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 30, 1994 (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 6, 1995, 11,377,904 shares of Common Stock were outstanding.
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of approximately 7,313,000 shares held by non-
affiliates of the registrant was approximately $167 million on March 6,
1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on May 2, 1995, are incorporated by reference
into Part III, as specifically set forth in said Part III.
1
<PAGE>
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 5
Item 4 Submission of Matters to a Vote of Security Holders 5
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 9
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:
Treasurer
Graco Inc.
P.O. Box 1441
Minneapolis, Minnesota
55440-1441
2
<PAGE>
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. It 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, chemical bonding, and sealant
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. During 1994, the Company began the restructuring and
consolidation of its operations in Europe and Japan. The European customer
service and distribution functions were relocated from the Company's
facility in Rungis, France to the new facility in Maasmechelen, Belgium.
In the fall of 1994, Graco announced that management of its European
operations would be centralized in a new headquarters operation at the
Company's recently expanded facility in Maasmechelen, Belgium during 1995.
In June of 1994, Graco initiated an intensive evaluation of its domestic
marketing and sales groups with the goal of maximizing effectiveness and
substantially reducing the cost of sales. Implementation of the
recommendations generated by this evaluation are currently underway. As of
January 1, 1995, the majority of order entry, customer service, and
accounting functions for Graco's Canadian subsidiary was being performed in
the United States. In 1994, Graco began a construction project to more
than double the size of the Russell J. Gray Technical Center to house
additional testing and product development activities and personnel.
Manufacturing in Minneapolis operated at near peak capacity during 1994.
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.
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 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.
Sales of replacement parts and accessories have averaged 43 percent of the
Company's consolidated net sales and approximately 49 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.
3
<PAGE>
Product Group Sales and Gross Profit
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Commercial and industrial equipment $204,584 56.8% $179,619 55.7% $188,681 58.9%
Accessories and replacement parts 155,429 43.2 142,983 44.3 131,653 41.1
$360,013 100.0% $322,602 100.0% $320,334 100.0%
GROSS PROFIT
Commercial and industrial equipment $ 89,262 51.3% $ 76,325 49.8% $ 82,859 52.9%
Accessories and replacement parts 84,749 48.7 76,802 50.2 73,827 47.1
$174,011 100.0% $153,127 100.0% $156,686 100.0%
</TABLE>
Marketing and Distribution. Graco's operations are organized to allow its
full line of fluid handling products and systems to be offered in each
major geographic market: the Americas, Europe and 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 regional
distributors. Manufacturers' representatives are used with some product
lines. In the Americas, the Company maintains a specialized direct sales
force which handles sales of large systems and sales to certain corporate
accounts.
In 1994, Graco's net sales in the Americas were $241,169,000 or
approximately 67 percent of the Company's consolidated net sales; in Europe
(including the Middle East and Africa) net sales were $65,888,000 or
approximately 18 percent; and in the Pacific region, net sales were
$52,956,000 or approximately 15 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 expansion space for engineering, testing and laboratory activities
during 1994. Occupancy of the new wing of the Technical Center will be
completed by May 1995. Total research and development expenditures were
$14,591,000, $12,382,000 and $10,616,000 for the 1994, 1993 and 1992 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 in that 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 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 30, 1994,
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.
4
<PAGE>
Employees. As of December 30, 1994, the Company employed approximately
2,075 persons on a full-time basis. Of this total, approximately 390 were
employees based outside the United States, and 815 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 select employees in Europe. The Company believes
it has a good relationship with its employees.
Item 2. Properties
The Company owns the four buildings which house its corporate offices,
principal manufacturing, assembly and research and development activities.
These buildings, located in Minneapolis, Minnesota, have an aggregate area
of approximately 664,200 square feet. The Company's distribution
operations are located in 123,800 square feet of space in a Minneapolis
suburb under a lease which expires at the end of 1996. The Company's
technical assistance, product service and technical publications
departments are located in 18,200 square feet of space in Minneapolis,
under a lease which will expire in 1996.
The Company owns a 106,000 square foot facility in Plymouth, Michigan,
which contains manufacturing, engineering and administrative operations
devoted primarily to sales to the automotive industry. A 55,000 square
foot building in Farmington Hills, Michigan and a 57,000 square foot
building in Wixom, Michigan are currently for sale.
Graco manufactures paint spray guns and other products and accessories in a
Company-owned 55,000 square foot building in Sioux Falls, South Dakota.
The Company owns an office and plant located in Franklin Park, Illinois, of
approximately 82,000 square feet. Graco's Japanese subsidiary leases an
office building which functions as its technical sales center which houses
engineering, demonstration and test activities, customer service,
information systems and administration and a warehouse, all under long-term
leases with renewal options on favorable terms. Graco's Canadian
subsidiary owns a 20,000 square foot facility in Mississaugua, Ontario,
which contains office and warehouse space. With the exception of the
Maasmechelen facility, which is owned by the Belgium subsidiary, the
Company leases branch or subsidiary sales offices in the United States and
abroad, some of which have demonstration areas and/or warehouse space.
During 1994, Graco built a 67,000 square foot warehouse, production and
office building in Maasmechelen, Belgium. An expansion of 8,800 square
feet was started in late 1994 to accommodate the European headquarters
operations being relocated from France to Belgium, with completion expected
the second quarter of 1995. European customer service, distribution and
modular assembly functions formerly based in France and assembly operations
previously carried on in Houthhalen, Belgium, were consolidated in 1994 at
this location. In 1995, Graco plans to relocate its operations in the
Midlands region of the United Kingdom to a better quality leased facility
with office, systems assembly and warehouse space. In Minneapolis, an
80,000 square foot expansion of the Company's Russell J. Gray Technical
Center is nearing completion, with occupancy expected to be complete by
May, 1995.
Graco's facilities are in good operating 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 1994.
5
<PAGE>
Executive Officers of the Company
The following are all the executive officers of the Company as of March 1,
1995. There are no family relationships between any of the officers named.
David A. Koch, 64, is Chairman and Chief Executive Officer, positions he
has held since 1985. 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, 59, was named President and Chief Operating Officer and
was elected a director of the Company in June 1993. He became Executive
Vice President, Industrial/Automotive Equipment Division, Manufacturing,
Distribution and Eurafrican Operations, in March 1993. 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.
John L. Heller, 58, was named Senior Vice President and General Manager -
Contractor Equipment Division in July 1993. 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, 49, was named Senior Vice President and General Manager -
International Operations in July 1993. He is responsible for Graco's sales
activities and operations outside North America. 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.
James A. Graner, 50, 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 as
an accountant.
Clyde W. Hansen, 62, was elected Vice President, Human Resources, in
December 1993. He joined the Company in 1984 as Employee Relations
Director, a position he held until his election.
David M. Lowe, 39, was elected to the position of Treasurer in February
1995. Prior to joining the Company, he was employed by Ecolab Inc. in St.
Paul, Minnesota, 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, 47, 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, 44, 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, including Vice President and Manager, Corporate Development, a
position which he held immediately prior to his departure.
Clayton R. Carter, 56, was appointed to the position of Vice President,
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, 44, is Vice President, European Operations, a position to
which he was appointed on January 1, 1995. 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.
6
<PAGE>
Vincent C. Hren, 44, is Vice President and General Manager, Automotive
Division, a position to which he was appointed in December 1994. Prior to
joining the Company, he was employed by Fisher-Rosemount in various
managerial positions in manufacturing, most recently as Vice President of
Worldwide Operations.
Charles L. Rescorla, 43, 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 David M. Lowe, Clayton R. Carter, Thomas J. Fay,
Vincent C. Hren, and Charles L. Rescorla, the officers identified were
elected by the Board of Directors on May 3, 1994, to hold office until the
next annual meeting of directors or until their successors are elected and
qualify. In addition, effective January 1, 1995, Robert A. Wagner, who
formerly held the position of Vice President and Treasurer, was elected to
the office of Vice President, Asia Pacific, and on February 24, 1995, David
M. Lowe was elected to the office of Vice President and Treasurer. Messrs.
Carter, Fay, Hren, and Rescorla were appointed to their positions by
management effective January 1, 1995, January 1, 1995, December 27, 1994,
and January 1, 1995, respectively.
7
<PAGE>
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 6, 1995, there were
11,377,904 shares outstanding and 1,800 common shareholders of record, with
another estimated 1,800 shareholders whose stock is held by nominees or
broker dealers.
