Five Hundred Forty-nine
(25,522,549), of which Twenty-two Million
Five Hundred Thousand (22,500,000) 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 (22,549)
shares of the par value of $100.00 per share
shall be Cumulative Preferred Shares.
3. 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 to Article 5.1(a)
adopted by the Board of Directors on December 15, 1995.
4. 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, including the amendment to Article 5.1(a), in their
entirety.
5. The "Restated Articles of Incorporation of Graco Inc.,"
attached hereto as Exhibit A, supersede the prior restated
Articles 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 fifteenth day of December, 1995.
/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, 1995, by Robert M. Mattison, as Secretary of Graco
Inc., on behalf of such corporation.
/s/ Susan M. Paurus
Susan M. Paurus
Exhibit A
RESTATED ARTICLES OF INCORPORATION
OF
GRACO INC.
(Approved by the Board of Directors on December 15, 1995)
ARTICLE I
1. The name of this corporation shall be Graco Inc.
ARTICLE 2
2. CT Corporation System Inc., is this corporation's
registered agent in the State of Minnesota, and 405 Second Avenue
South, Minneapolis, Minnesota 55401, the business office address
of CT Corporation System Inc., is the registered office of this
corporation.
ARTICLE 3
3. Except as provided in Article 6, (i) the holders
of a majority of the Common Shares outstanding shall have power
to authorize the sale, lease, exchange, or other disposal of all,
or substantially all, of the property and assets of the
corporation, including its goodwill, to adopt or reject a plan of
merger or exchange and (ii) the holders of a majority of the
Common Shares present and entitled to vote at a meeting shall
have the power to amend the Articles of Incorporation.
ARTICLE 4
4. 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 5
5.1 (a) The total number of shares which this
corporation shall be authorized to issue is Twenty-five
Million Five Hundred Twenty-two Thousand Five Hundred Forty-
nine (25,522,549), of which Twenty-two Million Five Hundred
Thousand (22,500,000) 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 (22,549) 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.
5.2 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 6
6.1 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.
6.2 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.
6.3 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.
6.4 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 7
7.1 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.
7.2 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.
7.3 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.
7.4 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 8
8. 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 9
9. 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.
FIFTH AMENDMENT TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT (this "Amendment") dated as of April 10,
1995, amends and modifies that certain Credit Agreement, dated as
of October 1, 1990, as amended pursuant to Amendments dated as of
June 12, 1992, December 31, 1992, November 8, 1993 and February 8,
1994 (as so amended, the "Credit Agreement"), between GRACO INC., a
Minnesota corporation (the "Company") and FIRST NATIONAL
ASSOCIATION (the "Bank"). Terms not otherwise expressly defined
herein shall have the meanings set forth in the Credit Agreement.
FOR VALUE RECEIVED, the Company and the Bank agree that the
Credit Agreement is amended as follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Defined Terms. Section 1.01 is amended as follows:
(a) The definition of "Applicable Margin" is amended by
deleting column (d) from the chart in such Section (which
had provided an Applicable Margin for Federal Funds Rate
Loans).
(b) The definitions of "Federal Funds Rate", and
"Federal Funds Rate Loan" are deleted. Any further
reference to Federal Funds Rate and Federal Funds Rate
Loans not otherwise expressly amended herein shall be
deemed to refer to the Daily Rate and Daily Rate Loans.
(c) Definitions of "Daily Rate" and "Daily Rate Loans"
are added and shall read as follows:
"Daily Rate": For any day upon which a Daily Rate
Loan is outstanding, a rate per annum (rounded upward, if
necessary, to the nearest 1/16 of 1%) determined pursuant
to the following formula, which rate shall continue in
effect until the next succeeding Business Day:
( LIBO Rate )
Daily Rate = (-------------------) plus 0.20%
(1.00-Eurocurrency Reserve )
Percentage
In such formula, (I) "Eurocurrency Reserve Percentage"
means the percentage (expressed as a decimal) for such
day prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining reserve
requirements applicable to "Eurocurrency liabilities"
pursuant to Regulation D or any other applicable
regulation of the Board of Governors which prescribes
such reserve requirements, and (ii) "LIBO Rate" means the
offered rate for deposits in United State Dollars
(rounded upwards, if necessary, to the nearest 1/16 of
1%), for delivery of such deposits two eurodollar
business days after such day, for an interest period of
one month, which appears on the Reuters Screen LIBO Page
as of the time selected by the Bank on such day. If at
least two rates appear on the Reuters Screen LIBO Page,
the rate shall be the arithmetic mean of such rates
(rounded as provided above). If fewer than two rates
appear, the rate may be determined by the Bank based on
other services selected for such purpose by the Bank or
based on rates offered to the Bank for United States
Dollar deposits in the interbank eurodollar market.
