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 26, 1998
Commission File Number: 001-9249
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
------ -----------
20,039,793 common shares were outstanding as of July 24, 1998.
<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 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 9-12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
Eighth Amendment to Credit Agreement dated May 28, 1998
between the Company and U.S. Bank National Association,
formerly First Bank National Association Exhibit 4
Stock Repurchase Agreement dated May 18, 1998 between
Graco Inc. and David A. Koch, Paul M. Torgerson and U.S. Bank
Trust National Association SD, as Trustees of the Trust
administered pursuant to Article V of the Last Will and
Testament and Codicil thereto of Clarissa L. Gray.
(Incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 8-K dated June 5, 1998.) Exhibit 10
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule (EDGAR filing only) Exhibit 27
2
<PAGE>
<TABLE>
PART I
GRACO INC. AND SUBSIDIARIES
Item 1. CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net Sales $ 115,153 $ 111,721 $ 220,870 $ 203,820
Cost of products sold 57,066 58,322 110,838 105,888
------------- ------------- ------------- -------------
Gross Profit 58,087 53,399 110,032 97,932
Product development 4,716 4,828 9,498 9,653
Selling 21,550 23,764 44,197 45,397
General and administrative 12,254 8,284 22,419 16,839
------------- ------------- ------------- -------------
Operating Profit 19,567 16,523 33,918 26,043
Interest expense 173 240 398 447
Other (income) expense, net (171) 615 108 247
------------- ------------- ------------- -------------
Earnings Before Income Taxes 19,565 15,668 33,412 25,349
Income taxes 6,800 5,250 11,700 8,750
------------- ------------- ------------- -------------
Net Earnings $ 12,765 $ 10,418 $ 21,712 $ 16,599
============= ============= ============= =============
Basic Net Earnings Per Common Share* $ .49 $ .41 $ .84 $ .65
============= ============= ============= =============
Diluted Net Earnings Per Common Share* .48 $ .40 $ .82 $ .64
============= ============= ============= =============
Basic Weighted Average Number
of Common Shares* 25,817 25,701 25,644 25,680
Diluted Weighted Average Number
of Common Shares* 26,755 26,208 26,497 26,243
*All 1997 per share data has been restated for the three-for-two stock split paid February 4, 1998.
See notes to consolidated financial statements.
3
</TABLE>
<PAGE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 26, 1998 December 26, 1997
------------- -----------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 34,226 $ 13,523
Accounts receivable, less allowances
of $5,200 and $4,100 86,499 86,148
Inventories 43,822 43,942
Deferred income taxes 11,322 11,140
Other current assets 1,526 1,539
------------- -----------------
Total current assets 177,395 156,292
Property, Plant and Equipment:
Cost 199,671 196,940
Accumulated depreciation (101,065) (96,760)
------------- -----------------
98,606 100,180
Other Assets 7,797 8,060
------------- -----------------
$ 283,798 $ 264,532
============= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $ 4,472 $ 2,911
Current portion of long-term debt 1,788 1,796
Trade accounts payable 12,731 12,542
Salaries, wages & commissions 12,586 14,903
Accrued insurance liabilities 10,887 10,227
Income taxes payable 6,089 5,546
Other current liabilities 21,526 21,055
------------- -----------------
Total current liabilities 68,874 68,980
Long-term Debt, less current portion 5,422 6,163
Retirement Benefits and Deferred Compensation 31,301 31,880
Shareholders' Equity:
Common stock 25,833 25,553
Additional paid-in capital 29,970 26,085
Retained earnings 121,376 105,030
Other, net 1,022 841
------------- -----------------
Total shareholders' equity 178,201 157,509
------------- -----------------
$ 283,798 $ 264,532
============= =================
See notes to consolidated financial statements.
4
<PAGE>
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Weeks
----------------
June 26, 1998 June 27, 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net Earnings $ 21,712 $ 16,599
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 7,864 7,284
Deferred income taxes (436) (1,715)
Change in:
Accounts receivable (2,063) (8,832)
Inventories 45 (3,042)
Trade accounts payable 236 950
Retirement benefits and deferred
compensation (348) 1,286
Other accrued liabilities (1,816) (7,633)
Other 538 (1,055)
------------- -------------
25,732 3,842
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (6,492) (12,881)
Proceeds from sale of property, plant
and equipment 386 1,555
------------- -------------
(6,106) (11,326)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing on notes payable and lines of credit 5,789 37,420
Payments on notes payable and lines of credit (3,960) (28,805)
Payments on long-term debt (722) (714)
Common stock issued 4,164 2,850
Retirement of common stock (12) (5,145)
Cash dividends paid (5,649) (4,836)
------------- -------------
(390) 770
------------- -------------
Effect of exchange rate changes on cash 1,467 2,437
------------- -------------
Net increase (decrease) in cash and cash equivalents 20,703 (4,277)
Cash and cash equivalents:
Beginning of year 13,523 6,535
------------- -------------
End of period $ 34,226 $ 2,258
============= =============
See notes to consolidated financial statements.