<TABLE>
<CAPTION>
Quarterly Financial Information.
(In thousands, except per share amounts)
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
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) .16 .36 .37 .44
Dividends Declared .14 .14 .14 .16
Stock Price (per share)
High $ 24.16 $ 23.00 $ 18.88 $ 21.75
Low 20.00 18.75 16.88 18.00
Volume (# of shares) 2,056.7 373.6 603.1 288.4
1993
Net Sales $ 77,811 $ 79,415 $ 81,751 $ 83,625
Gross Profit 36,209 39,321 39,337 38,260
Net Earnings (Loss) 2,572 4,114 3,463 (656)
Per Common Share:
Net Earnings (Loss) .23 .36 .30 (.06)
Dividends Declared<F1> .127 .127 .127 2.84
Stock Price (per share)
High $ 17.83 $ 21.67 $ 22.00 $ 24.25
Low 15.42 17.33 20.75 21.17
Volume (# of shares) 573.9 692.0 635.1 424.1
<F1>
1 Includes the special one-time dividend of $2.70 per share declared
December 17, 1993, paid March 21, 1994.
</TABLE>
8
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Graco Inc. & Subsidiaries
(In thousands, except per share amounts) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Sales $360,013 $322,602 $320,334 $311,874 $321,263
Earnings Before Change
in Accounting Principles 15,326 9,493 11,145 8,946 17,713
Net Earnings 15,326 9,493 5,301 8,946 17,713
Per Common Share:<F1>
Earnings Before Change
in Accounting Principles $ 1.32 $ .82 $ .97 $ .79 $ 1.63
Net Earnings 1.32 .82 .46 .79 1.63
Total Assets $228,385 $216,365 $220,418 $205,929 $209,480
Long-term Debt (including current portion) 32,483 19,480 22,762 23,898 28,651
Redeemable Preferred Stock 1,474 1,485 1,487 1,493 1,493
Cash Dividends Declared
per Common Share<F1> $ .58 $ 3.22<F2> $ .49 $ .45 $ .41
<F1>
1 All per share data has been restated for the three-for-two stock split paid
February 2, 1994.
<F2>
2 Includes the special one-time dividend of $2.70 per post-split share paid
March 21, 1994.
</TABLE>
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.
Net earnings in 1994 of $15,326,000 were significantly higher than the
$9,493,000 in 1993, and the $5,301,000 in 1992. The 61 percent increase in
1994 primarily reflects the impact of higher sales and the decline in
operating costs as a percent of sales. Operating costs include increased
product development costs and restructuring charges. The increase in net
earnings between 1993 and 1992 principally resulted from the one-time net
reduction in 1992 of $5,844,000 for the cumulative effect of changes in two
accounting principles.
The following table indicates the percentage relationship of income and
expense items, before changes in accounting principles, included in the
Consolidated Statements of Earnings for the three most recent fiscal years
and the percentage changes in those items for such years.
<TABLE>
<CAPTION>
Revenue & Expense Item Revenue & Expense Item
As a Percentage of Net Sales Percentage Increase (Decrease)
1994 1993 1992 1994/93 1993/92 1992/91
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0 100.0 100.0 12 1 3
Cost of Products Sold 51.7 52.6 51.1 10 4 2
Product Development 4.0 3.8 3.3 18 17 (11)
Selling 25.8 26.6 26.7 8 0 7
General & Administrative 11.2 11.8 12.8 6 (7) 3
Operating Profit 7.3 5.2 6.1 56 (13) 1
Interest Expense (0.5) (0.7) (0.9) (16) (16) (27)
Other (Expense) Income, Net (0.3) (0.3) 0.4 nmf nmf nmf
Earnings Before Income Taxes and
Changes in Accounting Principles 6.5 4.2 5.6 70 (24) 18
Income Taxes 2.2 1.3 2.1 88 (38) 8
Earnings Before Changes
in Accounting Principles 4.3 2.9 3.5 61 (15) 25
nmf - No Meaningful Figure
</TABLE>
9
<PAGE>
NET SALES
Graco achieved record sales in 1994. Net sales increased 12 percent to
$360,013,000, principally as the result of significantly higher sales in
the Americas in all divisions. Geographically, higher sales in the
Americas, Europe and the Pacific were partially offset by a 14 percent
sales decline in Japan. In 1993, sales increased 1 percent over 1992 as
significant increases in the Americas and the Pacific were offset by
declines in Europe and Japan. The impact of exchange rate movement on
sales was not significant in 1994 when compared to 1993, or in 1993 when
compared to 1992.
Consolidated backlog at December 30, 1994 was $25 million, compared to $20
million at year-end 1993 and $18 million at the end of 1992. The increased
backlog at the end of 1994 resulted primarily from increased Automotive
Equipment Division system orders in the Pacific.
Sales increased 12 percent in 1994 when compared to 1993 and 2 percent in
1993 from 1992, excluding operations divested in 1992.
<TABLE>
<CAPTION>
% Increase (Decrease)
(In thousands) 1994 1993 1992 1994/93 1993/92
<S> <C> <C> <C> <C> <C>
Division Sales:
Industrial Equipment $136,995 $118,155 $129,078 16 (8)
Automotive Equipment 67,457 64,765 62,587 4 3
Contractor Equipment 121,478 110,802 97,592 10 14
Lubrication Equipment 34,083 28,880 25,837 18 12
360,013 322,602 315,094 12 2
Divested Operations - - 5,240 nmf nmf
Consolidated $360,013 $322,602 $320,334 12 1
Geographic Sales:
Americas $241,169 $206,464 $183,181 17 13
Europe 65,888 60,546 75,807 9 (20)
Pacific 52,956 55,592 56,106 (5) (1)
360,013 322,602 315,094 12 2
Divested Operations - - 5,240 nmf nmf
Consolidated $360,013 $322,602 $320,334 12 1
nmf - No Meaningful Figure
</TABLE>
COST OF PRODUCTS SOLD
Cost of products sold in 1994, as a percent of net sales, decreased to 51.7
from 52.6 in 1993, primarily due to manufacturing efficiencies gained from
continued investment in technology and increased manufacturing volumes.
Manufacturing efficiencies gained from continued investment in state-of-the-
art manufacturing technology, principally in Minneapolis, Minnesota, and
Sioux Falls, South Dakota, have more than offset increases in raw material
and subcontract costs. Partially offsetting these factors were an increased
proportion of lower-margin, engineered industrial and automotive system
sales.
Periodic price increases have generally permitted the Company to recover
increases in the cost of products sold. The Company's last U.S. price
change was effective in January 1995, and represented an average 2 percent
increase from its April 1994 price lists. The April 1994 price change was
an average 2 percent increase from June 1992 prices.
OPERATING EXPENSES
Operating expenses in 1994 increased 8.4 percent from 1993, due primarily
to continued investment in product development and ongoing restructuring
initiatives. Restructuring and work force reduction costs worldwide
accounted for approximately 50 percent of the increase.
Product development expenses in 1994 increased 18 percent to $14,591,000 as
the Company added engineering personnel to achieve its goal of increasing
sales of new products.
Included in 1993 selling and general and administrative expenses are
$1,700,000 of non-recurring costs, including costs for the relocation of
administrative and technical facilities in Japan.
10
<PAGE>
Included in 1992 selling and general and administrative expenses were
$5,200,000 in costs associated with the relocation and consolidation of the
Company's Detroit-based operations, reductions in the U.S. sales force and
European operations, and other personnel reductions.
FOREIGN CURRENCY EFFECTS
The costs of the Company's products are generally denominated in U.S.
dollars, with approximately 17 percent sourced in non-U.S. currencies. A
greater proportion of its sales, approximately 32 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 and operating profits. During 1994 when compared to 1993,
the U.S. dollar was generally weaker against other major currencies. In
1993 when compared to 1992, it was stronger.
The gains and losses that result from the translation of the financial
statements for all non-U.S. subsidiaries, except Japan, and the gains and
losses on the forward and option contracts used to hedge these exposures,
are included in Other (expense) income. For 1995, the translation gains or
losses included in Other (expense) income will include Japan.
In total, the effect of the changes in exchange rates on operating profits
and the gains and losses included in Other (expense) income increased
earnings before income taxes by $2,300,000 in 1994, when compared to 1993,
and decreased earnings before income taxes by $4,500,000 in 1993, when
compared to 1992.