"Reuters Screen LIBO Page" means the display designated
as page "LIBO" on the Reuter Monitor Money Rates Service
(or such other page as may replace the LIBO Page on that
service for the purpose of displaying London interbank
offered rates of major banks for United States Dollar
deposits).
"`Daily Rate Loans': Loans bearing interest at the Daily
Rate."
(d) The definition of "Interest Payment Date" is amended
by amending subparagraph (c) thereof to read as follows:
"and (c) Daily Rate Loans, the next Business Day."
(e) The definition of "Permitted Interest Rate" is
amended by amending subparagraph (iv) thereof to read as follows:
"and (iv) Daily Rate "
1.2 Revolving Credit Commitment. Section 2.01(a) is
amended by deleting "$15,000,000" and inserting in place thereof
"$25,000,000".
1.3 Interest. Section 2.03 is amended by amending
subsection (d) to read as follows:
"(d) During such period as any such Loan is a
Daily Rate Loan, a rate equal to the Daily Rate from time
to time in effect."
1.4 Note. A promissory note substantially in the form
of Exhibit AA to this Amendment shall be executed and
delivered by the Borrower and shall be and constitute the
"Graco Revolving Credit Note", and one of the "Revolving
Credit Notes" and "Notes" for purposes of all references
thereto in the Credit Agreement.
1.5 Construction. All references in the Credit
Agreement to "this Agreement", "herein" and similar references
shall be deemed to refer to the Credit Agreement as amended by
this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and
to make and maintain the Loans under the Credit Agreement as
amended hereby, the Company hereby warrants and represents to
the Bank that it is duly authorized to execute and deliver
this Amendment, and to perform its obligations under the
Credit Agreement as amended hereby, and that this Amendment
constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.
ARTICLE III - CONDITIONS PRECEDENT
This Amendment shall become effective on the date
first set forth above, provided, however, that the
effectiveness of this Amendment is subject to the satisfaction
of each of the following conditions precedent:
3.1 Warranties. Before and after giving effect to this
Amendment, the representations and warranties in Section 6 of
the Credit Agreement shall be true and correct as though made
on the date hereof, except for changes that are permitted by
the terms of the Credit Agreement. The execution by the
Borrower of this Amendment shall be deemed a representation
that the Borrower has compiled with the foregoing condition.
3.2 Defaults. Before and after giving effect to this
Amendment, no Event of Default and no Unmatured Event of
Default shall have occurred and be continuing under the Credit
Agreement. The execution by the Borrower of this Amendment
shall be deemed a representation that the Borrower has
complied with the foregoing condition.
3.3 Documents. The following shall have been delivered
to the Bank, each duly executed and dated, or certified, as of
the date hereof, as the case may be:
(a) Note. The Note in the form of Exhibit AA to this
Amendment.
(b) Resolutions. Certified copies of resolutions of the
Board of Directors of the Borrower authorizing or ratifying
the execution, delivery and performance, respectively, of this
Amendment, the Note and other documents provided for in this
Amendment, together with an incumbency certificate of officers
executing this Amendment and the Note:
ARTICLE IV - GENERAL
4.1 Expenses. The Company agrees to reimburse the Bank
upon demand for all reasonable expenses, including reasonable
fees of attorneys (who may be employees of the Bank) and legal
expenses incurred by the Bank in the preparation, negotiation
and execution of this Amendment and any other document
required to be furnished herewith, and in enforcing the
obligations of the Company hereunder, and to pay and save the
Bank harmless from all liability for, any taxes which may be
payable with respect to the execution or delivery of this
Amendment or the issuance of the Note hereunder, which
obligations of the Company shall survive any termination of
the Credit Agreement.
4.2 Counterparts. This amendment may be executed in as
many counterparts as may be deemed necessary or convenient,
and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed an original
but all such counterparts shall constitute but one and the
same instrument.