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 26, 1998 and the related statements of earnings for the thirteen
and twenty-six weeks ended June 26, 1998, and June 27, 1997, and cash flows
for the twenty-six weeks ended June 26, 1998, and June 27, 1997, 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 26, 1998, 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 1997 Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
2. Major components of inventories were as follows (in thousands):
June 26, 1998 Dec 26, 1997
------------- ------------
Finished products and components $ 35,897 $ 38,290
Products and components in various
stages of completion 25,527 25,320
Raw materials 18,846 16,715
------------- ------------
80,270 80,325
Reduction to LIFO cost (36,448) (36,383)
------------- ------------
$ 43,822 $ 43,942
6
<PAGE>
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which will be effective for the
Company at the end of the 1998 fiscal year. SFAS No. 131 redefines how
operating segments are determined and requires disclosure of certain
financial and descriptive information about a company's operating segments.
The Company has not yet determined the nature of its segments, nor has it
determined how adoption of SFAS No. 131 will impact its future disclosures.
4. To match North American and European fiscal years, Europe's December 1997
operating results were recorded as an adjustment to equity. Those results
included sales of $3,836,000 and net earnings of $300,000. The results of
operations for Graco Inc. for the quarter ended June 26, 1998 include
Europe's operations for the months of April, May and June. Second quarter
1997 results included the months of March, April and May, 1997. The
inclusion of the months of April, May, and June in the operating results
for Europe in the second quarter of 1997 would have had an immaterial
impact on sales, net earnings, and diluted earnings per share.
5. On July 2, 1998, the Company repurchased 5,800,000 shares of common stock,
for $190,887,000, from its largest shareholder, the Trust under the Will of
Clarissa L. Gray, pursuant to an agreement executed in May, 1998. The stock
repurchase was funded with cash of $32,887,000 and $158,000,000 from the
credit facility discussed below.
On July 2, 1998 the Company entered into a five-year $190,000,000 reducing
revolving credit facility (the Revolver) with a syndicate of ten banks
including the lead bank, US Bank National Association. The Company's
initial borrowing of $158,000,000 financed a portion of the stock
repurchase discussed above. $135,500,000 of the outstanding balance bears
interest at the London Interbank Offered Rate ("LIBOR") plus 0.625%. The
remaining $22,500,000 balance bears interest at Prime. The Revolver
requires quarterly reductions of the maximum amount of the credit line, and
requires the Company to maintain certain financial covenants as to net
worth, cash flow leverage and fixed charge coverage.
In conjunction with the aforementioned Revolver, the Company entered into a
two-year, $75,000,000 interest rate swap agreement on July 2, 1998 with
Wachovia Bank, National Association to manage its exposure to interest rate
changes.
7
<PAGE>
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. (cont.)
The pro forma net income of the Company, assuming the stock repurchase and
related signing of the Revolver had occurred on December 27, 1997, would
have been $18.3 million for the six months ended June 26, 1998, including
the impact of increased interest expense net of related income taxes. For
the six months then ended, the pro forma basic and diluted earnings per
share are $.92 and $.88. The pro forma condensed balance sheet of the
Company as of June 26, 1998 is shown below.
June 26, 1998 June 26, 1998
As Reported Pro Forma
------------- -------------
Cash $ 34,226 $ 1,226
Current Assets 177,395 144,395
Total Assets 283,798 250,798
Current Liabilities 68,874 68,874
Long-term Debt 5,422 163,422
Total Liabilities 105,597 263,597
Shareholders' Equity $ 178,201 $ (12,799)
Common Shares Outstanding 25,836 20,036
8
<PAGE>
Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net earnings of $12.8 million for the quarter ended June 26, 1998 increased 23
percent over the second quarter of 1997 earnings of $10.4 million. For the six
months ended June 26, 1998, net earnings of $21.7 million were 31 percent over
1997 earnings of $16.6 million. The quarterly earnings improvement was driven by
higher sales and improved gross margins.