OTHER (EXPENSE) INCOME
The decrease in interest expense in 1994 reflects a reduction in the amount
of and interest rate on long-term debt. This decrease was offset by higher
floating rate borrowings used primarily to finance the Company's increased
working capital requirements and investments in plant and equipment during
the year. Increased product demand accelerated previously scheduled
investments in manufacturing equipment.
Other (expense) income of ($1,040,000), ($821,000) and $1,293,000 for 1994,
1993 and 1992, respectively, includes, among other things, the exchange
gains and losses discussed previously, and a $1,800,000 gain on the sale of
Lockwood Technical, Inc. (LTI) in 1992.
INCOME TAXES
The Company's net effective tax rate for 1994 was at the U.S. federal tax
rate of 35 percent. The increase from the 31 percent rate for 1993 results
principally from a non-recurring tax benefit received in 1993 associated
with the increase in value of deferred tax assets caused by the U.S.
statutory tax rate change to 35 percent. The effective tax rate of 38
percent in 1992 was higher than the then U.S. federal rate of 34 percent
with the difference resulting principally from state taxes and foreign
earnings taxed at rates higher than the U.S. rate. Reconciliation of the
U.S. federal rate to the effective rates is discussed in Note D to the
Consolidated Financial Statements.
EARNINGS BEFORE CHANGES IN ACCOUNTING PRINCIPLES
Earnings during 1994 increased by 61 percent to $15,326,000, or $1.32 per
share, as compared to 1993, when earnings decreased by 15 percent to
$9,493,000, or $.82 per share, from 1992 before changes in accounting
principles.
CHANGES IN ACCOUNTING PRINCIPLES
The Company recorded one-time adjustments in 1992 for the cumulative effect
of its required adoption of Statements of Financial Accounting Standards
(SFAS) No. 106 (Employers' Accounting for Postretirement Benefits Other
Than Pensions) and No. 109 (Accounting for Income Taxes), as described in
Note A to the Consolidated Financial Statements.
OUTLOOK
The Company anticipates higher sales in 1995 as the result of continued new
product introductions, focus on specific industries, positive economic
conditions in the Americas, improving conditions in Europe, and continued
economic growth in the Pacific region, excluding Japan.
11
<PAGE>
The restructuring efforts undertaken in recent years have positioned the
Company to capitalize on future growth opportunities while benefiting from
overall lower operating expenses as a percent of sales. The Company expects
its restructuring efforts to continue, however, at a lower level than 1994.
Full year gross profit margins are expected to improve moderately in 1995,
as a result of manufacturing efficiencies and higher volumes, subject to
the strength of the U.S. dollar (see Foreign Currency Effects). Operating
expenses as a percent of sales are expected to decrease, even though the
Company will continue to fund its long-term strategic initiatives in
product development.
DIVIDEND ACTIONS
Over the last two years the Company has undertaken a number of measures to
enhance shareholder value, broaden ownership, improve the liquidity of its
common shares, and distribute excess cash balances:
- A three-for-two stock split distributed in 1994;
- A special one-time dividend of $2.70 per post-split share declared
in 1993($31,224,000 in total);
- A 10 percent increase in the regular dividend in 1993;
- A 14 percent increase in the regular dividend in 1994.
ASSETS
The following table highlights several key measures of asset performance.
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash, Cash Equivalents and Marketable Securities $ 2,444 $37,440 $38,186
Working Capital $54,405 $47,648 $84,828
Current Ratio 1.6 1.5 2.1
Average Days Receivables Outstanding 71 71 67
Inventory Turnover 4.3 4.0 3.3
</TABLE>
Improved inventory management early in 1994 led to an increase in inventory
turns to 4.3 compared to 4.0 in 1993. However, year-end inventory balances
were 41 percent higher than 1993, principally due to new product
introductions, increased volume and additional inventory carried to support
customer service levels. Management is focusing its efforts to further
improve inventory turns in 1995.
Overall, 1994 collection performance was flat at 71 average days
receivables outstanding. The 22 percent increase in accounts receivable to
$75,589,000, resulted primarily from increased fourth quarter sales
compared to 1993.
LIABILITIES
At year-end, long-term debt (including current portion) was 28 percent of
total capital (long-term debt plus shareholders' equity) compared to 21
percent in 1993 and 18 percent in 1992. The Company had $19 million in
unused credit lines available at December 30, 1994. While the Company
believes available credit lines plus operating cash flows are adequate to
fund the Company's short and long-term initiatives, additional credit lines
may be arranged from time to time as necessary.
SHAREHOLDERS' EQUITY
Shareholders' equity totaled $81,851,000 on December 30, 1994, $7,166,000
higher than 1993, but down from 1992, as the result of the Company's
decision to pay the special one-time dividend of $2.70 per share as
previously noted.
CASH FLOWS FROM OPERATING ACTIVITIES
In 1994, cash flow from operations was $8,587,000, substantially less than
net earnings. This is primarily the result of increased working capital
requirements for inventory and accounts receivable. Cash flow from
operating activities in 1993 was $23,116,000, $2,986,000 less than the
$26,102,000 recorded in 1992.
12
<PAGE>
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 $23,100,000 in 1994, $16,178,000 in 1993 and
$10,194,000 in 1992. These expenditures have enhanced the Company's
engineering and manufacturing capabilities, improved product quality,
increased capacity, and lowered costs. Expenditures in 1994 include the
construction of an 80,000 square foot addition to the Company's technical
center in Minneapolis, Minnesota and the acceleration of planned machinery
purchases.
The Company expects to make approximately $25,000,000 in capital
investments in 1995: $15,000,000 for machinery and equipment, $6,000,000
for the expansion of the Russell L. Gray Technical Center and $4,000,000
for manufacturing capacity expansion.
During 1994, the Company sold its marketable securities to fund the special
one-time dividend of $31,224,000 paid to shareholders on March 21, 1994.
The Company realized cash proceeds of $8,569,000 on its sale of LTI in
April 1992.
CASH FLOWS FROM FINANCING ACTIVITIES
The amount of common stock issued represents the funds received to purchase
shares 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 makes open market purchases of its common
shares. These shares are available for issuance to satisfy grants under its
Long Term Stock Incentive Plan and other plans, as well as for other
corporate purposes. On February 25, 1994, the Company's Board of Directors
authorized management to repurchase up to 400,000 shares. As of December
31, 1994, under this repurchase program, the Company had repurchased
253,400 shares at an average price per share of $17.94.
The Company is currently paying 16 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 $31,224,000 paid on March
21, 1994, were $37,732,000 in 1994, $5,879,000 in 1993 and $5,484,000 in
1992. The Company expects to continue paying regular quarterly dividends to
its common shareholders at amounts which will be adjusted periodically to
reflect earnings and cash flow performance and expectations.
In 1994, debt increased by $21,444,000, reflecting increased working
capital investment, primarily in inventory, receivables and capital
expenditures.
Item 8. Financial Statements and Supplementary Data
Page
- Responsibility for Financial Reporting 14
- Independent Auditors' Report 14
- Consolidated Statements of Earnings for fiscal
years 1994, 1993 and 1992 15
- Consolidated Statements of Changes in
Shareholders' Equity Accounts (See Footnote F,
Notes to Consolidated Financial Statements) 22
- Consolidated Balance Sheets for fiscal years
1994, 1993 and 1992 16
- Consolidated Statements of Cash Flows for
fiscal years 1994, 1993 and 1992 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
<PAGE>
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 30, 1994, December 31,
1993, and December 25, 1992, and the related statements of earnings and
cash flows for each of the three years in the period ended December 30,
1994. Our audit also included the financial statement schedule listed in
the Index at Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 30, 1994, December 31, 1993, and December 25,
1992, and the results of their operations and their cash flows for each of
the three years in the period ended December 30, 1994, in conformity with
generally accepted accounting principles. Also, on 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.
As discussed in Note A to the Consolidated Financial Statements, the
Company changed its method of accounting for income taxes and
postretirement health care benefits during the year ended December 25,
1992.
