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UNITED STATES
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 29,2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Exchange Act of 1934 for the transition period from to .
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Commission File No. 001-9249
Graco Inc.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
88 - 11th Avenue Northeast
Minneapolis, MN 55413
(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 5, 2001, 30,747,876 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 27,025,728 shares held by
non-affiliates of the registrant was approximately $727 million on March 5,
2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 1, 2001, are incorporated by reference into Part
III, as specifically set forth in said Part III.
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GRACO INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
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Page
Part I
Item 1 Business............................................................3
Item 2 Properties..........................................................6
Item 3 Legal Proceedings...................................................7
Item 4 Submission of Matters to a Vote of Security Holders.................7
Executive Officers of the Company...................................7
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...................................................10
Item 8 Financial Statements and Supplementary Data........................14
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure ........................30
Part III
Item 10 Directors and Executive Officers of the Company....................30
Item 11 Executive Compensation.............................................30
Item 12 Security Ownership of Certain Beneficial Owners and Management.....30
Item 13 Certain Relationships and Related Transactions.....................30
Part IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K....30
Signatures ...................................................................32
NOTE: Certain exhibits listed in the Index to Exhibits beginning on page
33, 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
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. The Company
helps customers solve difficult manufacturing problems, increase productivity,
improve quality, conserve energy, save expensive material, control environmental
emissions and reduce labor costs. Graco is the successor to Gray Company, Inc.,
which was incorporated in 1926 as a manufacturer of automobile lubrication
equipment and became a public company in 1969.
Based in Minneapolis, Minnesota, Graco serves customers around the world in the
manufacturing, process, construction and maintenance industries. It designs,
manufactures and markets systems, products and technology to move, measure,
control, dispense and spray a wide variety of fluids and viscous materials.
Among Graco's strategic objectives is that of being the highest quality, lowest
cost, most responsive supplier in the world for its principal products. In
working to achieve this goal, Graco has organized its manufacturing operations
around product- focused factories which contain product-based cells. Other
strategic objectives include generating 30 percent of each year's sales from
products introduced in the last three years, generating at least 5 percent of
each year's sales from sales in markets entered in the last three years,
expanding its distribution network outside North America and active pursuit of
focused acquisitions.
Operating Segment Information
Graco's businesses are classified by management into three operating segments:
(1) Industrial/Automotive Equipment, (2) Contractor Equipment, and (3)
Lubrication Equipment. Financial information concerning these operating segments
is set forth in Part II, Item 7, at page 10, and in Note B to the Consolidated
Financial Statements.
Industrial/Automotive Equipment
Graco's Industrial/Automotive Equipment segment designs and markets fluid
application products, primarily for paints, coatings, sealants and adhesives.
The markets served include automotive assembly and components plants, wood
products, rail, marine, aerospace, farm and construction equipment, truck, bus
and recreational vehicles, and approximately thirty other industries.
Worldwide, the equipment designed and manufactured by this segment is sold
through general and specialized distributors and integrators as well as directly
to automotive assembly plants. Distributors promote and sell the equipment,
provide product application expertise, and offer integration capabilities,
on-site service and technical support.
Products marketed by the Industrial/Automotive Equipment segment are
manufactured in Minneapolis and Rogers, Minnesota, Sioux Falls, South Dakota and
Bielefeld, Germany. Assembly of certain products for the European market is
performed in Maasmechelen, Belgium.
Recent Developments. Graco is focusing its product design and marketing efforts
on four key areas of application: sealants and adhesives, process, finishing and
protective coatings. A major driver of product development in the
Industrial/Automotive segment is the need to reduce the emission of volatile
organic compounds ("VOCs") from coatings during the application process in order
to meet environmental regulations. In addition, Graco is developing new products
for the global marketplace and expanding its specialized distribution throughout
the world in order to achieve maximum coverage.
Graco serves the automotive market by selling pre-engineered packages, modules
and equipment primarily through independent distributors, integrators, and robot
manufacturers and directly to automotive assembly plants. An experienced
specialized sales force meets the unique needs of these customers as well as
those of original equipment manufacturers and material suppliers.
In 2000, Graco introduced ValueMix(TM), the first electronic entry-level plural
component sprayer. Environmental regulations have driven small and medium-sized
industrial users of paint to more environmentally friendly methods of
application. The ValueMix technology offers these companies an easy-to-use, cost
effective alternative to manual or mechanical premixing of plural component
materials.
The Therm-O-Flow Plus(TM), a high performance pump for the high volume
dispensing of heated adhesives and sealants, was introduced in a multi-voltage
configuration which allows its use throughout the world. The uniquely designed
platen on this unit transfers heat to the material more quickly than competitive
designs.
