-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tqm/wU9sG6dqIoyO+mqrgfZaIMfDP+v/jmjUKuQDz3/36gNJaGASh3VzGSZeAU6c eNNMAuLwNIZj64a37znpPA== 0000042888-97-000007.txt : 19970512 0000042888-97-000007.hdr.sgml : 19970512 ACCESSION NUMBER: 0000042888-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970328 FILED AS OF DATE: 19970509 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRACO INC CENTRAL INDEX KEY: 0000042888 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 410285640 STATE OF INCORPORATION: MN FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09249 FILM NUMBER: 97599478 BUSINESS ADDRESS: STREET 1: 4050 OLSON MEMORIAL HIGHWAY CITY: GOLDEN VALLEY STATE: MN ZIP: 55422-5332 BUSINESS PHONE: 6126236000 MAIL ADDRESS: STREET 1: C/O CT CORPORATION SYSTEMS INC STREET 2: 405 SECOND AVENUE SOUTH CITY: MINNEAPOLIS STATE: MN ZIP: 55401 10-Q 1 FIRST QUARTER 10Q FOR PERIOD ENDING 03/28/97 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 March 28, 1997 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 -------- -------- 17,124,485 common shares were outstanding as of April 30, 1997. GRACO INC. AND SUBSIDIARIES INDEX Page Number ----------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Earnings 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 1997 Corporate and Business Unit Annual Bonus Plan Exhibit 10 Computation of Net Earnings per Common Share Exhibit 11 Financial Data Schedule (EDGAR filing only) Exhibit 27 2 PART I GRACO INC. AND SUBSIDIARIES Item I. CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Thirteen Weeks Ended -------------------- March 28, 1997 March 29, 1996 -------------- -------------- (In thousands except per share amounts) Net Sales $92,099 $90,153 Cost of products sold 47,566 45,316 ------------- ------------- Gross Profit 44,533 44,837 Product development 4,825 4,229 Selling 21,633 19,850 General and administrative 8,555 11,675 ------------- ------------- Operating Profit 9,520 9,083 Interest expense (207) (232) Other income (expense), net 368 (566) ------------- ------------- Earnings Before Income Taxes 9,681 8,285 Income taxes 3,500 2,700 ------------- ------------- Net Earnings $6,181 $5,585 ============= ============= Net Earnings Per Common and Common Equivalent Share $.35 $.32 ============= ============= Cash Dividend Per Common Share $.14 $.12 ============= ============= See notes to consolidated financial statements. 3 GRACO INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March 28, 1997 December 27, 1996 -------------- ----------------- ASSETS (In thousands) Current Assets: Cash and cash equivalents $1,378 $6,535 Accounts receivable, less allowances of $4,614 and $4,700 81,061 83,474 Inventories 47,609 41,531 Deferred income taxes 12,107 11,633 Other current assets 1,653 1,321 ----------- ----------- Total current assets 143,808 144,494 Property, Plant and Equipment: Cost 185,782 183,085 Accumulated depreciation (89,138) (88,913) ------------ ----------- 96,644 94,172 Other Assets 8,624 9,148 ----------- ----------- $249,076 $247,814 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable to banks $7,302 $3,813 Current portion of long-term debt 1,827 1,845 Trade accounts payable 13,132 13,854 Salaries, wages & commissions 10,753 14,808 Accrued insurance liabilities 11,624 10,925 Income taxes payable 7,622 4,647 Other current liabilities 23,325 30,718 ----------- ----------- Total current liabilities 75,585 80,610 Long-term Debt, less current portion 7,618 8,075 Retirement Benefits and Deferred Compensation 33,271 33,079 Shareholders' Equity: Common stock 17,218 17,047 Additional paid-in capital 24,873 22,254 Retained earnings 88,994 85,232 Other, net 1,517 1,517 ----------- ----------- Total Stockholder's Equity 132,602 126,050 ----------- ----------- $249,076 $247,814 =========== =========== See notes to consolidated financial statements. 4 GRACO INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Thirteen Weeks -------------- March 28, 1997 March 29, 1996 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands) Net Earnings $6,181 $5,585 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 3,548 3,299 Deferred income taxes (481) (605) Change in: Accounts receivable (61) 52 Inventories (6,688) (3,355) Trade accounts payable (419) (367) Retirement benefits and deferred compensation 571 89 Other accrued liabilities (7,029) 887 Other (1,453) (1,084) ----------- ----------- (5,831) 4,501 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (6,340) (4,485) Proceeds from sale of property, plant, and equipment 1,578 5 ---------- ----------- (4,762) (4,480) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowing on notes payable and lines of credit 5,335 1,937 Payments on notes payable and lines of credit (1,528) (1,662) Payments on long-term debt (326) - Common stock issued 2,790 2,271 Retirement of common and preferred stock - (446) Cash dividends paid (2,420) (2,126) ----------- ----------- 3,851 (26) ---------- ----------- Effect of exchange rate changes on cash 1,585 465 ---------- ----------- Net increase (decrease) in cash and cash equivalents (5,157) 460 Cash and cash equivalents: Beginning of year 6,535 1,643 ---------- ----------- End of period $1,378 $2,103 ========== =========== See notes to consolidated financial statements. 