Deloitte & Touche LLP
Minneapolis, Minnesota
February 7, 1995
14
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS GRACO INC. & Subsidiaries
Years Ended
December 30, December 31, December 25,
(In thousands, except per share amounts) 1994 1993 1992
<S> <C> <C> <C>
Net Sales $360,013 $322,602 $320,334
Cost of products sold 186,002 169,475 163,648
Gross Profit 174,011 153,127 156,686
Product development 14,591 12,382 10,616
Selling 92,752 85,757 85,583
General and administrative 40,279 38,086 41,019
Operating Profit 26,389 16,902 19,468
Interest expense (1,923) (2,288) (2,716)
Other (expense) income, net (1,040) (821) 1,293
Earnings Before Income Taxes And
Changes In Accounting Principles 23,426 13,793 18,045
Income taxes 8,100 4,300 6,900
Earnings Before Changes In
Accounting Principles 15,326 9,493 11,145
Cumulative effect of change in accounting
principle relating to postretirement benefits - - (6,768)
Cumulative effect of change in accounting
principle relating to income taxes - - 924
Net Earnings $ 15,326 $ 9,493 $ 5,301
Per Common Share Amounts:
Earnings before changes in accounting principles $ 1.32 $ .82 $ .97
Cumulative effect of change in accounting
principle relating to postretirement benefits - - (.60)
Cumulative effect of change in accounting
principle relating to income taxes - - .09
Net Earnings Per Common Share $ 1.32 $ .82 $ .46
See Notes to Consolidated Financial Statements.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS GRACO INC. & Subsidiaries
December 30, December 31, December 25,
(In thousands, except share amounts) 1994 1993 1992
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,444 $ 11,095 $ 18,869
Marketable securities 0 26,345 19,317
Accounts receivable, less allowances of
$4,700, $4,100, and $4,500 75,589 62,178 61,195
Inventories 50,529 35,719 49,871
Deferred income taxes, net 11,755 8,843 10,704
Other current assets 3,628 3,079 1,985
Total current assets 143,945 147,259 161,941
Property, Plant And Equipment, At Cost:
Land 3,547 3,125 2,976
Buildings and improvements 46,777 41,526 38,733
Manufacturing equipment 60,014 53,629 47,871
Office, warehouse and automotive equipment 27,337 29,092 26,457
Construction in progress 7,489 2,504 773
145,164 129,876 116,810
Accumulated depreciation (75,124) (72,132) (65,772)
70,040 57,744 51,038
Other Assets 14,400 11,362 7,439
$228,385 $216,365 $220,418
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable to banks $ 11,675 $ 3,234 $ 3,615
Current portion of long-term debt 5,685 5,543 4,917
Trade accounts payable 19,764 16,737 19,267
Salaries, wages and commissions 13,433 12,115 13,292
Dividends payable 1,857 32,535 1,471
Accrued insurance liabilities 9,918 8,783 7,850
Income taxes payable 5,761 5,658 6,588
Other current liabilities 21,447 15,006 20,113
Total current liabilities 89,540 99,611 77,113
Long-Term Debt, less current portion 26,798 13,937 17,845
Retirement Benefits And Deferred
Compensation 30,196 28,132 25,290
Commitments And Contingencies (Note H)
Shareholders' Equity
5% Cumulative Preferred Stock, $100 par value;
22,549 shares authorized; 14,740, 14,845
and 14,870 shares outstanding 1,474 1,485 1,487
Common stock, $1 par value; 15,000,000 shares
authorized; 11,377,004, 11,449,623 and
7,547,478 shares outstanding 11,377 11,449 7,547
Additional paid-in capital 18,289 19,813 18,569
Retained earnings 50,702 42,430 73,697
Other, net 9 (492) (1,130)
81,851 74,685 100,170
$228,385 $216,365 $220,418
See Notes to Consolidated Financial Statements.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS GRACO INC. & Subsidiaries
Years Ended
December 30, December 31, December 25,
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 15,326 $ 9,493 $ 5,301
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 10,447 9,292 8,629
Deferred income taxes (4,042) 827 (5,997)
Gain on sale of business - - (1,792)
Change in:
Accounts receivable (10,806) (730) 3,399
Inventories (13,967) 14,901 (2,889)
Trade accounts payable 2,358 (3,226) (3,924)
Accrued salaries 1,439 (749) 2,905
Retirement benefits and deferred compensation 1,670 2,481 13,558
Other accrued liabilities 6,858 (4,782) 6,664
Other (696) (4,391) 248
8,587 23,116 26,102
Cash Flows From Investing Activities:
Property, plant and equipment additions (23,100) (16,178) (10,194)
Proceeds from sale of property, plant and equipment 693 795 264
Proceeds from sale of business - - 8,569
Purchases of marketable securities (5,464) (25,703) (20,504)
Proceeds from sales of marketable securities 31,809 18,675 1,187
3,938 (22,411) (20,678)
Cash Flows From Financing Activities:
Proceeds from short-term borrowings 10,411 15,098 19,163
Payments on short-term borrowings (2,395) (15,567) (22,997)
Proceeds from long-term debt 16,632 1,297 569
Payments on long-term debt (5,380) (5,739) (4,407)
Common stock issued 3,102 3,390 2,524
Retirement of common and preferred stock (4,564) (1,750) (248)
Cash dividends paid (37,732) (5,879) (5,484)
(19,926) (9,150) (10,880)
Effect of exchange rate changes on cash (1,250) 671 347
Net decrease in cash and cash equivalents (8,651) (7,774) (5,109)
Cash and cash equivalents
Beginning of year 11,095 18,869 23,978
End of year $ 2,444 $ 11,095 $ 18,869
See Notes to Consolidated Financial Statements.
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GRACO INC. & Subsidiaries
Years Ended December 30, 1994, December 31, 1993, and December 25, 1992
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 30, 1994, 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, except Graco K.K. (Japan), where the
local currency was the functional currency.
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. At December 25, 1992, the
securities were recorded at the lower of cost or market. Cost approximated
market at both December 31, 1993 and December 25, 1992.
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 and net
monetary positions are marked to market. 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 amounts (which do not represent credit or market risk) of such
contracts were (in U.S. dollars) $9,086,000, $15,258,000, and $16,709,000
at December 30, 1994, December 31, 1993, and December 25, 1992,
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 45 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. Effective the beginning of 1992, the Company
adopted SFAS No. 109 (Accounting for Income Taxessee Note D). The Company
provides taxes on unremitted earnings of subsidiaries.
EARNINGS PER COMMON SHARE. On December 17, 1993, the Board of
Directors approved a three-for-two stock split, effected in the form of a
stock dividend, payable February 2, 1994, to shareholders of record on
January 5, 1994. All share and per share data has been restated to reflect
the split. 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.
RETIREE HEALTH CARE BENEFITS. Effective the beginning of 1992,
the Company adopted SFAS No. 106 (Employers' Accounting for Postretirement
Benefits Other Than Pensions). This Statement requires the accrual of
postretirement benefit costs during the years an employee provides
services. The Company elected to charge the entire unfunded obligation of
$10,254,000
18
<PAGE>
($6,768,000 after tax), against earnings as of the beginning of 1992, as a
cumulative effect of a change in accounting principle. In addition, the
effect of this change decreased 1992 earnings before income taxes by
$848,000.
1992 SALE OF SUBSIDIARY. On April 24, 1992, the Company sold a
wholly owned subsidiary, Lockwood Technical, Inc., (LTI) and a related
Japanese joint venture affiliate (LTI-Graco K.K.). A gain on the sale of
$1,792,000 is reflected in 1992 results.
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.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Sales to unaffiliated customers:
Americas<F1> $241,169 $206,464 $187,724
Europe 65,888 60,546 75,914
Pacific 52,956 55,592 56,696
360,013 322,602 320,334
Intercompany sales between geographic area:<F2>
Americas 51,939 38,902 43,957
Europe 14 3,798 3,073
Pacific 450 402 542
Eliminations (52,403) (43,102) (47,572)
Total sales $360,013 $322,602 $320,334
Operating profit:
Americas $ 62,650 $ 46,260 $ 41,950
Europe ( 5,463) ( 2,780) 1,810
Pacific 1,639 654 4,600
Eliminations ( 2,205) 1,627 2,067
56,621 45,761 50,427
General corporate expenses (31,272) (29,680) (29,666)
Interest expense ( 1,923) ( 2,288) ( 2,716)
Earnings before income taxes and
changes in accounting principles $ 23,426 $ 13,793 $ 18,045
Assets:
Americas $163,201 $128,713 $129,219
Europe 50,503 30,737 34,829
Pacific 26,605 25,680 25,043
Corporate 2,444 37,440 38,186
Eliminations (14,368) ( 6,205) ( 6,859)
Total assets $228,385 $216,365 $220,418
<F1>
1 Included are U.S. export sales to unaffiliated customers of $23,408, $25,251,
and $18,675, in 1994, 1993, and 1992, respectively.