The PrecisionMix II 3K entered the market in 2000. This high-end three component
proportioner automatically integrates the catalyst, resin and solvent from the
supply pumps and delivers the mixture to the spray gun, thus permitting the
elimination of solvent premixing and reducing the cost of labor and material.
Graco continued to expand its offering of electronic monitoring devices, to
assist customers in meeting their environmental responsibilities and business
needs. The PrecisionView(TM)AMR, an easy-to-use software package, allows
customers to automatically track and report their material usage, emissions and
on-line processes. It can be used with the PrecisionMix II and II 3K and the
Informer(TM).
In December 2000, Graco received TE 9000 certification. Automotive manufacturers
established the TE 9000 supplement to ISO 9000 in the mid-1990's, to ensure that
the machine tools they buy will perform as required. In order to obtain TE 9000
certification, suppliers must demonstrate that they are pursuing a plan that
will meet customer requirements for product quality, reliability,
maintainability and durability. Certification will allow Graco to maintain its
preferred business association with these customers.
Products. Products offered by the Industrial/Automotive segment include air,
electric and hydraulically powered pumps that pressurize and transfer paints,
stains, chemicals, sealants, adhesives, food, and other viscous materials
through various application devices, including air, airless, air-airless,
electrostatic, and high-volume-low-pressure ("HVLP") spray guns. Fluid pressures
ranging from 20 to more than 6,000 pounds per square inch and flow rates from
under 1 gallon to 275 gallons per minute are available. Sealant and adhesive,
paint circulating and plural component packages and modules and a complete line
of parts and accessories are also offered.
Contractor Equipment
Graco's Contractor Equipment segment designs and markets sprayers for the
application of paint and other architectural coatings, and for the high-pressure
cleaning of equipment and structures. The segment offers its equipment to
distributors selling to contractors in the painting, roofing, texture, corrosion
control and line striping markets. The segment offers equipment which gives
contractors the opportunity to produce a higher quality finish at higher
production rates with sprayers that are durable and easy to use.
The equipment is sold primarily through retail stores which sell paint and other
coatings, and secondarily through general equipment distributors. In 2000, Graco
began marketing a limited line of sprayers through the home center channel.
Manufacturers' representatives are used to sell the Company's equipment to the
rental market.
Products for the contractor equipment markets are manufactured in Rogers,
Minnesota, and Sioux Falls, South Dakota. Assembly of certain products for the
European market is performed in Maasmechelen, Belgium.
Recent Developments. In 2000, the Magnum(TM) sprayers, a new line of airless
sprayers and accessories for the entry-level painting contractor and remodeler,
were introduced into the home center market, a new channel for Graco.
The Pro ST(TM) family of electronic airless sprayers with the SmartControl(TM)
microprocessor, Endurance E(TM) pump and a helical drive was introduced in 2000.
The SmartControl microprocessor automatically adjusts to the size of the spray
tip, offers spray pressure consistency and a higher atomizing pressure over
competitive designs. The Endurance E pump allows the pump to be repacked in
one-half the time of other models.
The 190 ES(TM) electric airless sprayer introduced in 2000 represents a new
price point for an entry level professional sprayer.
Graco added to its broad line of spray guns a new extended reach pole gun with
the revolutionary CleanShot(TM) shut-off valve, which allows material flow to be
shut off at the spray tip and eliminates spitting.
Products. The segment's primary product lines are airless paint sprayers and
associated accessories such as spray guns, filters, valves and tips. Also
offered are pressure washers and specialized spraying equipment for the
application of roofing materials, texture coatings and traffic paint. Fluid
pressures ranging from 5 to more than 4,000 pounds per square inch and flow
rates up to 4 gallons per minute are available. Pumps are electric, hydraulic
and air-powered models in addition to gasoline-powered models, increasing the
flexibility of contractors in areas where electricity is not readily available.
High-volume-low-pressure ("HVLP") equipment has become increasingly popular as
regulation of volatile emissions has increased. Replacement and maintenance
parts, such as packings, seals and hoses, which must be replaced periodically in
order to maintain efficiency and prevent loss of material, are also offered for
sale.
Lubrication Equipment
The Lubrication Equipment segment designs and markets products for the
lubrication and maintenance of vehicles and other equipment. The markets for the
segment's products include fast oil change facilities, service garages, fleet
service centers, automobile dealerships, the mining industry, and industrial
lubrication. The purchase of vehicle lubrication equipment is often funded by
major oil companies for their customers as a marketing tool.