The following table sets forth items from the Company's Consolidated Statements
of Earnings as percentages of net sales:
Second Quarter Six Months
(13 weeks) Ended (26 weeks) Ended
--------------------- ---------------------
June 26 June 27 June 26 June 27
1998 1997 1998 1997
------- ------- ------- -------
Net Sales 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Cost of Products Sold 49.6 52.2 50.2 52.0
Product Development 4.1 4.3 4.3 4.7
Selling 18.7 21.3 20.0 22.3
General and Administrative 10.6 7.4 10.2 8.3
------- ------- ------- -------
Operating Profit 17.0 14.8 15.4 12.7
------- ------- ------- -------
Interest Expense (.2) (.2) (.2) (.2)
------- ------- ------- -------
Other Income(Expense), Net .2 (.6) (.1) (.1)
------- ------- ------- -------
Earnings Before Income Taxes 17.0 14.0 15.1 12.4
Income Taxes 5.9 4.7 5.3 4.3
------- ------- ------- -------
Net Earnings 11.1% 9.3% 9.8% 8.1%
======= ======= ======= =======
Net Sales
Net sales in the second quarter of $115.2 million were 3 percent higher than the
same period last year. Year-to-date sales of $220.9 million were 8 percent
higher than the first six months of 1997. The improved sales level was achieved
despite a negative currency impact, which reduced the sales increase by 2
percent for the quarter and 3 percent for the six month period.
9
<PAGE>
Industrial/Automotive Equipment Division sales improved 4 percent to $59.3
million for the quarter, driven by increased sales in the Americas and Europe.
Sales for the six month period ended June 26, 1998 in Industrial/Automotive of
$116.7 million were 9 percent higher than 1997. Second quarter Contractor
Equipment Division sales of $44.3 million were 5 percent higher than last year
due primarily strong demand in North America and Europe. Year-to-date sales in
the Contractor Equipment Division were up 11 percent to $81.6 million.
Lubrication Equipment Division quarterly sales decreased 6 percent to $11.6
million. Sales of $22.7 million for the first six months in the Lubrication
Equipment Division were down 2 percent over the same period last year.
Geographically, sales in the Americas (North, South and Central) increased 7
percent to $81.2 million for the quarter primarily due to strong Contractor and
Industrial/Automotive activity. Year-to-date sales in the Americas of $153.1
million are up 11 percent over the same period last year. Sales in Europe for
the quarter of $24.4 million were 12 percent higher than last year (including a
4 percent decline due to exchange rates). European sales for the six months
ended June 26, 1998 of $47.8 million improved 23 percent from the same period
last year (including an 6 percent decline due to exchange rates). The growth in
Europe was attributable primarily to strong Industrial/Automotive and Contractor
activity. Asia Pacific sales of $9.5 million were 32 percent lower than last
year's second quarter (including a 10 percent decline due to exchange rates) due
primarily to the instability in the economies of Japan, Korea, and Southeast
Asia.
Gross Profit
Gross profit as a percentage of net sales improved to 50.4 percent in the second
quarter, compared to 47.8 percent for the same period last year. Gross profit
margin for six months of 49.8 percent increased 1.8 percentage points from the
1997 rate. The increases for the quarter and six months were primarily the
result of improvements in manufacturing processes, disciplined purchasing,
increased sales volumes, and price increases. The strengthening of the U.S.
dollar has reduced gross margins as a greater proportion of the Company's sales
than costs are denominated in currencies other than the U.S. dollar.
Operating Expenses
Second quarter operating expenses of $38.5 million increased 4 percent from the
second quarter of 1997. Operating expenses of $76.1 million for the first six
months were 6% above the 1997 level. General and administrative expenses
increased $4.0 million for the quarter due primarily to information systems
expenses related to the Year 2000 conversion and non-recurring charges for
restructuring Graco's operations in Japan. Selling expenses were 9 percent lower
than the same quarter last year. Current year headcount reductions have
partially contributed to the decreased expenses. Product development costs were
relatively flat in comparison to the second quarter of 1997.
10
<PAGE>
Other Income (Expense)
Other income was $.2 million in the second quarter, compared to $.6 million of
expense for the same period last year. The second quarter of 1998 included
higher interest income while the second quarter of 1997 included foreign
exchange losses. Other expense for the six months ended June 26, 1998 was $.1
million, compared to $.2 million in the same period of 1997.