<F2>
2 Transfers between entities are made at prices which allow appropriate markups
to the manufacturing and selling unit.
</TABLE>
Net earnings (loss) for subsidiaries operating outside the U.S. were
($5,624,000), ($2,261,000), and $6,608,000 for 1994, 1993, and 1992,
respectively.
Retained earnings for subsidiaries operating outside the U.S. were
$8,860,000, $9,760,000, and $9,908,000 for 1994, 1993, and 1992,
respectively.
Transaction and translation net gains or losses, included in Other income
(expense), net were $366,000, ($1,294,000), and ($670,000) for 1994, 1993,
and 1992, respectively.
19
<PAGE>
C. INVENTORIES
Major components of inventories for the last three years were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Finished products and components $ 46,694 $ 42,010 $ 46,234
Products and components in various
stages of completion 24,826 21,410 27,700
Raw materials 13,918 8,642 10,315
85,438 72,062 84,249
Reduction to LIFO cost (34,909) (36,343) (34,378)
$ 50,529 $ 35,719 $ 49,871
</TABLE>
Inventories valued under the LIFO method were $32,743,000, $19,700,000, and
$30,309,000 for 1994, 1993, and 1992, respectively. The balance of the
inventory was valued on the FIFO method.
In 1993, certain inventory quantities were reduced, resulting in
liquidation of LIFO inventory quantities carried at lower costs from prior
years. The effect was to increase net earnings by approximately $900,000 in
1993.
D. INCOME TAXES
The Company adopted SFAS No. 109 (Accounting for Income Taxes) as of the
beginning of 1992.
Earnings before income tax expense and changes in accounting principles
consist of:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Domestic $ 28,168 $ 13,796 $ 11,573
Foreign (4,742) (3) 6,472
Total $ 23,426 $ 13,793 $ 18,045
</TABLE>
Income tax expense, before the cumulative effect of changes in accounting
principles, consists of:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Current:
Domestic:
Federal $ 9,383 $ 1,598 $ 4,987
State and local 1,030 385 745
Foreign 2,596 1,551 2,833
13,009 3,534 8,565
Deferred:
Domestic (3,617) (134) (2,117)
Foreign (1,292) 900 452
(4,909) 766 (1,665)
Total $ 8,100 $ 4,300 $ 6,900
</TABLE>
Income taxes paid were $12,136,000, $4,620,000, and $6,186,000 in 1994,
1993, and 1992, respectively.
20
<PAGE>
A reconciliation between the U.S. federal statutory tax rate and the
effective tax rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Statutory tax rate 35% 35% 34%
Foreign earnings with higher tax rates 2 1 4
State taxes, net of federal effect 3 2 3
(Increase) in deferred tax assets from
statutory tax rate increase - (3) -
U.S. general business tax credits (3) (1) (1)
Other (2) (3) (2)
Effective tax rate 35% 31% 38%
</TABLE>
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:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Inventory valuations $ 4,616 $ 3,004 $ 3,673
Cost reductions and severance accruals 1,377 742 2,268
Insurance accruals 3,232 2,876 2,230
Vacation accruals 1,428 1,398 1,199
Bad debt reserves 893 894 979
Other 422 (71) 355
Valuation allowance (213) - -
Current 11,755 8,843 10,704
Unremitted earnings of consolidated foreign subsidiaries * (2,938) (4,141) (4,637)
Excess of tax over book depreciation (3,104) (2,845) (2,657)
Postretirement benefits 4,447 4,194 3,775
Pension and deferred compensation 5,103 4,856 4,291
Net operating loss carry forward 6,715 2,066 -
Other 407 895 308
Valuation allowance (6,680) (2,740) -
Non-current 3,950 2,285 1,080
Net deferred tax assets $15,705 $11,128 $11,784
* Payable at the time these earnings are distributed to the parent
</TABLE>
Net non-current deferred tax assets above are included in other assets.
Total deferred tax assets were $22,506,000, $18,637,000 and $19,218,000,
and total deferred tax liabilities were $6,801,000, $7,509,000, and
$7,434,000 on December 30, 1994, December 31, 1993 and December 25, 1992,
respectively. A valuation allowance of $6,893,000 and $2,740,000 has been
recorded as of 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 higher tax rates" in the Company's tax
rate reconciliation.
21
<PAGE>
E. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Term debt, 6.53%, payable in equal
annual installments through 1995 $ 4,000 $ 8,000 $12,000
Term debt, 5.70% at December 30, 1994, payable
in equal annual installments through 1997 900 1,200 1,500
Industrial development refunding revenue
bonds, 4.65% at December 30, 1994,
payable through 2002 (property carried at
$3,219 pledged as collateral) 5,000 5,500 6,000
Revolving credit agreement, 7% at December 30,1994,
payable September 30, 1996 14,850 - -
Obligations related to low income housing investments 4,534 2,867 -
Other 3,199 1,913 3,262
Total long-term debt 32,483 19,480 22,762
Less current portion: 5,685 5,543 4,917
Long-term portion $26,798 $13,937 $17,845
</TABLE>
Aggregate annual scheduled maturities of long-term debt for the next five
years are as follows: 1995, $5,685,000; 1996, $16,744,000; 1997,
$1,886,000; 1998, $1,803,000; 1999, $2,763,000. Interest paid on debt
during 1994, 1993, and 1992 amounted to $1,923,000, $3,230,000, and
$1,910,000, respectively. The fair value of the Company's long-term debt at
December 30, 1994, December 31, 1993 and December 25, 1992, is not
materially different than its recorded value.
During 1992, the Company entered into an interest rate swap agreement
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 30, 1994, the Company had lines of credit with U.S. and foreign
banks of $44,280,000, including a $15,000,000 revolving credit agreement.
The unused portion of these credit lines was $18,993,000 at December 30,
1994. Borrowing rates under these facilities vary with the prime rate,
rates on domestic certificates of deposit, and the London interbank market.
During the years ended December 30, 1994, December 31, 1993 and December
25, 1992, the Company's weighted average short term borrowing rates were
4.8 percent, 10.3 percent and 11.5 percent, 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 covenants of its debt agreements.
Under the most restrictive terms of the agreements, approximately
$7,378,000 of retained earnings were available for payment of cash
dividends at December 30, 1994.
F. SHAREHOLDERS' EQUITY
The holders of cumulative preferred stock are entitled to fixed cumulative
dividends of 5 percent per annum on the par value before cash dividends may
be paid or declared on common stock. The preferred stock may be redeemed at
the option of the Company at $105 per share plus accrued and unpaid
dividends. Preferred stockholders are entitled to $105 per share in the
event of voluntary liquidation of the Company or $100 per share for
involuntary liquidation, plus all accrued and unpaid dividends. All
required dividends have been paid.
The Company has authorized, but not issued, a separate class of 3,000,000
shares of preferred stock, $1 par value.
22
<PAGE>
The Company has a leveraged Employee Stock Ownership Plan (ESOP) under
which outstanding debt was $900,000, $1,200,000 and $1,500,000 at December
30, 1994, December 31, 1993 and December 25, 1992, 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.
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.
On December 17, 1993, the Board of Directors approved a three-for-two stock
split, effected in the form of a stock dividend, payable February 2, 1994
to shareholders of record on January 5, 1994. Accordingly, December 31,
1993 balances reflect the split with an increase in common stock and a
reduction in retained earnings of $3,817,000. All stock option, share and
per share data have been restated to reflect the split. On December 17,
1993, the Board of Directors also approved a special one-time dividend of
$2.70 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.
Under the Company's Employee Stock Purchase Plan, 2,100,000 common shares
have been authorized for sale to employees, 434,546 of which remained
unissued at the end of 1994. 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
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
1,650,000 common shares have been reserved for issuance, with 790,812
shares remaining reserved at December 30, 1994. Grants under this Plan are
in the form of restrictive share awards and stock options. Restrictive
share awards of 398,406 common shares have been made to certain key
employees under the Plan, with 62,316 shares restricted for disposition,
such restrictions lapsing from 1995 to 1997. Unearned compensation expense
relating to the remaining restricted shares is $745,000 at December 30,
1994, and is included as a reduction of shareholders' equity in the Other,
net category.
Stock options for 801,622 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 the 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.
