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 30, 1994
Commission File Number: 1-9249
GRACO INC
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
(State of incorporation) (I.R.S. Employer Identification Number)
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422
(Address of principal executive offices) (Zip Code)
(612) 623-6000
(Registrants Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
11,503,304 common shares were outstanding as of September 30, 1994.
<PAGE>
GRACO INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule Exhibit 27
2
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<TABLE>
PART I
GRACO INC. AND SUBSIDIARIES
Item 1. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Sept. 30, 1994 Sept. 24, 1993 Sept. 30, 1994 Sept. 24, 1993
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales $89,048 $81,751 $264,157 $238,977
Cost of products sold 45,779 42,414 138,225 124,110
Gross profit 43,269 39,337 125,932 114,867
Product development 3,699 3,167 10,821 8,809
Selling 22,920 20,830 68,008 61,061
General and administrative 9,341 9,392 29,488 27,848
Operating profit 7,309 5,948 17,615 17,149
Interest expense 545 542 1,393 1,685
Other expense, net 116 343 293 615
Earnings before income taxes 6,648 5,063 15,929 14,849
Income taxes 2,400 1,600 5,650 4,700
Net earnings $4,248 $3,463 $10,279 $10,149
Net earnings per common share $0.37 $0.30 $0.88 $0.88
Cash dividend per common share $0.14 $0.13 $0.42 $0.38
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Sept. 30, 1994 December 31, 1993
ASSETS (Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $1,772 $11,095
Marketable securities 0 26,345
Accounts receivable, less allowances of
$4,438 and $4,100 67,292 62,178
Inventories 57,841 35,719
Deferred income taxes 9,826 8,843
Other current assets 4,763 3,079
Total current assets 141,494 147,259
Property, plant and equipment:
Cost 142,145 129,876
Less accumulated depreciation (76,259) (72,132)
65,886 57,744
Other assets 11,423 11,362
$218,803 $216,365
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $22,372 $3,234
Current portion of long-term debt 5,594 5,543
Trade accounts payable 19,399 16,737
Dividends payable 1,611 32,535
Income taxes payable 4,126 5,658
Other current liabilities 40,867 35,904
Total current liabilities 93,969 99,611
Long-term debt, less current portion above 13,226 13,937
Retirement benefits and deferred compensation 30,214 28,132
Shareholders' equity:
Preferred stock 1,474 1,485
Common stock 11,503 11,449
Additional paid-in capital 20,176 19,813
Retained earnings 47,511 42,430
Other, net 730 (492)
81,394 74,685
$218,803 $216,365
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Thirty-Nine Weeks Ended
Sept. 30, 1994 Sept. 24, 1993
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $10,279 $10,149
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 7,450 7,321
Deferred income taxes (1,007) 355
Change in:
Accounts receivable (2,464) 376
Inventories (20,836) 9,788
Trade accounts payable 1,983 (6,036)
Accrued salaries 574 (1,393)
Retirement benefits and deferred compensation 1,699 2,803
Other accrued liabilities 2,268 (6,995)
Other (1,173) (4,652)
(1,227) 11,716
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (15,151) (10,184)
Proceeds from sale of property, plant, and equipment 287 681
Purchases of marketable securities (5,464) (10,601)
Proceeds from marketable securities 31,809 3,684
11,481 (16,420)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable, net change 18,394 35
Payments on long-term debt (663) (226)
Common stock issued 2,775 2,618
Retirement of common and preferred stock (2,224) (1,750)
Cash divisions paid (36,122) (4,397)
Proceeds from long-term debt 0 707
(17,840) (3,013)
Effect of exchange rate changes on cash (1,737) 751
Net decrease in cash and cash equivalents (9,323) (6,966)
Cash and cash equivalents:
Beginning of year 11,095 18,869
End of period $1,772 $11,903
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of September 30, 1994, the consolidated
statements of earnings for the thirty-nine weeks ended September 30, 1994,
and September 24, 1993, and the consolidated statements of cash flows for
the thirty-nine weeks then ended have been prepared by the Company
without being audited.
In the opinion of management, these consolidated statements reflect all
adjustments necessary to present fairly the financial position of Graco
Inc. at September 30, 1994, and September 24, 1993, 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 1993 Form 10-K.
The results of operations for interim periods are not necessarily indicative
of results which will be realized for the full fiscal year.
2. Major components of inventories were as follows:
<TABLE>
<CAPTION>
Sept. 30, 1994 Dec. 31, 1993
<S> <C> <C>
Finished products and components $52,154 $42,010
Products and components in
various stages of completion 31,510 21,410
Raw materials 10,970 8,642
Reduction to LIFO cost $(36,793) $(36,343)
$57,841 $35,719
</TABLE>
6
<PAGE>
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net earnings in the third quarter of $4,248,000 increased $785,000 from the same
period a year ago as the company continues to have strong sales in the Americas
and reported growth both in Europe and in most of the Pacific, despite the
economic downturn in Japan and expenses associated with ongoing cost reduction
efforts. Net earnings of $10,279,000 for the nine months ended September 30,
1994 increased $130,000 from the same period a year ago.