4.3 Severability. Any provision of this Amendment which
is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
4.4 Law. This Amendment shall be a contract made under
the laws of the State of Minnesota, which laws shall govern
all the rights and duties hereunder.
4.5 Successors; Enforceability. The Amendment shall be
binding upon the Borrower and the Bank and their respective
successors and assigns, and shall inure to the benefit of the
Company and the Bank and the successors and assigns of the
Bank. Except as hereby amended, the Credit Agreement shall
remain in full force and effect and is hereby ratified and
confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed at Minneapolis, Minnesota by their
respective officers thereunto duly authorized as of the date
first written above.
GRACO INC.
By: /s/David M. Lowe
Title: Treasurer
FIRST BANK NATIONAL ASSOCIATION
By: Marc Meirovitz
Title: Commercial Banking Officer
EXHIBIT AA
PROMISSORY NOTE
(Revolving Credit Note)
$25,000,000 April 10, 1995
Minneapolis, Minnesota
FOR VALUE RECEIVED, GRACO INC., a Minnesota corporation,
hereby promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at its main office at 601 2nd Avenue
South, Minneapolis, Minnesota 55402, the lessor of the principal
amount of TWENTY FIVE MILLION DOLLARS ($25,000,000) or the
aggregate unpaid principal amount of all Loans made to the
undersigned by the Bank under the Revolving Credit Commitment (as
such term and each other capitalized term used herein is defined in
the Credit Agreement hereinafter referred to), together with
interest (computed on the basis of the actual number of days
elapsed and a year of 360 days) on any and all unpaid principal
amounts from time to time outstanding hereunder in the currency and
at the times and interest rates provided for in the Credit
Agreement.
The Bank is hereby authorized by the undersigned to endorse on
the schedule attached to this note the amount and type of, and the
duration of each Interest Period (if applicable) for, each Loan
made to the undersigned by the Bank under the Revolving Credit
Commitment, the date such Loan is made or continued or converted
from a Loan of another type, and the amount of each payment or
prepayment of principal of such Loan received by the Bank, provided
that any failure by the Bank to make any such endorsement shall not
affect the obligations of the undersigned hereunder or under the
Credit Agreement in respect of such Loans.
This note is one of the Revolving Credit Notes referred to in,
and is entitled to the benefits of , the Credit Agreement dated as
of October 1, 1990 between the undersigned and the Bank (as the
same has been, and may hereafter be, amended, modified,
supplemented or restated from time to time, the "Credit
Agreement"). This note is subject to certain permissive and
mandatory prepayments and its maturity is subject to acceleration,
in each case upon the terms provided in the Credit Agreement. This
note continues and evidences principal indebtedness outstanding
under that certain Promissory Note (Revolving Credit Note) dated
October 1, 1990, by the undersigned to the order of the Bank in the
original principal amount of $15,000,000 ("Existing Note"),
provided that any principal of or interest on and other obligations
under the Existing Note accrued prior to the date of this note but
remaining unpaid on the date of this note shall not be deemed
discharged and shall be due and payable in advance with the terms
of this note and the Credit Agreement.
This note shall be construed in accordance with the internal
law, and law of conflicts, of the State of Minnesota. In the event
of default hereunder, the undersigned agrees to pay all costs and
expenses of collection, including reasonable attorneys' fees.
GRACO INC.
By: /s/ David M. Lowe
Title: Treasurer
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this day of 199 , by and
between Graco Inc., a Minnesota corporation (the "Company") and
(the "Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive
Stock Plan wishes to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto hereby
agree as follows:
1. Grant of Option
The Company hereby grants to Employee, the right and
option (hereinafter called the "option") to purchase all or any
part of an aggregate of Common Shares, par value $1.00 per
share, at the price of $ per share on the terms and
conditions set forth herein.
2. Duration and Exercisability
(a) This option may not be exercised by Employee until
the expiration of two (2) years from the date of grant, and this
option shall in all events terminate ten (10) years after the
date of grant. During the first two years from the date of grant
of this option, no portion of this option may be exercised.
Thereafter this option shall become exercisable in four
cumulative installments of 25% as follows:
Total Portion of
Date Option Which is
Exercisable
------------------------------- ----------------
Two Years after Date of Grant 25%
Three Years after Date of Grant 50%
Four Years after Date of Grant 75%
Five Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which
he/she is entitled under this option, he/she may, subject to the
terms and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option.