5 GRACO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The consolidated balance sheet of Graco Inc. and Subsidiaries (the Company) as of March 28, 1997 and the related statements of earnings and cash flows for the thirteen weeks ended March 28, 1997, and March 29, 1996, 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 March 28, 1997, 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 1996 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): March 28, 1997 Dec. 28, 1996 -------------- ------------- Finished products and components $44,595 $38,707 Products and components in various stages of completion 28,289 24,691 Raw materials 12,334 15,192 ------------ ----------- 85,218 78,590 Reduction to LIFO cost (37,609) (37,059) ------------ ------------ $47,609 $41,531 ============ ============ 3. Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," was issued in February 1997 and requires adoption for annual periods ending after December 15, 1997. Earnings per Share determined in accordance with SFAS No. 128 are not materially different than the current disclosure under APB Opinion No. 15. 6 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 first quarter increased 11% over the same period last year. The earnings improvement was driven by reduced operating expenses, a gain on the sale of the Company's Franklin Park, Illinois facility and higher sales. A reduced gross margin rate, foreign currency translation losses and a higher effective tax rate had a negative impact on earnings for the quarter. The following table sets forth items from the Company's Consolidated Statements of Earnings as percentages of net sales: First Quarter (13 weeks) Ended ------------------------------ 1996 1997 ------ ------ Net Sales 100.0% 100.0% ------ ------ Cost of Products Sold 51.6 50.3 Product Development 5.2 4.7 Selling 23.6 22.0 General and Administrative 9.3 12.9 ------ ------ Operating Profit 10.3 10.1 ------ ------ Interest Expense (.2) (.3) ------ ------ Other Income(Expense), Net .4 (.6) ------ ------ Earnings Before Income Taxes 10.5 9.2 Income Taxes 3.8 3.0 ------ ------ Net Earnings 6.7% 6.2% ====== ====== Net Sales Net sales in the first quarter of $92.1 million were 2 percent higher than last year. The increased sales level was achieved despite a negative currency impact, which reduced sales by 2 percent. Industrial/Automotive Division sales improved 6 percent to $50.2 million, driven by strong demand for industrial products across all three geographic regions, the Americas, Europe and Asia Pacific. Contractor Division sales of $31.3 million were 4 percent lower than last year due in part to the introduction of an upgraded product line in North America. The late quarter introduction held down sales early in the quarter as customers anticipated the new product release. Additionally, a new pricing structure in the Contractor Division was implemented in 1997 which is expected to result in a seasonal change in demand, versus price promotions in 1996 which forced more activity into the first quarter. Lubrication Division sales increased 6 percent to $10.6 million, reflecting a healthy North American economy, an increased key distributor base and the benefit of new product introductions late in 1996. 7 Geographically, sales in the Americas increased 1 percent to $62.6 million primarily due to strong Industrial activity, partially offset by the soft start in the Contractor Division and sluggish automotive system's activity. European sales of $16.9 million were 7 percent higher than last year (including a 5 percent decline due to exchange rates). Asia Pacific sales of $12.6 million were 1 percent higher than last year (including a 8 percent decline due to exchange rates). The growth in Europe and Asia Pacific was attributable primarily to strong automotive system's activity and improved results in the Contractor Division. Gross Profit Gross profit as a percentage of net sales declined to 48.4 percent in the first quarter, compared with 49.7 percent for the same period last year. The decrease was primarily the result of a shift in the product mix within the Contractor Division to an upgraded product line which generates a lower margin than other products. The strengthening of the U.S. dollar also reduced the gross margin as a greater proportion of the Company's sales are denominated in currencies other than the U.S. dollar than are costs. Operating Expenses Operating expenses in the first quarter of $35.0 million decreased 2 percent from the first quarter of 1996. Product development expense increased 14 percent over 1996, reflecting the Company's commitment to expanding sales through the development of new products. Selling expenses were 9 percent higher than the same period last year, largely due to increased information systems development costs and distributor training programs, as well as the increased sales level. General and administrative costs declined 27 percent, as the first quarter of 1996 included expenses related to the relocation of the Company's Franklin Park, Illinois operations to Minneapolis. Other Income (Expense) Other income was $.4 million in the first quarter, compared with $.6 million of expense for the same period last year. The first quarter of 1997 was favorably impacted by a gain from the sale of the Company's Franklin Park, Illinois facility, which was partially offset by foreign currency translation losses. Income Taxes The effective income tax rate increased to 36 percent in the quarter compared with 33 percent last year. The higher rate in 1997 was principally due to higher effective rates on foreign earnings. 