Products are distributed primarily through independent distributors worldwide,
which are serviced by direct sales personnel and a network of independent sales
representatives.
Products for the Lubrication Equipment markets are manufactured in Minneapolis,
Minnesota.
Recent Developments. A family of electronic metering devices designed to meter
and dispense bulk fluids in the servicing of vehicles and equipment was brought
to market in 2000. The EM6(TM) leads the competition in gallons per minute flow
and higher fluid pressures. All valves in the family handle multiple fluids.
In 2000, the Pro-Shot(TM) Grease Dispense Valve was introduced. This robust
heavy-duty valve has a ball check mechanism with four times longer life, a
pressure assist trigger pull to reduce operator fatigue and a trigger lock to
prevent accidental triggering.
The 350 and 500 Series Hose Reels, two new lines of heavy-duty hose reels
designed for use with air and water, were launched during the year. Intended to
broaden Graco's reel offerings to bus and truck fleets, manufacturing plants and
lubrication trucks, the 500 Series allows 15 different mounting positions.
The Dyna-Star (R) Hydraulic Pump Module provides a hydraulically-powered pump as
an alternative to air-powered equipment for the lubrication of mobile mining
equipment. A Visual Level Indicator with a magnetic proximity switch to sense
high and low fluid levels is offered as an option.
Products. The Lubrication Equipment segment offers a full line of lubrication
pumps (air and hydraulic-powered), meters, fluid and air pressure gauges, fluid
management systems, hose reels and dispense valves. The segment sells a fluid
management system for the vehicle services market, which tracks and records
inventories of lubricants and the quantities dispensed. It continues to develop
its capability to service the mining industry with automatic lubrication
systems. A complete line of parts and accessories is also offered.
Marketing and Distribution
Graco sells its full line of products in each of the following major geographic
markets: the Americas (North, Central and South America), Europe (including the
Middle East and Africa), and Asia Pacific. The Industrial/Automotive Equipment
segment, Contractor Equipment segment, and the Lubrication Equipment segment
provide worldwide marketing, product design and application assistance to each
of these geographic markets.
Graco sells its equipment worldwide principally through independent
distributors. In Japan, Korea, and Europe, Graco equipment is sold to
distributors through sales subsidiaries. Manufacturers' representatives are used
in the Lubrication Equipment and the Contractor Equipment segments.
It is the Company's goal to generate at least 5 percent of each year's revenues
from sales in markets entered in the last three years. The home center channel
into which the Contractor Equipment Division introduced the Magnum line of
airless sprayers in 2000 is an example of the Company's efforts to reach this
goal.
In 2000, Graco's net sales in the Americas were $359,881,000 or approximately 73
percent of the Company's consolidated net sales; in Europe net sales were
$84,733,000 or approximately 17 percent; and in the Asia Pacific Region, net
sales were $49,759,000 or approximately 10 percent.
Research, Product Development and Technical Services
Graco's research, development and engineering activities are organized by
operating segment. The engineering group in each segment focuses on new product
design, product improvements, applied engineering and strategic technologies for
its specific customer base. It is one of Graco's goals to generate 30 percent of
each year's sales from products introduced in the prior three years. All major
research and development activities are conducted in facilities located in
Minneapolis, and Rogers, Minnesota. Total research and development expenditures
were $19,998,000, $19,688,000 and $18,213,000 for 2000, 1999 and 1998.
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 inasmuch as 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 depth and breadth of
the Company's product lines. 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. The
Company faces competitors with different cost structures and expectations of
profitability. Graco believes it is one of the world's leading producers of
high-quality specialized fluid management equipment. It is impossible, because
of the absence of reliable industry-wide third-party data, to determine its
relative market position.
Environmental Protection
The Company's compliance with Federal, State and local environmental laws and
regulations did not have a material effect upon the capital expenditures,
earnings or competitive position of the Company during the fiscal year ending
December 29, 2000.
Employees
As of December 29, 2000, the Company employed approximately 1920 persons on a
full-time basis. Of this total, approximately 300 were employees based outside
the United States, and 821 were hourly factory workers in the United States.
None of the Company's U.S. employees is covered by a collective bargaining
agreement. Various national industry-wide labor agreements apply to certain
employees in Europe. Compliance with such agreements has no material effect on
the Company or its operations.
