UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995.
Commission File Number: 1-9249
--------
GRACO INC.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
---------------------- ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(612) 623-6000
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
11,492,931 common shares were outstanding as of June 30, 1995.
<PAGE>
GRACO INC. AND SUBSIDIARIES
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
1995 Corporate and Business Unit Annual Bonus Plan Exhibit 10
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule Exhibit 27
2
<PAGE>
<TABLE>
PART I
GRACO INC. AND SUBSIDIARIES
Item I. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------- -------------------------
June 30, 1995 July 1, 1994 June 30, 1995 July 1, 1994
------------- ------------- ------------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales $103,402 $94,179 $198,929 $175,109
Cost of products sold 51,987 49,952 100,987 92,446
------------- ------------- ------------- -------------
Gross profit 51,415 44,227 97,942 82,663
Product development 3,941 3,566 7,862 7,122
Selling 22,068 22,789 43,758 45,088
General and administrative 10,982 10,659 22,082 20,147
------------- ------------- ------------- -------------
Operating profit 14,424 7,213 24,240 10,306
Interest expense 745 480 1,429 848
Other expense, net (53) 138 343 177
------------- ------------- ------------- -------------
Earnings before income taxes 13,732 6,595 22,468 9,281
Income taxes 5,200 2,400 8,500 3,250
------------- ------------- ------------- -------------
Net earnings $8,532 $4,195 $13,968 $6,031
============= ============= ============= =============
Net earnings per common and
common equivalent share $.73 $.36 $1.20 $.52
============= ============= ============= =============
Cash dividend per common share $.16 $.14 $.32 $.28
============= ============= ============= =============
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, 1995 December 30, 1994
------------- ------------------
ASSETS (Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $1,137 $2,444
Accounts receivable, less allowances of
$5,700 and $4,700 82,493 75,589
Inventories 53,039 50,529
Deferred income taxes 11,890 11,755
Other current assets 2,795 3,628
------------- -------------
Total current assets 151,354 143,945
Property, plant and equipment:
Cost 154,117 145,164
Less Accumulated Depreciation (79,377) (75,124)
------------- -------------
74,740 70,040
Other assets 14,991 14,400
------------- -------------
$241,085 $228,385
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $16,276 $11,675
Current portion of long-term debt 5,905 5,685
Trade accounts payable 18,707 19,764
Dividends payable 1,838 1,857
Income taxes payable 2,005 5,761
Other current liabilities 42,697 44,798
------------- -------------
Total current liabilities 87,428 89,540
Long-term debt, less current
portion above 26,025 26,798
Retirement benefits and deferred
compensation 32,957 30,196
Shareholders' equity:
Preferred stock 1,474 1,474
Common stock 11,486 11,377
Additional paid-in capital 20,167 18,289
Retained earnings 60,924 50,702
Other, net 624 9
------------- -------------
94,675 81,851
------------- -------------
$241,085 $228,385
============= =============
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Twenty-Six Weeks Ended
June 30, 1995 July 1, 1994
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
<S> <C> <C>
Net Earnings $13,968 $6,031
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 6,381 5,157
Deferred income taxes 321 (549)
Change in:
Accounts receivable (2,623) (11,644)
Inventories (1,542) (12,868)
Trade accounts payable (2,125) 1,895
Accrued salaries (1,570) (872)
Retirement benefits and deferred
compensation 1,950 1,025
Other accrued liabilities (5,438) 1,097
Other 1,449 (831)
------------- -------------
10,771 (11,559)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (11,189) (7,659)
Proceeds from sale of property, plant,
and equipment 260 169
Purchases of marketable securities 0 (5,464)
Proceeds from marketable securities 0 31,809
------------- -------------
(10,929) 18,855
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable and lines
of credit 92,331 37,140
Payments on notes payable and lines
of credit (89,041) (20,497)
Payments on long-term debt (410) (332)
Common stock issued 2,157 2,774
Retirement of common and preferred stock 0 (5)
Cash dividends paid (3,765) (34,493)
------------- -------------
1,272 (15,413)
------------- -------------
Effect of exchange rate changes on cash (2,421) (401)
------------- -------------
Net decrease in cash and cash equivalents (1,307) 8,518
Cash and cash equivalents:
Beginning of year 2,444 11,095
------------- -------------
End of period $1,137 $2,577
============= =============
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet of Graco Inc. and Subsidiaries (the
Company) as of June 30, 1995, and the related statements of earnings
and cash flows for the twenty-six weeks ended June 30, 1995, and July
1, 1994, have been prepared by the Company without being audited.