(b) During the lifetime of the Employee, the option shall
be exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
(a) In the event that Employee shall cease to be employed
by the Company or its subsidiaries for any reason other than
his/her gross and willful misconduct, death, retirement (as
defined in Section 3(d) below), or disability (as defined in
Section 3(d) below), Employee shall have the right to exercise
the option at any time within one month after such termination of
employment to the extent of the full number of shares he/she was
entitled to purchase under the option on the date of termination,
subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
(b) In the event that Employee shall cease to be employed
by the Company or its subsidiaries by reason of his/her gross and
willful misconduct during the course of his/her employment,
including but not limited to wrongful appropriation of Company
funds or the commission of a felony, the option shall be
terminated as of the date of the misconduct.
(c) If the Employee shall die while in the employ of the
Company or a subsidiary or within one month after termination of
employment for any reason other than gross and willful misconduct
and shall not have fully exercised the option, all remaining
shares shall become immediately exerciseable and such option may
be exercised at any time within twelve months after his/her death
by the executors or administrators of the Employee or by any
person or persons to whom the option is transferred by will or
the applicable laws of descent and distribution, and subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
(d) If the Employee's termination of employment is due to
retirement (either after attaining age 55 with 10 years of
service, or attaining age 65, or due to disability within the
meaning of the provisions of the Graco Long-Term Disability
Plan), all remaining shares shall become immediately exerciseable
and the option may be exercised by the Employee at any time
within three years of the employee's retirement, or in the event
of the death of the Employee within the three-year period after
retirement, the option may be exercised at any time within twelve
months after his/her death by the executors or administrators of
the Employee or by any person or persons to whom the option is
transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares he/she
was entitled to purchase under the option on the date of death,
and subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
4. Manner of Exercise
(a) The option can be exercised only by Employee or other
proper party within the option period delivering written notice
to the Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4(c), accompanied by
payment-in-full of the option price for all shares designated in
the notice.
(b) The Employee may, at Employee's election, pay the
option price either by check (bank check, certified check, or
personal check) or by delivering to the Company for cancellation
Common Shares of the Company with a fair market value equal to
the option price. For these purposes, the fair market value of
the Company's Common Shares shall be the closing price of the
Common Shares on the date of exercise on the New York Stock
Exchange (the "NYSE") or on the principal national securities
exchange on which the shares are traded if the shares are not
then traded on the NYSE. If there is not a quotation available
for such day, then the closing price on the next preceding day
for which such a quotation exists shall be determinative of fair
market value. If the shares are not then traded on an exchange,
the fair market value shall be the average of the closing bid and
asked prices of the Common Shares as reported by the National
Association of Securities Dealers Automated Quotation System. If
the Common Shares are not then traded on NASDAQ or on an
exchange, then the fair market value shall be determined in such
manner as the Company shall deem reasonable.
(c) The Employee may, with the consent of the Company,
pay the option price by arranging for the immediate sale of some
or all of the shares issued upon exercise of the option by a
securities dealer and the payment to the Company by the
securities dealer of the option exercise price.
5. Payment of Withholding Taxes
Upon exercise of any portion of this option, Employee shall
pay to the Company an amount sufficient to satisfy any federal,
state, or local withholding tax requirements which arise as a
result of the exercise of the option or provide the Company with
satisfactory indemnification for such payment.
6. Adjustments
If Employee exercises all or any portion of the option
subsequent to any change in the number or character of the Common
Shares of the Company (through merger, consolidation,
reorganization, recapitalization, stock dividend, or otherwise),
Employee shall then receive for the aggregate price paid by
him/her on such exercise of the option, the number and type of
securities or other consideration which he/she would have
received if such option had been exercised prior to the event
changing the number or character of outstanding shares.
7. Miscellaneous
(a) This option is issued pursuant to the Company's Long-
Term Incentive Stock Plan and is subject to its terms. A copy of
the Plan has been given to the Employee. The terms of the Plan
are also available for inspection during business hours at the
principal offices of the company.
(b) This Agreement shall not confer on Employee any right
with respect to continuance of employment by the Company or any
of its subsidiaries, nor will it interfere in any way with the
right of the Company to terminate such employment at any time.