8 Liquidity and Capital Resources - ------------------------------- The Company used $5.8 million of cash flow for operating activities in the first quarter of 1997 compared with generating cash from operations of $4.5 million in the first quarter of last year. Significant uses of operating cash flow in 1997 resulted from the reduction in other accrued liabilities, most significantly the reserve established in the prior year for the relocation of the Company's Franklin Park, Illinois operations. Operating cash flow was also used to fund an increase in inventory levels which was driven by higher engineered systems activity in the foreign operations and anticipated demand for the upgraded product line in the Contractor Division. Available cash and borrowing on lines of credit of $5.3 million were used to fund short-term operating needs, finance capital expenditures of $6.3 million and pay dividends of $2.4 million. The Company has unused lines of credit available at March 28, 1997 totaling $69.6 million. The available credit facilities and internally-generated funds provide the Company with the financial flexibility to meet liquidity needs. Outlook The Company is cautiously optimistic about the level of activity during the first quarter. Incoming orders in the first quarter exceeded sales by $7.3 million, increasing backlog to $26.4 million. The Company also expects to introduce a number of new products in 1997 and believes that the continued investments in product development, marketing and manufacturing should have a positive impact on the Company in 1997 and the long-term ability to grow profitably. SAFE HARBOR CAUTIONARY STATEMENT The information in this 10Q 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 1996. 9 PART II Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 1997 Corporate and Business Unit Annual Exhibit 10 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. 10 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: May 9, 1997 By: /s/ James A. Graner James A. Graner Vice President and Controller ("duly authorized officer") Date: May 9, 1997 By: /s/ Mark W. Sheahan Mark W. Sheahan Treasurer (Principal Financial Officer) 11 EX-10 2 1997 CORPORATE & BUSINESS UNIT ANNUAL BONUS PLAN GRACO INC. 1997 CORPORATE & BUSINESS UNIT ANNUAL BONUS PLAN Effective January 1, 1997 Human Resources 1997 EXECUTIVE CORPORATE & SBU 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 Sales and/or Net Earnings objectives - Business Units - Sales and/or Contribution Growth objectives Eligibility Requirements Only those positions which carry clear managerial responsibility for directly contributing to Graco's Corporate Sales and/or Net Earnings objective and Business Unit Sales and/or Contribution Growth 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. 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 Sales and/or Net Earnings objective and Business Unit Sales and/or Contribution Growth 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 Sales and/or Net Earnings performance (expressed in percent) to the bonus results attained for any applicable Business Unit's Sales and/or Contribution 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 Business | Participant's Participant's |Corporate Unit Performance | Maximum Annual |Performance + Results (if | x Bonus x Base = Bonus |Results applicable) | Salary Salary | % % | $ $ $ |----------- -----------------| 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. 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 Sales and Net Eearnings calculations will include such effects as those created by foreign exchange gain/loss translation and income tax rate changes. 9. Corporate Sales and/or Net 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 Sales and/or Net 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. 1997 Corporate Performance Results and Awards for 100% Corporate Participants ================================================ 1997 Corporate Percent of Maximum Net Earnings Bonus Award Results Earned $30,000 0.00% $34,000 18.75% $38,000 37.50% $41,500 56.25% $45,000 75.00% ================================================ ================================================ 1997 Percent of Maximum Corporate Sales Bonus Award Results Earned $400,000 0.00% $410,000 6.25% $420,000 12.50% $430,000 18.75% $440,000 25.00% ================================================ Note: Calculations exclude acquisitions and divestitures which were not included in 1997 Annual Business Plan. EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 GRACO INC. AND SUBSIDIARIES COMPUTATION OF NET EARNINGS PER COMMON SHARE (Unaudited) Thirteen Weeks Ended -------------------- March 28, 1997 March 29, 1996 -------------- -------------- (In thousands except per share amounts) Net earnings applicable to common stock: Net earnings $6,181 $5,585 ========== ========== Average number of common and common equivalent shares outstanding: Average number of common shares outstanding 17,106 17,315 Dilutive effect of stock options computed on the treasury stock method 397 238 ---------- ---------- 17,503 17,553 ========== ========== Net earnings per common and common equivalent share $.35 $.32 ========== ========== Primary and fully diluted earnings per share are substantially the same. EX-27 4 FDS --
5 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 March 28, 1997 and is qualified in its entirety by reference to such financial statements. 0000042888 GRACO INC. 1,000 U.S. DOLLARS 3-MOS DEC-26-1997 DEC-28-1996 MAR-28-1997 1 1,378 0 81,061 4,614 47,609 143,808 185,782 89,138 249,076 75,585 9,445 0 0 17,218 115,384 249,076 92,099 92,099 47,566 47,566 34,852 80 207 9,681 3,500 6,181 0 0 0 6,181 .35 .35
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