In the opinion of management, these consolidated statements reflect all
adjustments necessary to present fairly the financial position of Graco
Inc. and Subsidiaries as of June 30, 1995, and the results of
operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, these
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1994 Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
2. Major components of inventories were as follows:
<TABLE>
<CAPTION>
(In thousands) June 30, 1995 Dec. 30, 1994
-------------- ---------------
<S> <C> <C>
Finished products and components $48,013 $46,694
Products and components in
various stages of completion 28,024 24,826
Raw materials 12,237 13,918
Reduction to LIFO cost (35,235) (34,909)
-------------- ---------------
$53,039 $50,529
============== ===============
</TABLE>
6
<PAGE>
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net earnings in the second quarter of $8,532,000 increased $4,337,000 from
the same period a year ago as the Company's sales continue to improve in
Europe and the Pacific offset by the recent softening of sales in the North
American markets. In addition to increased sales, gross margin levels have
improved from 1994 and operating expenses as a percent of sales have
declined due primarily to cost reduction efforts initiated in 1994.
Sales in the second quarter of $103,402,000 increased $9,223,000, or 10
percent, from the same period in 1994. Second quarter sales in the
Americas decreased 4 percent to $63,847,000, and European sales were up 40
percent to $21,085,000 (a 23 percent volume increase, and a 17 percent gain
due to exchange rates). In the Pacific (excluding Japan), sales increased
43 percent to $8,619,000 (a 41 percent volume increase, and a gain of 2
percent on exchange rates). In Japan, sales increased 48 percent to
$9,851,000 (a 21 percent volume increase and a gain of 27 percent on
exchange rates).
Sales for the six months were $198,929,000, a 14 percent increase over the
same period last year. In the Americas, sales increased 3 percent to
$128,962,000. European sales were up 38 percent to $37,327,000 (a volume
increase of 23 percent and a 15 percent gain due to exchange rates). Sales
in the Pacific (excluding Japan) increased 59 percent to $17,161,000 (a 57
percent volume increase and a 2 percent gain due to exchange rates). In
Japan sales increased 28 percent to $15,479,000 (a 9 percent volume
increase and a 19 percent gain on exchange rates).
Operating expenses in the second quarter of $36,991,000 are at
approximately the same level as the second quarter of 1994. Product
development expense increased 11 percent over 1994, as previously announced
new product initiatives continue. Selling expenses were 3 percent lower
than the same period last year, largely due to lower headcount levels.
General and administrative costs were up by 3 percent, due primarily to
expense items related to increased profitability.
The effective income tax rate for the quarter was 38 percent compared to 36
percent for the same period in 1994. The increase was due primarily to
foreign results effectively taxed at higher rates.
For the second quarter, consolidated bookings were up 2 percent. Bookings
declined in the Americas, but were up sharply in Europe, the Pacific and
Japan. Backlog at June 30, 1995 was $27,000,000, approximately 3 percent
lower than it was in the previous quarter and 9 percent lower than the
second quarter of 1994.
The Company expects favorable sales and order trends in Europe and the
Pacific region as these economies strengthen. The slowing of the U.S.
economy will continue to impact domestic bookings and backlog during the
second half of 1995. The Company will make further investments in
improvements to manufacturing efficiency and new product development,
while closely controlling expenses throughout the organization.
Financial Condition
Cash was used for operating activities and fixed asset additions. Accounts
receivable increased $6,904,000 from the prior year-end due to the
increased sales volume, and inventories increased $2,510,000 primarily in
production. Property, plant and equipment was purchased year-to-date
totaling $11,189,000.
The Company has unused lines of credit available at June 30, 1995, totaling
$47 million.
