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, 1995
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
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(Address of principal executive offices) (Zip Code)
(612) 623-6000
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(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
11,503,308 common shares were outstanding as of September 29, 1995.
<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 Financial Condition and
Results of Operations 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
<PAGE>
<TABLE>
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------- -----------------------------
Sept. 29, 1995 Sept. 30, 1994 Sept. 29, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales $94,797 $89,048 $293,726 $264,157
Cost of products sold 48,510 45,779 149,497 138,225
-------------- -------------- -------------- --------------
Gross profit 46,287 43,269 144,229 125,932
Product development 3,557 3,699 11,419 10,821
Selling 21,982 22,920 65,740 68,008
General and administrative 10,263 9,341 32,345 29,488
-------------- -------------- -------------- --------------
Operating profit 10,485 7,309 34,725 17,615
Interest expense 596 545 2,025 1,393
Other expense, net 220 116 563 293
-------------- -------------- -------------- --------------
Earnings before income taxes 9,669 6,648 32,137 15,929
Income taxes 3,100 2,400 11,600 5,650
-------------- -------------- -------------- --------------
Net earnings $6,569 $4,248 $20,537 $10,279
============== ============== ============== ==============
Net earnings per common and
common equivalent share $.56 $.37 $1.76 $.88
============== ============== ============== ==============
Cash dividend per common share $.16 $.14 $.48 $.42
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 29, 1995 December 30, 1994
------------------ -----------------
ASSETS (Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $649 $2,444
Accounts receivable, less allowances
of $5,400 and $4,700 74,539 75,589
Inventories 50,349 50,529
Deferred income taxes 11,256 11,755
Other current assets 2,324 3,628
------------------ -----------------
Total current assets 139,117 143,945
Property, plant and equipment:
Cost 158,189 145,164
Less Accumulated Depreciation (80,925) (75,124)
------------------ -----------------
77,264 70,040
Other assets 13,525 14,400
------------------ -----------------
$229,906 $228,385
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $15,639 $11,675
Current portion of long-term debt 5,905 5,685
Trade accounts payable 15,118 19,764
Dividends payable 1,841 1,857
Income taxes payable 2,632 5,761
Other current liabilities 43,964 44,798
----------------- -----------------
Total current liabilities 85,099 89,540
Long-term debt, less current portion above 12,565 26,798
Retirement benefits and deferred compensation 32,835 30,196
Shareholders' equity:
Preferred stock 1,474 1,474
Common stock 11,503 11,377
Additional paid-in capital 20,227 18,289
Retained earnings 65,630 50,702
Other, net 573 9
---------------- -----------------
99,407 81,851
---------------- -----------------
$229,906 $228,385
================ =================
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Thirty-Nine Weeks
-----------------
Sept. 29, 1995 Sept. 30, 1994
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
<S> <C> <C>
Net Earnings $20,537 $10,279
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 9,251 7,450
Deferred income taxes 1,186 (1,007)
Change in:
Accounts receivable 2.733 (2,464)
Inventories 1,241 (20,836)
Trade accounts payable (4,954) 1,983
Accrued salaries (1,232) 574
Retirement benefits and deferred
compensation 2,659 1,699
Other accrued liabilities (3,191) 2,268
Other 2,053 (1,173)
-------------- --------------
30,283 (1,227)
============== ==============
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (16,546) (15,151)
Proceeds from sale of property, plant,
and equipment 151 287
Purchases of marketable securities 0 (5,464)
Proceeds from marketable securities 0 31,809
-------------- --------------
(16,395) 11,481
============== ==============
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable and lines of credit 111,279 64,397
Payments on notes payable and lines of credit (120,794) (46,003)
Payments on long-term debt (613) (663)
Common stock issued 2,234 2,775
Retirement of common and preferred stock 0 (2,224)
Cash dividends paid (5,625) (36,122)
-------------- --------------
(13,519) (17,840)
-------------- --------------
Effect of exchange rate changes on cash (2,164) (1,737)
============== ==============
Net decrease in cash and cash equivalents (1,795) (9,323)
Cash and cash equivalents:
Beginning of year 2,444 11,095
-------------- --------------
End of period $649 $1,772
============== ==============
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
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, 1995 and the related statements of
earnings and cash flows for the thirty-nine weeks ended September
29, 1995, and September 30, 1994, have been prepared by the Company
without being audited.
In the opinion of management, these consolidated statements reflect
all adjustments necessary to present fairly the financial position
of Graco Inc. and Subsidiaries as of September 29, 1995, 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 1994 Form 10-
K.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal
year.
2. Major components of inventories were as follows (in thousands):
September 29, 1995 Dec. 30, 1994
------------------ -------------
Finished products and components $48,220 $46,694
Products and components in various
stages of completion 25,764 24,826
Raw materials 11,721 13,918
Reduction to LIFO cost (35,356) (34,909)
----------------- --------------
$50,349 $50,529
================= ==============
6
<PAGE>
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net earnings in the third quarter of $6,569,000 increased $2,321,000 from
the same period a year ago as the Company's sales continue to improve in
Europe and the Pacific offset by the recent softening of sales in the North
American markets. In addition, gross margin levels have improved from 1994
and operating expenses as a percent of sales have declined due primarily to
cost reduction efforts initiated in 1994.