Employee shall have none of the rights of a shareholder with
respect to shares subject to this option until such shares shall
have been issued to him upon exercise of this option.
(c) The Company shall at all times during the term of the
option reserve and keep available such number of shares as will
be sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
GRACO INC.
By__________________________
Its: Chairman
____________________________
Employee
STOCK OPTION AGREEMENT
(NON-ISO)
THIS AGREEMENT, made this day of , 199
, by and between Graco Inc., a Minnesota corporation (the
"Company") and (the "Employee").
WITNESSETH THAT:
WHEREAS, the Company pursuant to it's Long-Term Incentive
Stock Plan wishes to grant this stock option to Employee;
NOW THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto hereby
agree as follows:
1. Grant of Option
The Company hereby grants to Employee, the right and
option (hereinafter called the "option") to purchase all or any
part of an aggregate of Common Shares, par value
$1.00 per share, at the price of $ per share on the
terms and conditions set forth herein.
2. Duration and Exercisability
(a) This option may not be exercised by Employee until
the expiration of two (2) years from the date of grant, and this
option shall in all events terminate ten (10) years after the
date of grant. During the first two years from the date of grant
of this option, no portion of this option may be exercised.
Thereafter this option shall become exercisable in four
cumulative installments of 25% as follows:
Total Portion of
Date Option Which is
Exercisable
------------------------------- ----------------
Two Years after Date of Grant 25%
Three Years after Date of Grant 50%
Four Years after Date of Grant 75%
Five Years after Date of Grant 100%
In the event that Employee does not purchase in any one year the
full number of shares of Common Stock of the Company to which
he/she is entitled under this option, he/she may, subject to the
terms and conditions of Section 3 hereof, purchase such shares of
Common Stock in any subsequent year during the term of this
option.
(b) During the lifetime of the Employee, the option shall
be exercisable only by him/her and shall not be assignable or
transferable by him/her otherwise than by will or the laws of
descent and distribution.
3. Effect of Termination of Employment
(a) In the event that Employee shall cease to be employed
by the Company or its subsidiaries for any reason other than
his/her gross and willful misconduct, death, retirement (as
defined in Section 3(d) below), or disability (as defined in
Section 3(d) below), Employee shall have the right to exercise
the option at any time within one month after such termination of
employment to the extent of the full number of shares he/she was
entitled to purchase under the option on the date of termination,
subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
(b) In the event that Employee shall cease to be employed
by the Company or its subsidiaries by reason of his/her gross and
willful misconduct during the course of his/her employment,
including but not limited to wrongful appropriation of Company
funds or the commission of a felony, the option shall be
terminated as of the date of the misconduct.
(c) If the Employee shall die while in the employ of the
Company or a subsidiary or within one month after termination of
employment for any reason other than gross and willful misconduct
and shall not have fully exercised the option, all remaining
shares shall become immediately exerciseable and such option may
be exercised at any time within twelve months after his/her death
by the executors or administrators of the Employee or by any
person or persons to whom the option is transferred by will or
the applicable laws of descent and distribution, and subject to
the condition that no option shall be exercisable after the
expiration of the term of the option.
(d) If the Employee's termination of employment is due to
retirement (either after attaining age 55 with 10 years of
service, or attaining age 65, or due to disability within the
meaning of the provisions of the Graco Long-Term Disability
Plan), all remaining shares shall become immediately exerciseable
and the option may be exercised by the Employee at any time
within three years of the employee's retirement, or in the event
of the death of the Employee within the three-year period after
retirement, the option may be exercised at any time within twelve
months after his/her death by the executors or administrators of
the Employee or by any person or persons to whom the option is
transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares he/she
was entitled to purchase under the option on the date of death,
and subject to the condition that no option shall be exercisable
after the expiration of the term of the option.
4. Manner of Exercise
(a) The option can be exercised only by Employee or other
proper party within the option period delivering written notice
to the Company at its principal office in Minneapolis, Minnesota,
stating the number of shares as to which the option is being
exercised and, except as provided in Section 4(c), accompanied by
payment-in-full of the option price for all shares designated in
the notice.