7
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on May 2, 1995, Dale
R. Olseth, Charles M. Osborne, and William G. Van Dyke were
elected to the Office of Director with the following votes:
For Withheld
---------- ----------
Dale R. Olseth 10,471,622 23,846
Charles M. Osborne 10,483,868 11,600
William G. Van Dyke 10,484,964 10,504
At the same meeting, the selection of Deloitte & Touche as
independent auditors for the current year was approved and
ratified, with the following votes:
For Against Abstentions Broker Non-Vote
--------- -------- ----------- ---------------
10,398,535 86,574 10,358 0
No other matters were voted on at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
1995 Corporate and Business Unit Exhibit 10
Annual Bonus Plan
Statement on Computation Exhibit 11
of Per Share Earnings
Financial Data Schedule Exhibit 27
(b) No reports on Form 8-K have been
filed during the quarter for which this
report is filed.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRACO INC.
Date: August 7, 1995 By: /S/David A. Koch
David A. Koch
Chairman and Chief Executive Officer
Date: August 8, 1995 By: /S/David M. Lowe
David M. Lowe
Treasurer
(Principal Financial Officer)
9
<PAGE>
GRACO INC.
1995 CORPORATE
&
BUSINESS UNIT
ANNUAL BONUS PLAN
Effective January 1, 1995
Human Resources
<PAGE>
GRACO INC.
CORPORATE & BUSINESS UNIT
ANNUAL BONUS PLAN
Objectives
- - To create shareholder value through achievement of
annual financial objectives.
- - To motivate and retain those key executives and
managers who work in positions where they can impact
the Company's annual financial objectives.
Plan Design
The Plan links the size of each individual's award to specific
financial objectives. These objectives are tailored for the
Corporation and for each Business Unit. These objectives are:
- - Corporation
- Corporate earnings
- - Business Units
- Profitability objective
Eligibility Requirements
Only those positions which carry clear managerial responsibility
for directly contributing to Graco's Corporate earnings objective
and Business Unit profitability and sales objectives are eligible
to be included in this Plan.
Only those individuals in eligible positions who have
demonstrated and are maintaining a performance level that meets
the supervisor's normal expectations for that position are
eligible for annual participation in this Plan as well as the
receipt of any annual Bonus Payments.
<PAGE>
Participation
The top executive in each organizational unit may nominate
managers for participation in this Plan when the established
position and individual eligibility requirements have been met.
The Management Organization and Compensation Committee of the
Graco Inc. Board of Directors has sole authority to approve the
participation of the Chief Executive Officer in the Plan.
The Chief Executive Officer of Graco Inc. has sole authority to
select and approve all other Plan participants.
Bonus Maximum
Taken in conjunction with base salary market comparisons, bonus
maximum for all positions will be:
- - Commensurate with the position's ability to impact the
annual Corporate earnings objective and Business Unit
profitability and sales objectives.
- - Consistent with total compensation levels prevalent for
similar positions in the market place.
Based on these criteria, bonus maximums ranging from 10% to 80%
have been established for each individual.
Bonus Payment
The determination of a participant's annual Bonus Payment will be
calculated by adding the bonus results attained for Corporate
earnings performance (expressed in percent) to the bonus results
attained for any applicable Business Unit's contribution or
margin growth performance (expressed in percent). These bonus
results are then multiplied by the participant's Maximum Bonus
Percentage and then multiplied by the participant's Base Salary
for the Plan Year, to determine the total Bonus Payment.
Example:
________ _____
| Annual Annual | Participant's Participant's
| Corporate + Business | X Maxiumum X Annual = Bonus
| Performance Unit Performance | Bonus Base
| Results Results | Salary Salary
| (if applicable) |
| % % | $ $ $
|_______ ____|
<PAGE>
Administration
The following rules have been established to insure equitable
administration of Graco's Annual Bonus Plan (the Plan):
1. The Plan will be administered by the Management Organization
and Compensation Committee of the Board of Directors. The
Committee may cancel the Plan and interpret the Plan.
2. The Management Organization and Compensation Committee shall
establish the annual corporate bonus plan financial
objectives. Within the basic framework of the Plan, the
Chief Executive Officer may establish the annual bonus plan
financial objectives for individual Business Units. The CEO
may also establish deadlines for filing administrative forms
and adopt other administrative rules.