23
<PAGE>
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:
<TABLE>
<CAPTION>
NUMBER OF SHARES
Option Price
Reserved Granted Exercisable Per Share
<S> <C> <C> <C> <C>
Balance at December 27, 1991 249,060 250,080 238,830 $ 5.22 - 14.45
Reserved 750,000 - - -
Granted - 157,020 25,470 5.22 - 17.67
Exercised (84,729) (84,729) (84,729) 5.22 - 17.67
Canceled 27,947 (4,950) (4,950) 12.67 - 17.75
Balance at December 25, 1992 942,278 317,421 174,621 11.59 - 16.09
Granted - 82,800 25,875 15.50 - 19.92
Exercised (130,632) (130,632) (130,632) 11.59 - 18.92
Canceled 23,322 (3,450) 4,950 12.67 - 17.75
Balance at December 31, 1993 834,968 266,139 74,814 11.59 - 19.92
Granted - 258,370 53,835 11.50 - 22.63
Exercised (52,210) (52,210) (52,210) 11.58 - 18.92
Canceled 8,054 (15,937) (2,590) 11.58 - 18.92
Balance at December 30, 1994 790,812 456,362 73,849 $11.50 - 22.63
</TABLE>
The changes in shareholders' equity accounts are as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Preferred stock
Balance, beginning of year $ 1,485 $ 1,487 $ 1,493
Shares repurchased (11) (2) (6)
Balance, end of year 1,474 1,485 1,487
Common stock
Balance, beginning of year 11,449 7,547 7,446
Stock split - 3,817 -
Shares issued 188 157 120
Shares repurchased (260) (72) (19)
Balance, end of year 11,377 11,449 7,547
Additional paid-in capital
Balance, beginning of year 19,813 18,569 16,633
Shares issued 2,914 3,198 2,404
Shares repurchased (4,438) (1,954) (468)
Balance, end of year 18,289 19,813 18,569
Retained earnings
Balance, beginning of year 42,430 73,697 74,048
Net Income 15,326 9,493 5,301
Cash Dividends (7,054) (36,943) (5,652)
Stock split - (3,817) -
Balance, end of year 50,702 42,430 73,697
Cumulative translation adjustment
Balance, end of year 1,654 1,958 2,368
Other, net
Balance, end of year (1,645) (2,450) (3,498)
Total Shareholders' Equity $ 81,851 $ 74,685 $100,170
</TABLE>
24
<PAGE>
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 $850,000 in 1994,
$819,000 in 1993, and $813,000 in 1992.
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. The expenses for these plans consist of the following components:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,499 $ 2,244 $ 2,389
Interest cost on projected benefit obligation 4,301 4,115 3,917
Actual return on assets 579 (11,736) (1,325)
Net amortization and deferral (5,583) 7,354 (2,688)
Cost of pension plans which are not significant
and have not adopted SFAS No. 87 312 190 289
Net periodic pension cost $ 2,108 $ 2,167 $ 2,582
</TABLE>
The status of the Company's plans and the amounts recognized in the
financial statements are:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Actuarial present value:
Vested benefit obligation $ 49,429 $ 43,492 $ 33,850
Accumulated benefit obligation $ 54,884 $ 48,644 $ 37,603
Projected benefit obligation $ 66,093 $ 60,144 $ 52,724
Plan assets at fair value 55,057 57,151 46,520
Funded status (11,036) (2,993) (6,204)
Unrecognized net gain (3,787) (10,910) (5,989)
Unrecognized net liability being amortized 204 249 265
Adjustment required to recognize minimum liability (1,192) (467) (269)
Accrued pension cost ($ 15,811) ($ 14,121) ($ 12,197)
</TABLE>
Major assumptions at year-end:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate 4 - 7 1/2% 4 - 7 1/2% 6 - 8 1/2%
Rate of increase in future compensation levels 3 - 7% 3 - 7% 4 - 8%
Expected long-term rate of return on plan assets 9% 9% 9%
</TABLE>
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 1994, 1993 and 1992 was as
follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost $ 503 $ 454 $ 345
Interest cost 947 976 851
Net benefit expense $1,450 $1,430 $1,196
</TABLE>
25
<PAGE>
The Company's policy is to fund these benefits on a pay-as-you-go basis.
The actuarial present value of these health benefit obligations and the
amount recognized in the Consolidated Balance Sheets were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Accumulated postretirement benefit obligation
Retirees and beneficiaries ($ 5,502) ($ 5,387) ($ 4,756)
Fully eligible active plan participants (2,168) (2,010) (2,070)
Other active plan participants (6,104) (6,090) (4,141)
Accumulated benefit obligations (13,774) (13,487) (10,967)
Unrecognized net (gain) loss 1,069 1,504 (135)
Accrued postretirement benefit cost ($ 12,705) ($ 11,983) ($ 11,102)
</TABLE>
The Company's retirement medical benefit plan limits the annual cost
increase that will be paid by the Company. Actuarial computations shown
above have assumed the maximum cost increase. The discount rate assumption
for 1994, 1993 and 1992 was 7.5 percent, 7.5 percent and 8.5 percent,
respectively.
H. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS:
Aggregate rental commitments at December 30, 1994, under operating leases
with noncancelable terms of more than one year, were $10,970,000, payable
as follows:
<TABLE>
<CAPTION>
Vehicles &
(In thousands) Buildings Equipment Total
<S> <C> <C> <C>
1995 $ 2,587 $ 899 $ 3,486
1996 2,249 342 2,591
1997 1,764 118 1,882
1998 1,580 43 1,623
1999 733 7 740
Thereafter 648 0 648
$ 9,561 $ 1,409 $10,970
</TABLE>
Total rental expense was $4,103,000 for 1994, $4,276,000 for 1993, and
$3,646,000 for 1992.
CONTINGENCIES:
On June 29, 1993, the U.S. District Court for the Southern District of
Texas ruled that Binks Manufacturing Company of Franklin Park, Illinois
deliberately infringed the patent covering Graco Inc.'s Glutton pumps. The
court awarded compensatory damages, treble damages and attorneys' fees to
Graco Inc., plus prejudgement interest, in a total amount of $2,750,000.
Because Binks Manufacturing Company has appealed the decision, the Company
will not recognize this award in the financial statements until the appeal
reaches an appropriate state of resolution.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
26
<PAGE>
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 30, 1994, 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.
(See Exhibit Index) 30
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 fourteen
weeks ended December 30, 1994.
(c) Exhibit Index. 30
27
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C>
Year ended December 30 1994:
Allowance for doubtful accounts $ 2,200 $ 1,200 $ 700<F1> $ 2,700
Allowance for obsolete and overstock inventory 5,500 3,100 2,200<F2> 6,400
Allowance for returns and credits 1,900 2,000 1,900<F3> 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<F1> $ 2,200
Allowance for obsolete and overstock inventory 6,100 1,300 1,900<F2> 5,500
Allowance for returns and credits 1,800 1,900 1,800<F3> 1,900
Valuation allowance for tax benefits 2,740 2,740
$10,600 $ 6,440 $ 4,700 $12,340
Year ended December 25, 1992:
Allowance for doubtful accounts $ 2,800 $ 500 $ 600<F1> $ 2,700
Allowance for obsolete and overstock inventory 6,000 1,700 1,600<F2> 6,100
Allowance for returns and credits 1,800 1,700 1,700<F3> 1,800
$10,600 $ 3,900 $ 3,900 $10,600
<F1>
1Accounts determined to be uncollectible and charged against reserve, net of
collections on accounts previously chargedagainst reserves.
<F2>
2Items scrapped or otherwise disposed of during the year.
<F3>
3Credits issued and returns processed, related to prior years.
</TABLE>
28
<PAGE>
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.
\David A. Koch March 20, 1995
David A. Koch
Chairman 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.
\David M. Lowe March 20, 1995
David M. Lowe
Treasurer
(Principal Financial Officer)
\James A. Graner March 20, 1995
James A. Graner
Vice President and Controller
(Principal Accounting Officer)
D. A. Koch Director, Chairman and Chief Executive Officer
G. Aristides Director, President and Chief Operating Officer
R. O. Baukol Director
J. W. Lacey Director
J. R. Lee Director
L. R. Mitau Director
R. D. McFarland Director
D. R. Olseth Director
G. C. Planchon Director
C. B. Thompson Director
David A. Koch, 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.
