UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 29, 2000
Commission File Number: 001-9249
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GRACO INC.
------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
- ------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
88 - 11th Avenue N.E.
Minneapolis, Minnesota 55413
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(612) 623-6000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------ -------
20,215,088 common shares were outstanding as of October 27, 2000.
GRACO INC. AND SUBSIDIARIES
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule (EDGAR filing only) Exhibit 27
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
Sep 29, 2000 Sep 24, 1999 Sep 29, 2000 Sep 24,1999
------------ ------------ ------------ -----------
(In thousands except per share amounts)
Net Sales $120,800 $110,076 $371,195 $328,020
Cost of products sold 57,851 52,566 180,015 158,034
------------ ------------ ------------ -----------
Gross Profit 62,949 57,510 191,180 169,986
Product development 5,324 4,845 15,244 14,370
Selling, marketing and distribution 20,569 19,049 66,743 57,289
General and administrative 8,531 9,599 25,985 28,729
------------ ------------ ------------ -----------
Operating Profit 28,525 24,017 83,208 69,598
Interest expense 985 1,661 3,522 5,472
Other (income) expense, net 267 (187) 1,507 (2,579)
------------ ------------ ------------ -----------
Earnings Before Income Taxes 27,273 22,543 78,179 66,705
Income taxes 9,200 7,500 26,800 22,500
------------ ------------ ------------ -----------
Net Earnings $ 18,073 $ 15,043 $ 51,379 $ 44,205
============ ============ ============ ===========
Basic Net Earnings
Per Common Share $ .89 $ .74 $ 2.53 $ 2.19
============ ============ ============ ===========
Diluted Net Earnings
Per Common Share $ .88 $ .72 $ 2.49 $ 2.12
============ ============ ============ ===========
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
Sep 29, 2000 Dec 31, 1999
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,163 $ 6,588
Accounts receivable, less allowances
of $4,600 and $4,400 82,909 79,696
Inventories 33,838 37,702
Deferred income taxes 11,705 12,357
Other current assets 1,540 1,646
------------ ------------
Total current assets 132,155 137,989
Property, Plant and Equipment:
Cost 190,770 182,156
Accumulated depreciation (105,823) (95,663)
------------ ------------
84,947 86,493
Other Assets 11,051 11,551
------------ ------------
$228,153 $236,033
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 12,034 $ 14,640
Current portion of long-term debt 810 1,215
Trade accounts payable 12,447 13,500
Salaries, wages and commissions 13,381 12,832
Accrued insurance liabilities 11,501 10,332
Income taxes payable 7,541 2,323
Other current liabilities 22,183 23,421
------------ ------------
Total current liabilities 79,897 78,263
Long-term Debt, Less Current Portion 29,519 65,695
Retirement Benefits and Deferred
Compensation 26,672 29,135
Shareholders' Equity:
Common stock 20,212 20,416
Additional paid-in capital 37,427 31,755
Retained earnings 34,746 9,279
Other, net (320) 1,490
------------ ------------
Total shareholders' equity 92,065 62,940
------------ ------------
$228,153 $236,033
============ ============
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine Weeks Ended
Sep 29, 2000 Sep 24, 1999
------------ ------------
Cash Flows From Operating Activities: (In thousands)
Net Earnings $51,379 $44,205
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 11,927 11,451
Deferred income taxes 200 (88)
(Gain) loss on sale of property, plant 131 (3,147)
and equipment
Change in:
Accounts receivable (5,903) 2,534
Inventories 3,220 4,910
Trade accounts payable (957) (1,554)
Salaries, wages and commissions 862 (656)
Retirement benefits and deferred
compensation (3,240) (715)
Other accrued liabilities 5,446 689
Other (1,047) 300
------------ ------------
62,018 57,929
------------ ------------
Cash Flows From Investing Activities:
Property, plant and equipment additions (9,391) (5,947)
Proceeds from sale of property, plant
and equipment 162 9,523
Acquisition of business - (18,389)
------------ ------------
(9,229) (14,813)
------------ ------------
Cash Flows From Financing Activities:
Borrowings on notes payable and lines of
credit 149,264 90,243
Payments on notes payable and lines of
credit (151,644) (100,585)
Borrowings on long-term debt 36,135 25,001
Payments on long-term debt (72,715) (56,821)
Common stock issued 7,028 6,125
Retirement of common stock (18,966) (3,468)
Cash dividends paid (8,532) (6,682)
------------ ------------
(59,430) (46,187)
------------ ------------
Effect of exchange rate changes on cash 2,216 1,598
------------ ------------
Net increase (decrease) in cash and cash
equivalents (4,425) (1,473)
Cash and cash equivalents:
Beginning of year 6,588 3,555
------------ ------------
End of period $ 2,163 $ 2,082
============ ============
See notes to consolidated financial statements.