(b) The Employee may, at Employee's election, pay the
option price either by check (bank check, certified check, or
personal check) or by delivering to the Company for cancellation
Common Shares of the Company with a fair market value equal to
the option price. For these purposes, the fair market value of
the Company's Common Shares shall be the closing price of the
Common Shares on the date of exercise on the New York Stock
Exchange (the "NYSE") or on the principal national securities
exchange on which the shares are traded if the shares are not
then traded on the NYSE. If there is not a quotation available
for such day, then the closing price on the next preceding day
for which such a quotation exists shall be determinative of fair
market value. If the shares are not then traded on an exchange,
the fair market value shall be the average of the closing bid and
asked prices of the Common Shares as reported by the National
Association of Securities Dealers Automated Quotation System. If
the Common Shares are not then traded on NASDAQ or on an
exchange, then the fair market value shall be determined in such
manner as the Company shall deem reasonable.
(c) The Employee may, with the consent of the Company,
pay the option price by arranging for the immediate sale of some
or all of the shares issued upon exercise of the option by a
securities dealer and the payment to the Company by the
securities dealer of the option exercise price.
5. Payment of Withholding Taxes
Upon exercise of any portion of this option, Employee shall
pay to the Company an amount sufficient to satisfy any federal,
state, or local withholding tax requirements which arise as a
result of the exercise of the option or provide the Company with
satisfactory indemnification for such payment.
6. Adjustments
If Employee exercises all or any portion of the option
subsequent to any change in the number or character of the Common
Shares of the Company (through merger, consolidation,
reorganization, recapitalization, stock dividend, or otherwise),
Employee shall then receive for the aggregate price paid by
him/her on such exercise of the option, the number and type of
securities or other consideration which he/she would have
received if such option had been exercised prior to the event
changing the number or character of outstanding shares.
7. Miscellaneous
(a) This option is issued pursuant to the Company's Long-
Term Incentive Stock Plan and is subject to its terms. A copy of
the Plan has been given to the Employee. The terms of the Plan
are also available for inspection during business hours at the
principal offices of the company.
(b) This Agreement shall not confer on Employee any right
with respect to continuance of employment by the Company or any
of its subsidiaries, nor will it interfere in any way with the
right of the Company to terminate such employment at any time.
Employee shall have none of the rights of a shareholder with
respect to shares subject to this option until such shares shall
have been issued to him upon exercise of this option.
(c) The Company shall at all times during the term of the
option reserve and keep available such number of shares as will
be sufficient to satisfy the requirements of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
GRACO INC.
By___________________________
Its: Chairman and Chief
Executive Officer
____________________________
Employee
October 17, 1994
Mr. Robert A. Wagner
2591 Abbey Hills Drive
Minnetonka, MN 55305
Dear Bob:
The purpose of this Letter of Assignment is to document the
practice interpretation pertinent to your temporary assignment
as President, Graco K.K. (Japan); V.P. Graco Asia Pacific
Operations. We would appreciate your thoroughly reviewing and
executing this Letter of Assignment and the International
Assignment Manuals to ensure accuracy and mutual understanding.
The practices contained in the attached International Assignment
Manuals issued October 1994 will apply to you, with the following
clarification.
Title: President, Graco K.K. (Japan); V.P.
Graco Asia Pacific Operations.
Base Salary: U.S. $13,933 per month. It is
understood that allowances
and benefits provided in addition to
this amount will be subject to
reduction, modification, or elimination
by the Company.
Annual Bonus Plan: (Corporate Program 100% based on
Corporate results.) 30% participation
of base on-plan.
Executive Long Term Participation will continue.
Incentive Plan:
Mobility Premium: A gross Mobility Premium of $20,000 will
be paid to you immediately prior to your
departure for your assignment. You will
personally be responsible for U.S.
federal, state, and F.I.C.A. taxes on
this amount.
Mr. Robert Wagner
Page 2
10/17/94
DETAIL
Duration and Scope
of Assignment: As your assignment to Asia is temporary,
Graco Inc. may, at any time, reduce or
expand your duties or assign you duties
different from those for which you have
been engaged. Further, pursuant to
Graco's international activities, Graco
may, at any time, terminate your
employment, your assignment, and/or
repatriate you to the United States or
assign you to serve with any of its
affiliated companies in any other
country.
At this time, your assignment is
scheduled to begin January 1, 1995. You
are expected to reside in Yokohama, up
to, but not beyond, January 1999.