\David A. Koch March 20, 1995
David A. Koch
(For himself and as attorney-in-fact)
29
<PAGE>
Exhibit Index
Exhibit
Number Description
3.1 Restated Articles of Incorporation. See also Exhibit
4.4. (Incorporated by reference to Exhibit 3.1 to the
Company's 1993 Annual Report on Form 10-K.)
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.)
4.3 Loan Agreement dated November 24, 1993, between the
Company and Metropolitan Life Insurance Company, as amended
on January 13, 1994.
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 and, in lieu thereof, the Company
agrees to furnish copies thereof to the Securities and
Exchange Commission upon request.
4.4 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 1994 Corporate and Business Unit Annual Bonus
Plan. (Incorporated by reference to Exhibit 2 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
July 1, 1994.)
*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
<PAGE>
*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 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 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.
*10.17 Separation and Supplemental Retirement Agreement
between Barry A. Calhoon and the Company, dated January 3,
1995.
11 Statement of Computation of Earnings per share included
herein on page 32.
21 Subsidiaries of the Registrant included herein on page
33.
23 Independent Auditor's Consent included herein on page
33.
24 Power of Attorney included herein on page 34.
27 Financial Data Schedule (EDGAR filing only).
*Management Contracts, Compensatory Plans or Arrangements.
31
<PAGE>
Exhibit Number 11
<TABLE>
<CAPTION>
Graco Inc. & Subsidiaries
Computation of Per Share Earnings<F1>
Years Ended
(In thousands, except per share amounts) December 30, December 31, December 25,
1994 1993 1992
<S> <C> <C> <C>
PRIMARY
Net earnings applicable to common stock:
Net earnings $ 15,326 $ 9,493 $ 5,301
Less dividends on preferred stock 74 74 75
$ 15,252 $ 9,419 $ 5,226
Average number of common shares and
common equivalent shares outstanding:
Average number of common shares outstanding 11,539 11,386 11,294
Dilutive effect of stock options computed based on
the treasury stock method using average market price 42 79 61
11,581 11,465 11,355
Net earnings per common share and common equivalent share $ 1.32 $ .82 $ .46
FULLY DILUTED
Net earnings applicable to common stock:
Net earnings $ 15,326 $ 9,493 $ 5,301
Less dividends on preferred stock 74 74 75
$ 15,252 $ 9,419 $ 5,226
Average number of common shares and
common equivalent shares outstanding:
Average number of common shares outstanding 11,539 11,386 11,294
Dilutive effect of stock options computed based on
the treasury stock method using the year end
market price, if higher than average market price 49 91 63
11,588 11,477 11,357
Net earnings per common share and common equivalent share $ 1.32 $ .82 $ .46
<F1>
1 All share and per share data has been restated for the three-for-two stock
split paid February 2, 1994.
</TABLE>
32
<PAGE>
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 (Jamaica) FSC Limited Jamaica 100%
Graco GmbH Germany 100%
Graco Hong Kong Limited Hong Kong 100%*
Graco K.K. Japan 100%
Graco Korea Inc. Korea 100%
Graco Norge A.S. Norway 100%
Graco Pumps Scandinavia AB Sweden 100%
Graco S.A. France 100%*
Graco S.r.l. Italy 100%*
Graco UK Limited England 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
February 7, 1995, 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 30, 1994, included in the
Annual Report on Form 10-K for the year ended December 30, 1994.
Deloitte & Touche LLP
Minneapolis, Minnesota
March 20, 1995
33
<PAGE>
Exhibit 24
Power of Attorney
Know all by these presents, that each person whose signature appears below
hereby constitutes and appoints David A. Koch, George Aristides or David
M. Lowe, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign the Report on Form 10-K for the
year ended December 30, 1994, 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 he
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 24, 1995
G. Aristides
\R. O. Baukol February 24, 1995
R. O. Baukol
\D. A. Koch February 24, 1995
D. A. Koch
\J. W. Lacey February 24, 1995
J. W. Lacey
\J. R. Lee February 24, 1995
J. R. Lee
\R. D. McFarland February 24, 1995
R. D. McFarland
\L. R. Mitau February 24, 1995
L. R. Mitau
\D. R. Olseth February 24, 1995
D. R. Olseth
\G. C. Planchon February 24, 1995
G. C. Planchon
\C. B. Thompson February 24, 1995
C. B. Thompson
34
<PAGE>
Exhibit 10.16
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 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
Exhibit 10.17
SEPARATION AND
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS AGREEMENT made this 3rd day of January, 1995, by and between
Graco Inc., a Minnesota corporation ("Graco"), and Barry A. Calhoon
("Employee").
WHEREAS, Employee is now employed by Graco; and
WHEREAS, The parties have agreed that Employee will retire as an
employee of Graco effective December 31, 1994, and terminate the employment
relationship between Employee and Graco in accordance with the terms of
this Agreement.
NOW, THEREFORE, It is hereby agreed by and between the parties as
follows:
1. Separation Payments.
Upon execution of this Agreement, Graco will pay to Employee in a
lump sum the amount of one hundred seventy-eight thousand
($178,000) dollars, subject to tax deductions required by law.
2. Supplemental Retirement Payments
a. Pension payments. Beginning January 1, 1995, Graco shall pay
to Employee on the first day of each month the sum of nine
hundred seven ($907.00) dollars. Graco shall make a good
faith effort to deliver this sum to Employee's residence, as
the address may appear in Graco's records, on or before the
last day of the month preceding the due date. Such payments
shall continue until the first day of the month in which
Employee dies.
b. Source of Payments. Benefits due under this Article 2 shall
be paid out of the general funds of Graco, and the Employee
and the Survivor Annuitant shall not have any preferred
interest by way of trust, escrow, lien or otherwise in any
specific assets. The rights accruing to the Employee and
the Survivor Annuitant hereunder shall be solely those of
unsecured creditors of Graco.
c. Nontransferability. The Employee and the Survivor Annuitant
shall not have the right to assign, encumber or otherwise
anticipate the payments to be made under this Article 2, and
the benefits provided hereunder shall not be subject to
seizure for payment of any debts or judgments against the
Employee or the Survivor Annuitant.
d. Making a Claim Payments will be paid to the Employee and
Survivor Annuitant automatically. If the Employee or the
Survivor Annuitant is in disagreement with any determination
that has been made, a claim may be presented in accordance
with the procedure set forth in subparagraph e of this
Article 2.
e. Claims Procedure.
(i). Any claim presented to Graco pursuant to
subparagraph d of this Article must be in writing
and delivered to the Vice President - Human
Resources of Graco. The claimant may, at the
claimant's own expense, have an attorney or other
representative act on behalf of the claimant.
Within 90 days after the claim is delivered, the
claimant will receive either:
(a) a decision ; or
(b) a notice describing special circumstances
requiring a specified amount of additional time
(but no more than 180 days from the day the
claim was delivered) to reach a decision.
(ii). If the claim is wholly or partially denied, the
claimant will receive a written notice specifying:
(a) the reasons for denial;
(b) the provisions of the Agreement on which the
denial is based; and
(c) any additional information needed in connection
with the claim and the reason such information
is needed. Information concerning the
claimant's right to request a review will also
be given to the claimant.
(iii). A claimant may request that a denied claim be
reviewed. The request for review must be in writing
and delivered to the Vice President - Human
Resources of Graco within 60 days after the
claimant's receipt of written notice that the claim
was denied. A request for review may, but is not
required to, include issues and comments the
claimant wants considered in the review. The
claimant may examine pertinent documents by asking
the Vice President - Human Resources of Graco for
permission to do so. Within 60 days after delivery
of a request for review, claimant will receive
either
(a) a decision; or
(b) a notice describing special circumstances
requiring a specified amount of additional time
(but no more than 120 days from the day the
request for review was delivered) to reach a
decision.
(iv). If a claimant does not receive a decision within the
specified time, the claimant should assume the claim
was denied or re-denied on the date the specified
time expired.
(v). The Vice President - Human Resources of Graco will
make all decisions on claims and reviews of denied
claims . The Vice President - Human Resources of
Graco may delegate his authority to make such
decisions and may, in his or her sole discretion,
hold one or more hearings.
3. Long-term Stock Incentive Plan.
a. Graco Executive Long-term Incentive Agreement.