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet of Graco Inc. and Subsidiaries (the
Company) as of September 29, 2000, and the related statements of earnings
for the thirteen and thirty-nine weeks ended September 29, 2000 and
September 24, 1999, and cash flows for the thirty-nine weeks ended
September 29, 2000 and September 24, 1999 have been prepared by the
Company without being audited.
In the opinion of management, these consolidated statements reflect all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of Graco Inc. and Subsidiaries as of
September 29, 2000, and the results of operations and cash flows for all
periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's 1999 Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results that will be realized for the full fiscal year.
2. Major components of inventories were as follows (in thousands):
Sep 29, 2000 Dec 31, 1999
------------ ------------
Finished products and components $28,714 $25,748
Products and components in various
stages of completion 19,677 23,560
Raw materials and purchased components 19,719 21,961
------------ ------------
68,110 71,269
Reduction to LIFO cost (34,272) (33,567)
------------ ------------
$33,838 $37,702
============ ============
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. The Company has three reportable segments; Industrial/Automotive,
Contractor and Lubrication. Assets of the Company are not tracked along
reportable segment lines. Sales and operating profit by segment for the
thirteen and thirty-nine weeks ended September 29, 2000 and September 24,
1999 were as follows (in thousands):
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- ---------------------------
Sep 29, 2000 Sep 24, 1999 Sep 29, 2000 Sep 24, 1999
------------ ------------ ------------ ------------
Net Sales
Industrial/Automotive $ 56,059 $ 56,982 $166,740 $161,677
Contractor 54,346 42,988 172,700 134,402
Lubrication 10,395 10,106 31,755 31,941
------------ ------------ ------------ ------------
Total $120,800 $110,076 $371,195 $328,020
============ ============ ============ ============
Operating Profit
Industrial/Automotive $ 14,484 $ 11,846 $ 40,751 $ 34,533
Contractor 12,857 11,038 38,309 33,081
Lubrication 2,437 2,326 7,162 7,291
Unallocated corporate
expenses (1,253) (1,193) (3,014) (5,307)
------------ ------------ ------------ ------------
Consolidated
Operating Profit $ 28,525 $ 24,017 $ 83,208 $ 69,598
============ ============ ============ ============
4. There have been no changes to the components of comprehensive income from
those noted on the 1999 Form 10K. Total comprehensive income in 2000 was
$16.9 million in the third quarter and $49.6 million year-to-date. In
1999, comprehensive income was $15.2 million for the third quarter and
$44.4 million for the nine-month period.
5. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which will be effective for the
Company in fiscal year 2001. The statement, as amended by SFAS No. 138
issued June 2000, requires that all derivatives be recognized in the
financial statements as either assets or liabilities measured at fair
value, and also specifies new methods of accounting for hedging
transactions. The Company has not yet determined the impact of SFAS 133
and 138, if any.
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Strong sales, steady gross profit margin rates and reduced expenses (as
percentage of sales) continued to drive improvements in quarterly and
year-to-date net earnings. Sales of new products accounted for most of the sales
increase. For the quarter, sales increased 10 percent over the prior year while
gross profit margin rates remained steady and operating expenses increased 3
percent. Year-to-date, sales were up 13 percent, gross profit margin rate was
slightly lower and operating expenses increased 8 percent. Earnings in the
year-to-date period of 1999 included non-recurring after-tax gains of $2.1
million ($.10 per diluted share) from the sale of the Company's Plymouth,
Michigan and Los Angeles facilities.
The following table sets forth items from the Company's Consolidated Statements
of Earnings as percentages of net sales:
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- -------------------------
Sep 29, 2000 Sep 24, 1999 Sep 29, 2000 Sep 24,1999
------------ ------------ ------------ -----------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 47.9 47.8 48.5 48.2
Product development 4.4 4.4 4.1 4.4
Selling, marketing and distribution 17.0 17.3 18.0 17.5
General and administrative 7.1 8.7 7.0 8.7
------------ ------------ ------------ -----------
Operating Profit 23.6 21.8 22.4 21.2
------------ ------------ ------------ -----------
Interest expense 0.8 1.5 1.0 1.7
------------ ------------ ------------ -----------
Other (income) expense, net 0.2 (0.2) 0.4 (0.8)
------------ ------------ ------------ -----------
Earnings Before Income Taxes 22.6 20.5 21.0 20.3
Income taxes 7.6 6.8 7.2 6.9
------------ ------------ ------------ -----------
Net Earnings 15.0% 13.7% 13.8% 13.4%
============ ============ ============ ===========
Net Sales
Net sales of $120.8 million were 10 percent higher than third quarter 1999
sales. Year-to-date sales of $371.2 million increased 13 percent over the prior
year. Most of the increase came from the Contractor Equipment segment, which
increased 26 percent over third quarter last year and 28 percent year-to-date
due to new product releases and an additional sales channel in North America.
The Company introduced its new Magnum sprayers in the first quarter of 2000.
These units are being sold primarily in the recently established home center
sales channel within the Contractor Equipment segment, but are available to
customers in other channels. Industrial/Automotive segment sales decreased 2
percent from third quarter 1999 and increased 3 percent over 1999 year-to-date.