You will be responsible for managing
(Graco K.K., and Asia Pacific
Operations) according to instructions
and/or restrictions as Graco Inc. may
from time to time issue. You will report
to Roger King, Sr. V.P. Int'l Operations
at Graco Inc.
Procedure (No.)
Method of Payment (2): You will be paid in accordance with the
attached balance sheet. The yen amount
will be paid to you by Graco K.K.
(Japan). This yen amount will be
reviewed in accordance with provisions
of the Policy and Procedure Manual.
Benefit Provisions (3): Coverage on U.S. health and welfare,
retirement and investment plans will
continue.
Goods & Services
Differential (5): You will be paid a goods and services
differential. See attached balance
sheet for estimated applicable amount.
We will calculate and begin paying a
differential once you have relocated to
Yokohama and are off of expenses.
Mr. Robert Wagner
Page 3
10/17/94
Host Country
Housing (9): Graco will pay for rental housing
and utility services in Yokohama subject
to a maximum to be established by Human
Resources prior to your departure on
your house-hunting trip. The actual
housing and utility costs to be paid by
Graco must be approved by Roger King
before any housing commitments are made.
Advance Trip to
Secure Housing An exception to policy will be
(10): made to allow your wife to fly
business class on the house-
hunting trip only.
Taxation (18): Please call Lesa Mellis at Ernst & Young
in Minneapolis (371-8367) to arrange a
meeting so that your U.S. and state
hypothetical taxes can be calculated.
Your contact at the Ernst & Young office
in Tokyo will be named later.
Other: A car will be provided. In addition a
driver will be provided for twelve
months.
As the addendum to your employment offer
letter states, in the event of your
involuntary separation from Graco, you
will be paid your base salary for twelve
months or until other employment is
secured, whichever occurs first.
The amount that you will actually be paid in Yokohama will be
finalized closer to your departure and will reflect interim
adjustments to differential, foreign exchange, and hypothetical
tax rates.
Any specific employment practices not covered in this letter or
the International Assignments Manuals will be covered under
Graco's established employment practices.
While on foreign assignment, your employment relationship with
the Company will be considered to be subject to Minnesota law,
and any disputes will be subject to the exclusive jurisdiction of
the courts of the State of Minnesota. We understand, however,
that certain laws of the place of employment may be of mandatory
application. Nonetheless, neither of us intends that you should
receive duplicate benefits under both Minnesota law and local law
for the same purpose.
Mr. Robert Wagner
Page 4
10/17/94
Graco reserves the right to modify the International Assignment
Manuals and their interpretations at any time. You will be
provided with notice of major changes in policy or
interpretation.
/s/ Roger L. King 10/17/94
- -------------------------------------------
Roger King Date
Sr. V.P. and G.M., International Operations
Concurrence:
/s/ Clyde Hansen 10/17/94
- -------------------------------------------
Clyde Hansen Date
V.P., Human Resources
Agreed:
/s/ Robert A. Wagner 11/18/94
- -------------------------------------------
Robert A. Wagner Date
President, Graco K.K.; V.P. Graco Asia Pacific Operations
This is to confirm that I have read and retained a copy of the
Graco Inc. International Assignment Practice and Procedures and
the Tax Equalization Manuals, issued October 1994. I understand
that my foreign service assignment to Yokohama is subject to the
provisions of these Manuals and the attached Letter of Assignment
which provides detailed information about this particular
assignment.
/s/ Robert A. Wagner
- ---------------------------------------
Robert A. Wagner
President, Graco K.K.; V.P. Asia Pacific Operations
11/18/94
- ---------------------------------------
Date
ORC INTERNATIONAL COMPENSATION BALANCE SHEET
Name: Bob Wagner Balance Sheet Effective Date: 1/1/95
Home Country: U.S.A. Assigned To: Yokohama, Japan
Family Size at Foreign Location: 3 G&S Differential: 1.31255% of U.S.
Spendable Income (Table Effective 10/94)
Foreign Exchange Rates: 98.85 JPY/1 US$
Home Country Host Country
Currency Currency
(U.S. $) (JPY)
COMPENSATION SUMMARY
1. Base Salary (Monthly) 13,933
2. Goods and Services Differential (Line 7) 6,241
3. Housing Deduction (2,090)
4. Hypothetical Tax (3,390)
------
5. NET COMPENSATION (1 through 4) 14,694
======
METHOD OF PAY
(A.) Portion paid in HOST Country
6. Home Country Spendable Income for Goods & Services 4,755
7. Host Country Diff. for Goods & Services (1.31255%xLine 6) 6,241
-----
8. Host Country Spendable Income 10,996 1,086,955
------ ---------
9. HOST COUNTRY TOTAL PAYMENT 10,996 1,086,955
====== =========
(B.) Portion paid in U.S.