Income Taxes
The quarterly and six month effective income tax rates were 34.8 percent and
34.5 percent, respectively compared to 35.0 percent for the six month period
last year.
Liquidity and Capital Resources
The Company generated $25.7 million of cash flow from operating activities in
the first six months of 1998, compared to $3.8 million for the same period last
year. Significant uses of operating cash flow in 1998 included an increase in
accounts receivable balances and a reduction in other accrued liabilities, most
significantly advances from customers related to custom system orders which are
being replaced by packaged solutions. Available cash and borrowing on lines of
credit of $5.8 million were used to fund short-term operating needs, finance
capital expenditures of $6.5 million and pay dividends of $5.6 million. The
Company had unused lines of credit available at June 26, 1998 totaling $65.7
million. On July 2, 1998 the Company repurchased 5.8 million shares of its stock
and entered into $190,000,000 reducing revolving credit facility to fund a
portion of the repurchase. See Note 5 of the Consolidated Financial Statements
for further discussion. The credit facility discussed in Note 5 of the
Consolidated Financial Statements and other existing credit facilities and
internally-generated funds provide the Company with the financial flexibility to
meet liquidity needs.
Year 2000 Information System Disclosures
The Company is continuing its program, begun in 1996, to ensure that all
hardware and software will be year 2000 compliant. A dedicated project team is
expected to complete the conversion of core business applications in 1998.
Additional teams have initiated year 2000 compliance projects on the Company's
network, operating system software, and distributed systems.
The Company has incurred costs totaling $2 million during 1998, and estimates a
total of an additional $3 to $6 million to be spent in the remainder of 1998 and
1999 to resolve year 2000 issues. These costs are charged to expense as incurred
and include software license fees and allocation of internal staff time.
Incremental costs associated with year 2000 compliance are not anticipated to
result in significant increases in future operating expenses and are not
expected to have a material adverse effect on the results of operations,
liquidity and capital resources. Rather, existing resources are being redeployed
and other projects are being delayed to accommodate year 2000 related projects.
A contingency plan is being developed in 1998 for critical business applications
to mitigate potential problems or delays associated with either new system
replacements or established vendor delivery dates. Additionally, the Company is
working with customers and suppliers to assess the potential impact of their
year 2000 compliance issues on Graco. Although all companies have risks
associated with the year 2000, management believes that sufficient resources
have been allocated and project plans are in place which will result in
uninterrupted business activity with no material impact on operations or
operating results.
11
<PAGE>
Outlook
The Company is optimistic about the balance of the year with strong order levels
in the Contractor and Industrial/Automotive Equipment Divisions as the third
quarter begins. Backlog at June 26, 1998 stands at $25 million, up $4 million
since the beginning of the year driven by a strong economy in North America.
The Company has undertaken a number of restructuring efforts to improve its
effectiveness in the markets it serves, and increase the company's operating
margins and net profits. These efforts will continue in 1998.
SAFE HARBOR CAUTIONARY STATEMENT
The information in this 10-Q contains "forward-looking statements" about the
Company's expectations of the future, which are subject to certain risk factors
that could cause actual results to differ materially from those expectations.
These factors include economic conditions in the United States and other major
world economies, currency exchange fluctuations, and additional factors
identified in Exhibit 99 to the Company's Report on Form 10-K for fiscal year
1997.
12
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders held on May 4, 1998, Dale R. Olseth,
Charles M. Osborne, Jerald L. Scott, and William G. VanDyke were elected to the
Office of Director with the following votes:
FOR WITHHELD
---------- --------
Dale R. Olseth 24,361,361 136,171
Charles M. Osborne 24,365,691 131,841
Jerald L. Scott 24,396,545 100,987
William G. VanDyke 24,392,962 104,571
At the same meeting, the following matter was also voted upon with the votes as
indicated:
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
--- ------- ----------- ---------------
24,405,829 28,600 63,104 0
No other matters were voted on at the meeting.
13
<PAGE>
PART II (continued)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Eighth Amendment to Credit Agreement dated
May 28, 1998 between the Company and U.S.
Bank National Association, formerly First Bank
National Association. Exhibit 4
Computation of Net Earnings per Common Share. Exhibit 11
Financial Data Schedule (EDGAR filing only). Exhibit 27
(b) Reports on Form 8-K
Stock Repurchase Agreement dated May 18, 1998
between Graco Inc. and David A. Koch,
Paul M. Torgerson and U.S. Bank Trust National
Association SD, as Trustees of the Trust administered
pursuant to Article V of the Last Will and Testament
and Codicil thereto of Clarissa L. Gray.
(Incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 8-K dated June 5, 1998.) Exhibit 10
14
<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 3, 1998 By:/s/George Aristides
George Aristides
Chief Executive Officer
Date: August 3, 1998 By:/s/James A. Graner
James A. Graner
Vice President & Controller
("duly authorized officer")
15
EIGHTH AMENDMENT TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT (this "Amendment") dated as of May 28, 1998, amends
and modifies that certain Credit Agreement, dated as of October 1, 1990, as
amended pursuant to Amendments dated as of June 12, 1992, December 31, 1992,
November 8, 1993, February 8, 1994, April 10, 1995, September 27, 1996, and May
27, 1997 (as so amended, the "Credit Agreement"), between GRACO INC., a
Minnesota corporation (the "Company") and U.S. BANK NATIONAL ASSOCIATION,
formerly known as First Bank National Association (the "Bank"). Terms not
otherwise expressly defined herein shall have the meanings set forth in the
Credit Agreement.
FOR VALUE RECEIVED, the Company and the Bank agree that the Credit
Agreement is amended as follows:
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Change of Bank Name. The reference to "First Bank National Association"
is hereby changed to "U.S. Bank National Association" at all places that it
appears in the Loan Documents.
1.2 Defined Terms. The definition of "Maturity Date" in Section 1.01 is
amended to read as follows:
"'Maturity Date': July 2, 1998"
1.3 Note. The Loans shall continue to be evidenced by the Note dated April
10, 1995 in the principal amount of $25,000,000.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Loans under the Credit Agreement as amended hereby, the Company hereby
warrants and represents to the Bank that it is duly authorized to execute and
deliver this Amendment, and to perform its obligations under the Credit
Agreement as amended hereby, and that this Amendment constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms.
ARTICLE II - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
2.1 Warranties. Before and after giving effect to this Amendment, the
representations and warranties in Section 6 of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Company of
this Amendment shall be deemed a representation that the Company has complied
with the foregoing condition.
2.2 Defaults. Before and after giving effect to this Amendment, no Event of
Default and no Unmatured Event of Default shall have occurred and be continuing
under the Credit Agreement. The execution by the Company of this Amendment shall
be deemed a representation that the Company has complied with the foregoing
condition.
2.3 Documents. The Company shall have delivered this Amendment
appropriately completed and duly executed by Borrower and the Bank.
ARTICLE III - GENERAL
3.1 Expenses. The Company agrees to reimburse the Bank upon demand for all
reasonable expenses, including reasonable fees of attorneys (who may be
employees of the Bank) and legal expenses incurred by the Bank in the
preparation, negotiation and execution of this Amendment and any other document
required to be furnished herewith, and in enforcing the obligations of the
Company hereunder, and to pay and save the Bank harmless from all liability for,
any taxes which may be payable with respect to the execution or delivery of this
Amendment, which obligations of the Company shall survive any termination of the
Credit Agreement.
3.2 Counterparts. This Amendment may be executed in as many counterparts as
may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
3.3 Severability. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
3.4 Law. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
3.5 Successors; Enforceability. This Amendment shall be binding upon the
Company and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Company and the Bank and the successors and assigns
of the Bank. Except as hereby amended, the Credit Agreement shall remain in full
force and effect and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.
GRACO INC.
By:/s/Mark W. Sheahan
Title: Treasurer
U.S. BANK NATIONAL ASSOCIATION
By: /s/Michael S. Harter
Title: Assistant Vice President
<TABLE>
EXHIBIT 11
GRACO INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------------- -----------------------------
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
------------- ------------- ------------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net earnings applicable to common shareholders
for basic and diluted earnings per share $ 12,765 $ 10,418 $ 21,712 $ 16,599
------------- ------------- ------------- -------------
Weighted average shares outstanding for
basic earnings per share 25,817 25,701 25,644 25,680
Dilutive effect of stock options computed
using the treasury stock method and the
average market price 937 507 853 563
Weighted average shares outstanding for diluted
earnings per share 26,755 26,208 26,497 26,243
Basic earnings per share $ .49 $ .41 $ .84 $ .65
------------- ------------- ------------- -------------
Diluted earnings per share $ .48 $ .40 $ .82 $ .64
------------- ------------- ------------- -------------
</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 26, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000042888
<NAME> GRACO INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1998
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0
0
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