Lubrication Equipment segment sales were relatively level between quarters and
year-to-date.
Sales in all segments were adversely affected by the strengthening dollar in
Europe. Sales of $20.9 million for the quarter in Europe were down 13 percent
compared to last year but would have been level if translated at consistent
exchange rates. Compared to prior year-to-date, European sales decreased 1
percent, but would have increased 10 percent if translated at consistent
exchange rates. The effects of exchange rates were favorable in Asia Pacific,
but not enough to offset the adverse impact in Europe. Asia Pacific quarterly
sales of $12.0 million were 7 percent higher compared to last year and would
have increased 3 percent if translated at consistent exchange rates. For the
nine-month period, Asia Pacific sales increased by 5 percent but would have been
level if translated at consistent exchange rates.
Gross Profit
Gross profit as a percentage of net sales was relatively steady for both the
quarter and the nine-month periods. Decreases in gross profit margin rate due to
product mix and the negative impact of changes in exchange rates were offset by
the effects of manufacturing efficiencies resulting from higher production to
meet increased sales demand.
Operating Expenses
Selling, marketing and distribution expenses were up 8 percent in the quarter
and 17 percent year-to-date, and include increased spending related to the
introduction of new products in the home center channel. General and
administrative expenses were down 11 percent for the quarter and 10 percent for
the nine-month period primarily due to reduced information system spending.
Product development expense increased 10 percent between quarters and 6 percent
year-to-date, and remained steady as a percentage of sales. The Company
continues to make substantial investments in product development to drive future
revenue growth.
Interest Expense and Other Income (Expense)
Interest expense continues to decrease due to reduced debt levels. Other expense
for the nine-month period was $1.5 million compared to $2.6 million of income in
the same period of 1999. Other income in 1999 included $3.2 million of gains on
sales of real estate.
Liquidity and Capital Resources
- -------------------------------
The Company generated $62 million of cash flow from operating activities in the
first nine months of 2000, and generated $58 million for the same period last
year. In 2000, the Company utilized cash flow to repurchase common shares for
$19 million and made net payments of $39 million on short and long-term
borrowings.
The Company is constructing expanded manufacturing and office facilities in
Minneapolis. Also, the Company's former corporate headquarters building in
Golden Valley, Minnesota is for sale, as personnel have moved into other
Company-owned office space in Minneapolis and Rogers, Minnesota.
The Company had unused lines of credit available at September 29, 2000 totaling
$82 million. The available credit facilities and internally generated funds
provide the Company with financial flexibility to meet liquidity needs.
Outlook
While the Company's business was strong in the first three quarters of 2000,
management remains cautious about the direction of global economies, and
believes it prudent to plan for a slowing in North America. Notwithstanding this
cautious outlook, management is optimistic about completing 2000 with continued
improved sales and earnings performance versus last year.
SAFE HARBOR CAUTIONARY STATEMENT
The information in this 10-Q contains "forward-looking statements" about the
Company's expectations of the future, which are subject to certain risk factors
that could cause actual results to differ materially from those expectations.
These factors include economic conditions in the United States and other major
world economies, currency exchange fluctuations and additional factors
identified in Exhibit 99 to the Company's Report on Form 10-K for fiscal year
1999.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule (EDGAR filing only) Exhibit 27
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRACO INC.
Date: October 30, 2000 By: /s/George Aristides
----------------------------------
George Aristides
Chief Executive Officer
Date: October 30, 2000 By: /s/James A. Graner
----------------------------------
James A. Graner
Vice President & Controller
("duly authorized officer")
EXHIBIT 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- --------------------------
Sep 29, 2000 Sep 24, 1999 Sep 29, 2000 Sep 24, 1999
------------ ------------ ------------ ------------
(in thousands except per share amounts)
Net earnings applicable to common
shareholders for basic and
diluted earnings per share $18,073 $15,043 $51,379 $44,205
------------ ------------ ------------ ------------
Weighted average shares outstanding
for basic earnings per share 20,212 20,338 20,284 20,194
Dilutive effect of stock options computed
using the treasury stock method
and the average market price 339 678 327 629
Weighted average shares outstanding
for diluted earnings per share 20,551 21,016 20,611 20,823
Basic earnings per share $ 0.89 $ 0.74 $ 2.53 $ 2.19
------------ ------------ ------------ ------------
Diluted earnings per share $ 0.88 $ 0.72 $ 2.49 $ 2.12
------------ ------------ ------------ ------------
5
0000042888
Graco Inc
1
U.S. DOLLARS
3-MOS
DEC-29-2000
JUL-01-2000
SEP-29-2000
1
2,163
0
87,509
4,600
33,838
132,155
190,770
105,823
228,153
78,897
30,329
0
0
20,212
71,853
228,153
120,800
120,800
57,851
57,851
35,676
126
985
27,273
9,200
18,073
0
0
0
18,073
0.89
0.88