With respect to the grants of restricted stock made to the
Employee pursuant to the Executive Long-term Incentive
Agreement executed by the Employee and Graco on March 1,
1991, the Employee will receive on March 1, 1995, one
thousand eight hundred and eighty-one (1881) shares of Graco
common stock, freely tradeable without further restrictions,
representing the fourth installment of the total shares
granted to the Employee under said Agreement. The fifth and
sixth installments of shares shall not vest in the Employee
and his right to these unvested installments shall be
immediately and irrevocably forfeited on the date of
execution of this Separation and Supplemental Retirement
Agreement. All other terms and conditions of the subject
Incentive Agreement to the extent applicable shall remain in
full force and effect.
b. Non-Incentive Stock Option Agreement.
On December 31, 1994, all Five thousand two hundred ninety-
eight options granted to the Employee pursuant to the Non-
Incentive Stock Option Agreement executed by the Employee
and Graco on May 2, 1994 shall become immediately and fully
exercisable by the Employee and shall remain exercisable by
him until the close of business on December 30, 1997, at
which time all options not previously exercised will expire.
All other terms and conditions of the subject Stock Option
Agreement to the extent applicable shall remain in full
force and effect.
4. Annual Bonus Plan.
The Employee is a participant in the Graco Inc. 1994 Corporate
and Business Unit Annual Bonus Plan and shall be entitled to a
Bonus Payment pursuant to the terms of that Plan, calculated up
to the time of his retirement.
5. Cooperation.
Employee shall render all reasonable cooperation to Graco in
connection with the prosecution or defense of any lawsuit or
other judicial or administrative action, including participating
as a source of information or witness in any such action. Graco
shall reimburse Employee for any reasonable out-of-pocket
expenses (including attorney's fees, if necessary) incurred by
him in connection with rendering such cooperation.
6. Confidentiality
a. Employee hereby agrees that, for a period of five (5) years
after December 31, 1994, he will not, directly or
indirectly, disclose any Confidential Information, as
defined in subsection (b) below, to any other party, and
will not in any way use such Confidential Information in the
course of his employment.
b. As used herein, the term "Confidential Information" shall
mean all information which is treated as confidential or
proprietary by Graco in the normal course of its business,
including, without limitation, documents so marked, or is a
trade secret of Graco, which has been disclosed by Graco to
Employee including, without limitation, information relating
to Graco products, processes, product development or
research, equipment, machinery, apparatus, business
operations, financial results or condition, strategic plans
or projections, customers, employees, suppliers, marketing,
sales, management practices, technical information,
drawings, specifications, material, and the like, and any
knowledge or information developed by Employee relating to
the same, provided, however, that Confidential Information
shall not include information which is, at the time of
disclosure or thereafter becomes, a part of the public
domain through no act or omission by the Employee or
information which the Employee is required to disclose in a
court or other judicial proceeding or is otherwise legally
required to disclose.
c. Employee agrees that all written or otherwise documented,
including, without limitation, by any electronic medium,
Confidential Information and all copies thereof, are and
shall be Graco property exclusively, and the Employee
hereby represents that he has either turned over to Graco
all such documents or destroyed them, and has no documents
or other records, including, without limitation, electronic
records, containing Graco Confidential Information in his
possession or control.
7. Release
a. Except with respect to the provisions of this Agreement and
the provisions of a letter from Susan Boettcher and Debbie
Hill, dated October 17, 1994, describing the benefits to
which Employee shall be entitled upon his retirement, the
Employee hereby releases and forever discharges Graco and
its officers, employees, agents, successors, and assigns
from any and all claims, causes of action, demands, damages,
liability and responsibility whatsoever, arising prior to
the date of this Agreement, including without limitation,
any rights or claims for further compensation, or any rights
to participate in any Company-sponsored program relating to
the purchase or acquisition of any Graco common stock,
preferred stock, or other equity in Graco or any subsidiary
thereof, except as specifically provided in this Agreement,
including the Exhibits hereto, or any right or claim the
Employee may have or assert under the common law or any
state, municipal, federal, or other law or regulation
regarding the rights of employees generally or based on
discrimination on the basis of race, creed, gender, age, or
other protected status. This Article 7 shall not affect the
Employee's rights to indemnification as an officer,
director, and employee of Graco under Graco's By-Laws and
applicable Minnesota law nor any rights which he has accrued
by participating in any Graco benefit plan, subject to the
provisions of this Agreement and the terms and conditions
set forth in such plan as of his retirement date.
b. The Employee certifies, represents and agrees that:
(i). this Agreement is written in a manner that he
understands;
(ii). he understands that this Article 7 specifically
waives any rights or claims he may have arising
under federal, state, and local laws prohibiting
employment discrimination, such as the Age
Discrimination in Employment Act, the Minnesota
Human Rights Act, Title VII of the Civil Rights Act
of 1964, the Rehabilitation Act of 1973, the
Americans with Disabilities Act and/or any claims
for damages or for injuries based on common law
theories of contract, quasi-contract or tort;
(iii). the waiver herein of rights or claims are to those
which may have arisen prior to the execution date
of this Agreement;
(iv). a portion of the consideration set out in this
Agreement is in addition to compensation that he
may already have been entitled to;
(v). he has been specifically advised in writing to
consult with an attorney prior to executing this
Agreement;
(vi). he has been informed that he has a period of at
least twenty-one (21) calendar days within which to
consider this Agreement;
(vii). he specifically understands that he may revoke this
Agreement for a period of at least fifteen (15)
calendar days following his execution of this
Agreement, and that this Agreement is not effective
or enforceable until the fifteen (15) day
revocation period has expired.
(viii). If he decides to revoke this Agreement within said
fifteen (15) day period, he should provide written
notice to the Vice President - Human Resources,
delivered in person or by mail. If his revocation
is sent by mail, it must be postmarked on or before
January 18, 1995, properly addressed to Clyde
Hansen, Vice President - Human Resources, Graco,
Inc., P.O. Box 1441, Minneapolis, MN. 55440, and
sent by certified mail, return receipt requested.
Employee understands that Graco will have no
obligation to pay him anything under this
Agreement, if he revokes his acceptance within the
time limit specified.
(ix). The Employee expressly agrees that the waiver of
his rights pursuant to the Agreement is knowing and
voluntary on his part.
8. Applicability to Successors.
This Agreement shall be binding upon and inure to the benefit of
Graco and the Employee and the Survivor Annuitant, and the
successors and assigns of Graco. If Graco becomes a party to any
merger, consolidation or reorganization, this Agreement shall
remain in full force and effect as an obligation of Graco or its
successors in interest.
9. Amendment.
This Agreement may be amended at any time by mutual agreement of
the parties. The Vice President - Human Resources of Graco may
issue rules implementing this Agreement and will inform the
Employee (or the Survivor Annuitant) of any such rules in the
event same are issued.
10. Applicable Law.
Except to the extent governed by federal law, this Agreement and
any controversies between the parties shall be governed by and
construed in accordance with the laws of the State of Minnesota.
11. Entire Agreement.
This Agreement, including Exhibit A hereto, constitutes the
entire agreement and understanding between the parties with
respect to the subject matter hereof, and, except as otherwise
specifically provided herein or in Exhibit A, specifically
supersedes and replaces any and all prior written or oral
agreements or understandings.
12. Headings.
The headings of the paragraphs herein are included solely for the
convenience of reference and shall not control the meaning or
interpretation of any provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate originals on the day and year first above written.
GRACO INC.
By
Clyde W. Hansen
Vice President of Human Resources
EMPLOYEE
______________________________
Barry A. Calhoon
<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 FISCAL YEAR ENDING DECEMBER 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> YEAR
<FISCAL-YEAR-END> DEC-30-1994
<PERIOD-END> DEC-30-1994
<CASH> 2,444
<SECURITIES> 0
<RECEIVABLES> 80,284
<ALLOWANCES> 4,695
<INVENTORY> 50,529
<CURRENT-ASSETS> 143,945
<PP&E> 145,164
<DEPRECIATION> 75,124
<TOTAL-ASSETS> 228,385
<CURRENT-LIABILITIES> 89,540
<BONDS> 11,948
<COMMON> 11,377
1,474
0
<OTHER-SE> 69,000
<TOTAL-LIABILITY-AND-EQUITY> 228,385
<SALES> 360,013
<TOTAL-REVENUES> 360,013
<CGS> 186,002
<TOTAL-COSTS> 186,002
<OTHER-EXPENSES> 150,585
<LOSS-PROVISION> 1,147
<INTEREST-EXPENSE> 1,923
<INCOME-PRETAX> 23,426
<INCOME-TAX> 8,100
<INCOME-CONTINUING> 15,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,326
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