Sales in the third quarter of $94,797,000 increased $5,749,000, or 6
percent, from the same period in 1994. Third quarter sales in the Americas
decreased 1 percent to $57,357,000, and European sales were up 34 percent
to $21,643,000 (a 23 percent volume increase, and an 11 percent gain due to
exchange rates). In the Pacific (excluding Japan), sales increased 2
percent to $8,640,000 (volume was flat compared to a strong quarter a year
ago and a gain of 2 percent on exchange rates). In Japan, sales increased
9 percent to $7,157,000 (a 4 percent volume decrease and a gain of 13
percent on exchange rates).
Sales for the nine months were $293,726,000, an 11 percent increase over
the same period last year. In the Americas, sales increased 2 percent to
$186,319,000. European sales were up 36 percent to $58,970,000 (a volume
increase of 23 percent and a 13 percent gain due to exchange rates). Sales
in the Pacific (excluding Japan) increased 34 percent to $25,801,000 (a 32
percent volume increase and a 2 percent gain due to exchange rates). In
Japan, sales increased 21 percent to $22,636,000 (a 5 percent volume
increase and a 16 percent gain on exchange rates).
Operating expenses in the third quarter of $35,802,000 are at approximately
the same level as the third quarter of 1994. Product development expense
decreased 4 percent over 1994, although previously announced new product
initiatives continue. Selling expenses were 4 percent lower than the same
period last year, largely due to lower headcount. General and
administrative costs were up 10 percent, due primarily to expense items
related to increased profitability.
The effective income tax rate for the quarter was 32 percent compared to 36
percent for the same period in 1994. The decrease was due primarily to
foreign results effectively taxed at lower rates on a year-to-date basis.
The year-to-date tax rate for the nine months ended September 29, 1995 was
36 percent compared to 35 percent for the same period in 1994.
The Company expects favorable sales and order trends in Europe and the
Pacific region as these economies strengthen. The slowing of the U.S.
economy continues to impact domestic bookings and backlog during the last
quarter of 1995. The Company will make further investments in improvements
to manufacturing efficiency and new product development, while closely
controlling expenses throughout the organization.
In October 1995, the Company announced the construction of a $17 million
manufacturing and distribution facility in Rogers, Minnesota. The Company
expects to finance the project through operating cash flows and existing
lines of credit.
Financial Condition
Cash was used for operating activities and fixed asset additions. Accounts
receivable decreased $1,050,000 from the prior year-end due primarily to
collection efforts in Europe, and property, plant and equipment purchases
total $16,546,000 year-to-date.
The Company has unused lines of credit available at September 29, 1995
totaling $57 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: 11/09/95 By: /s/ David A. Koch
David A. Koch
Chairman and Chief Executive Officer
Date: 11/09/95 By: /s/ David M. Lowe
David M. Lowe
Treasurer
(Principal Financial Officer)
9
<PAGE>
EXHIBIT 11
<TABLE>
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------- -----------------------------
Sept. 29, 1995 Sept. 30, 1994 Sept. 29, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net earnings applicable to common stock:
Net earnings $6,569 $4,248 $20,537 $10,279
Less dividends on preferred stock 19 19 56 56
-------------- -------------- -------------- --------------
$6,550 $4,229 $20,481 $10,223
============== ============== ============== ==============
Average number of common and common
equivalent shares outstanding:
Average number of common
shares outstanding 11,497 11,554 11,454 11,554
Dilutive effect of stock options
computed on the treasury
stock method 186 25 152 58
-------------- -------------- -------------- --------------
11,683 11,579 11,606 11,612
============== ============== ============== ==============
Net earnings per common
and common equivalent share $.56 $.37 $1.76 $.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 29, 1995 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> 9-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> SEP-29-1995
<CASH> 649
<SECURITIES> 0
<RECEIVABLES> 79,939
<ALLOWANCES> 5,400
<INVENTORY> 50,349
<CURRENT-ASSETS> 139,117
<PP&E> 158,189
<DEPRECIATION> 80,925
<TOTAL-ASSETS> 229,906
<CURRENT-LIABILITIES> 85,099
<BONDS> 18,470
<COMMON> 11,503
1,474
0
<OTHER-SE> 86,430
<TOTAL-LIABILITY-AND-EQUITY> 229,906
<SALES> 293,726
<TOTAL-REVENUES> 293,726
<CGS> 149,497
<TOTAL-COSTS> 149,497
<OTHER-EXPENSES> 112,092
<LOSS-PROVISION> 1,299
<INTEREST-EXPENSE> 2,025
<INCOME-PRETAX> 32,137
<INCOME-TAX> 11,600
<INCOME-CONTINUING> 20,537
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,537
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