10. Base Salary 13,933
11. Home Country Spendable Income for Goods & Services (4,755)
12. Housing Deduction (2,090)
13. Hypothetical Tax (3,390)
------
14. U.S. Payment (Subtotal, 10 through 13) 3,698
------
15. NET COMPENSATION (9 and 14) 14,694
======
December 30, 1994
Mr. Robert A. Wagner
2591 Abbey Hills Drive
Minnetonka, MN 55305
Dear Bob:
This letter is intended to supplement your Letter of Assignment
dated October 17, and provide further details concerning your
temporary assignment as Vice President, Asia Pacific Operations,
Graco Inc.
As Vice President, Asia Pacific Operations, you are expected to
mange the operations of Graco Inc. and direct the sales of Graco
Inc. products in the Asia-Pacific region (excluding Japan). You
are expected to perform these duties in the Asia-Pacific region
and in the United States. You will report to Roger King, Senior
Vice President, International Operations, Graco Inc. You are
expected to spend approximately twenty-five percent (25%) of your
work time on these activities.
In lieu of providing you with a salary for activities performed
by you as Vice President, Asia Pacific Operations, Graco Inc.
will provide you and your family with a residence in Japan, upon
which Graco Inc. will make monthly lease payments pursuant to the
terms of a negotiated lease from January 1995 through the
termination of your assignment.
The Letter of Assignment of October 17, 1994, as supplemented by
this letter of December 30, 1994, remains in full force and
effect.
Sincerely,
/s/ Roger L. King 12/39/94
- ----------------------------------------------
Roger L. King Date
Senior Vice President and
General Manager, International Operations
Page 2
December 30, 1994
Mr. Robert A. Wagner
Concurrence:
/s/ Clyde Hansen 12/30/94
- -------------------------------------
Clyde Hansen Date
Vice President, Human Resources
Agreed:
/s/ Robert A. Wagner 12/30/94
- --------------------------------------
Robert A. Wagner Date
Vice President, Asia Pacific Operations
July 17, 1995
Mr. Robert A. Wagner
Kirin Bayside Court C
119-33, Yamate-cho, Naka-ku
Yokohama, 231 JAPAN
Dear Bob:
This letter is intended to supplement your Letter of Assignment
dated October 17, 1994.
As an additional benefit to your current conditions of employment
as stated in above-mentioned Letter of Assignment, the Company
will provide you and your wife membership in the Yokohama Country
and Athletic Club. This membership will be provided for the
duration of your assignment there.
The Letter of Assignment dated October 17, 1994, as supplemented
by this letter of July 17, 1995, remains in full force and
effect.
Sincerely,
/s/ Roger L. King 7/17/95
- ----------------------------------------------
Roger L. King Date
Senior V.P. and G.M., International Operations
Concurrence:
/s/ Clyde Hensen 7/17/94
- ----------------------------------------------
Clyde Hansen Date
V.P., Human Resources
Agreed:
Robert A. Wagner 7/17/94
- ----------------------------------------------
Robert A. Wagner Date
President, Graco K.K.; V.P. Graco Asia Pacific
Exhibit 10.21
Salary Protection Arrangement
Executive Officers
It is the Company's practice to pay to any
executive officer whose employment is
involuntarily terminated his/her base salary for
up to twelve months following termination or until
the officer secures other employment.
The Company does not believe that this practice is a
contractual commitment to said executive officers nor is it
intended to constitute a plan. The Company reserves the
right, in its sole discretion, to discontinue this practice
at any time.
5
0000042888
GRACO INC.
1,000
YEAR
DEC-29-1995
DEC-29-1995
1,643
0
78,005
4,800
41,693
128,482
156,168
79,310
217,833
71,583
12,009
0
0
17,265
86,306
217,833
386,314
386,314
196,687
196,687
146,071
1,135
2,335
43,556
15,850
27,706
0
0
0
27,706
1.59
1.59