Sales in the third quarter of $89,048,000 increased $7,297,000, or 9 percent,
from the same period in 1993. Third quarter sales in the Americas increased 10
percent overall to $57,900,000. Contractor Equipment sales and Lubrication
Equipment sales were both up 14 percent and Industrial/Automotive Equipment
sales rose 5 percent, with new product sales and an expanding economy continuing
to drive these increases. Sales in Europe were up 6 percent to $16,160,000 (a 2
percent volume increase, and a 4 percent gain due to exchange rates). In the
Pacific, sales were also up 6 percent to $14,988,000 (a 3 percent volume
increase, and a gain of 3 percent on exchange rates).
Sales for the nine months were $264,157,000, an 11 percent increase over the
same period last year. In the Americas, sales increased 17 percent to
$183,008,000. European sales were up 1 percent to $43,285,000 (a volume
increase of 3 percent, offset by a 2 percent exchange rate loss). Sales in the
Pacific decreased 4 percent to $37,864,000 (a 8 percent volume decline, offset
by a 4 percent exchange rate gain).
Operating expenses in the third quarter of $35,960,000 increased $2,571,000, or
8 percent, from the third quarter of 1993. Product development expense
increased 17 percent over 1993, as previously announced spending increases
continued. Selling expenses were up 10 percent, largely due to cost associated
with the Company's ongoing cost reduction efforts. Operating expenses for the
nine months increased $10,599,000, or 11 percent.
For the third quarter, overall bookings were up 13%. Bookings remain strong in
the Americas, were up significantly in Europe, but up only modestly in the
Pacific due to poor bookings in Japan. Backlog at September 30, 1994 was
$30,000,000, consistent with the previous quarter, but an increase of $10.6
million from $19.5 million on September 24, 1993.
The Company expects continued strong performance in the Americas and improved
performance in Europe as the economies there continue to strengthen. The
Pacific, and Japan in particular, remains weak. The Company is encouraged by
the increase in its bookings. It intends to continue making investments in
manufacturing efficiency and new product development, and is striving for a more
efficient global sales and marketing organization to improve its financial
performance.
Financial Condition
Accounts receivable increased $5,114,000 from the prior year-end due to the
increased sales volume, and inventories increased $22,122,000 primarily in
production and in Europe for engineered systems. Property, plant and equipment
totaling $15,151,000 was purchased year-to-date. Marketable securities were
sold to fund the special one-time dividend of $31,200,000 which was paid in
March of this year.
The Company has unused lines of credit available at September 30, 1994, totaling
$27 million.
7
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Statement on Computation Exhibit 11
of Per Share Earnings
Financial Data Schedule Exhibit 27
(b) No reports on Form 8-K have been
filed during the quarter for which
this report is filed.
8
<PAGE>
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: November 14, 1994 By: /s/ David A. Koch
David A. Koch
Chairman and Chief Executive Officer
Date: November 14, 1994 By: /s/ Robert A. Wagner
Robert A. Wagner
Vice President and Treasurer
(Principal Financial Officer)
9
EXHIBIT NO. 11
<TABLE>
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Sept. 30, 1994 Sept. 24, 1993 Sept. 30, 1994 Sept. 24, 1993
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net earnings applicable to common stock:
Net earnings $4,248 $3,463 $10,279 $10,149
Less dividends on preferred stock 19 19 56 56
$4,229 $3,444 $10,223 $10,093
Average number of common and common
equivalent shares outstanding:
Average number of common
shares outstanding 11,554 11,393 11,554 11,329
Dilutive effect of stock options
computed on the treasury stock method 25 87 58 75
11,579 11,480 11,612 11,404
Net earnings per common share
and common equivalent share $0.37 $0.30 $0.88 $0.88
Primary and fully diluted earnings per share are substantially the same.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRACO INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE
SHEETS FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000042888
<NAME> GRACO INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,772
<SECURITIES> 0
<RECEIVABLES> 71,730
<ALLOWANCES> 4,438
<INVENTORY> 57,841
<CURRENT-ASSETS> 141,494
<PP&E> 142,145
<DEPRECIATION> 76,259
<TOTAL-ASSETS> 218,803
<CURRENT-LIABILITIES> 93,969
<BONDS> 13,226
<COMMON> 11,503
1,474
0
<OTHER-SE> 68,417
<TOTAL-LIABILITY-AND-EQUITY> 218,803
<SALES> 89,048
<TOTAL-REVENUES> 89,048
<CGS> 45,779
<TOTAL-COSTS> 45,779
<OTHER-EXPENSES> 36,621
<LOSS-PROVISION> 119
<INTEREST-EXPENSE> 545
<INCOME-PRETAX> 6,648
<INCOME-TAX> 2,400
<INCOME-CONTINUING> 4,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,248
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