The CEO has established the Bonus Administrative Committee
consisting of the President, the Vice President, Human
Resources, and the Compensation Manager. This Committee is
responsible for making approval recommendations on all Annual
Bonus Program administrative matters, such as participation
award payments, performance measures, and performance
results. All requests for adjustments or exceptions are to
be formally submitted to this Committee for review through
the Compensation Manager.
3. Key executives and managers selected to participate in the
Plan after its annual effective date (January 1st) may be
included on a pro-rata basis.
4. Participation in the Plan one year does not necessarily
assure participation in subsequent years. Eligibility
requirements for both the position and individual performance
must be met continually.
5. Participation continues during any paid time off such as
short term disability (up to six months). Participation
ceases with retirement, death, or long term disability (over
six months). In the event participation ceases due to
retirement, death, or long term disability, the Participant
will be eligible for a Bonus Payment, calculated using the
Maximum Bonus Percent and Base Salary up to the time of
retirement, death, or long term disability and the annual
performance results for the year in which retirement, death,
or long term disability occurs.
6. A participant who transfers to a position not eligible for
inclusion in the Plan will be eligible for a pro-rata award
based on the actual time employed in the eligible position
during the year. The pro-rated award will be paid as
described in Administrative Rule #11.
<PAGE>
7. A participant who resigns or is terminated effective during
the Plan Year is ineligible for a bonus.
Participants must maintain satisfactory performance
throughout the Plan year in order to be eligible to receive a
bonus award payment.
In addition, a participant whose employment termination has
been requested due to performance or otherwise for cause will
be ineligible for a bonus payment even though the participant
is still employed at year-end.
8. Corporate earnings calculations will include such effects as
those created by foreign exchange gain/loss translation and
income tax rate changes.
9. Corporate earnings calculations will be based on actual
exchange rates, not plan rates.
10.Acquisitions and divestitures not included in the annual
business plan for the Plan Year will be excluded from the
corporate earnings calculations.
11.Significant changes in historical FASB accounting practices
or income tax rates will be included in corporate earnings
calculations at the discretion of the Management Organization
and Compensation Committee of the Board of Directors.
12.Payments will be made by March 15th of the year following
each successive Corporate and Business Unit performance year.
EXHIBIT 11
<TABLE>
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
_______________________ ________________________
June 30, 1995 July 1, 1994 June 30, 1995 July 1, 1995
_____________ ____________ _____________ ____________
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net earnings applicable to
common stock:
Net earnings $8,532 $4,195 $13,968 $6,031
Less dividends on preferred stock 19 19 37 37
_____________ ____________ _____________ ____________
$8,513 $4,176 $13,931 $5,994
============= ============ ============= ============
Average number of common and common
equivalent shares outstanding:
Average number of common
shares outstanding 11,489 11,514 11,453 11,514
Dilutive effect of stock options
computed on the treasury
stock method 147 49 115 57
_____________ ____________ _____________ ____________
11,636 11,563 11,568 11,571
============= ============ ============= ============
Net earnings per common share
and common equivalent share $0.73 $0.36 $1.20 $0.52
============= ============ ============= ============
Primary and fully diluted earnings per share are substantially the same.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRACO INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE
SHEETS FOR THE QUARTERLY PERIOD ENDING JUNE 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000042888
<NAME> GRACO INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,137
<SECURITIES> 0
<RECEIVABLES> 88,188
<ALLOWANCES> 5,695
<INVENTORY> 53,039
<CURRENT-ASSETS> 151,354
<PP&E> 154,117
<DEPRECIATION> 79,377
<TOTAL-ASSETS> 241,085
<CURRENT-LIABILITIES> 87,428
<BONDS> 31,930
<COMMON> 11,486
1,474
0
<OTHER-SE> 81,715
<TOTAL-LIABILITY-AND-EQUITY> 241,085
<SALES> 198,929
<TOTAL-REVENUES> 198,929
<CGS> 100,987
<TOTAL-COSTS> 100,987
<OTHER-EXPENSES> 75,474
<LOSS-PROVISION> 1,132
<INTEREST-EXPENSE> 1,429
<INCOME-PRETAX> 22,468
<INCOME-TAX> 8,500
<INCOME-CONTINUING> 13,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,968
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