Item 2. Properties
As of December 29, 2000, the Company's principal operations that occupy more
than 10,000 square feet were conducted in the following facilities:
Gross
Type of Facility Location Square Footage
---------------- -------- --------------
Owned
-----
Distribution/Manufacturing/Office Rogers, Minnesota 333,000
Manufacturing/Office Minneapolis, Minnesota 242,300
Manufacturing/Office Minneapolis, Minnesota 202,300
Research & Development/Corporate Headquarters Minneapolis, Minnesota 138,700
Assembly/European Headquarters/Warehouse Maasmechelen, Belgium 75,200
Manufacturing/Office Sioux Falls, South Dakota 55,100
Leased
------
Manufacturing/Office Bielefeld, Germany 69,400
Office/Warehouse Yokohama, Japan (2 facilities) 32,800
Office/Warehouse Gwangju-Gun, Korea 10,500
Office Plymouth, Michigan 21,000
A 163,000 square foot addition to one of its buildings in Minneapolis is
expected to be completed during 2001. This addition will permit the Company to
provide space in its Rogers, Minnesota facility for the expansion of its
Contractor Equipment manufacturing capability and create a separate warehouse in
Minneapolis for Industrial/Automotive and Lubrication Equipment products closer
to their respective manufacturing facilities.
The Company leases space for liaison offices in China.
A 73,800 square foot office building in Golden Valley, Minnesota was sold in
December 2000.
With the expansion of one of its buildings in Minneapolis, Graco's facilities
are in satisfactory condition, suitable for their respective uses and are
sufficient and adequate to meet current needs. Manufacturing capacity met
business demand in 2000. Production requirements in the immediate future are
expected to be met through existing production capabilities, expanded production
facilities currently under construction, efficiency and productivity
improvements, and the use of available subcontract services.
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 2000.
Executive Officers of the Company
The following are all the executive officers of the Company as of March 5, 2001.
George Aristides, 65, was elected Chief Executive Officer effective January 3,
2000. From March 1, 1999 to December 29, 1999, he was Vice Chairman. From
January 1, 1996 to February 28, 1999 he was Chief Executive Officer. From 1993
to 1997 he was President. From 1993 to 1996 he was President and Chief Operating
Officer. He joined the Company in 1973 as Corporate Controller and became Vice
President and Controller in 1980. He has served as a director of the Company
since 1993.
Stephen L. Bauman, 48, was elected Vice President, Human Resources, effective
October 25, 2000. Prior to joining Graco, he held various positions with Alliant
Techsystems, Inc. most recently as Vice President of Human Resources, Alliant
Integrated Defense Company, a subsidiary.
James A. Graner, 56, 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.
Dale D. Johnson, 46, was elected President and Chief Operating Officer effective
January 14, 2000. From December 1996 to January 2000 he was Vice President,
Contractor Equipment Division. Prior to becoming the Director of Marketing,
Contractor Equipment Division in June 1996, he held various marketing and sales
positions in the Contractor Equipment Division and the Industrial Equipment
Division. He joined the Company in 1976.
D. Christian Koch, 36, was appointed Vice President, Lubrication Equipment
Division effective February 15, 2000. From August 1999 to February 2000, he was
the Director, Industrial Global Sales and Marketing. From December 1998 to
August 1999 he was Director, Lubrication Marketing. Prior to joining the Company
in December 1998, he was employed by H.B. Fuller Company, where he held various
positions, including President and Division Manager of TEC Incorporated and Vice
President and Business Unit Manager of Foster Products Corporation. (Mr. Koch is
not related to David A. Koch, Chairman of the Board.)
David M. Lowe, 45, became Vice President and General Manager, European
Operations effective September 1, 1999. Mr. Lowe was Vice President, Lubrication
Equipment Division from December 1996 to September 1999. From February 1995 to
December 1996 he was Treasurer. Prior to joining the Company in 1995, he was
employed by Ecolab Inc., where he held various positions in the Treasury
Department, including Manager, Corporate Finance; Director, Corporate Finance;
and Director, Corporate Development.
Robert M. Mattison, 53, was first elected Vice President, General Counsel and
Secretary, in January 1992, a position which he holds today.
Patrick J. McHale, 39, was appointed Vice President, Contractor Equipment
Division effective February 15, 2000. Mr. McHale was Vice President, Lubrication
Equipment Division from September 1999 to February 2000. He was Contractor
Equipment Manufacturing - Distribution Operations Manager from February 1998 to
September 1999. From March 1997 to February 1998 he was Director of Michigan
Operations. From February 1996 to March 1997 he was Contractor Equipment
Manufacturing Operations Manager and from January 1994 to February 1996 he was
the Sioux Falls Plant Manager. Mr. McHale joined the Company in December 1989.
Charles L. Rescorla, 49, is Vice President, Manufacturing and Distribution
Operations, a position to which he was first elected on May 5, 1998. Mr.
Rescorla was previously appointed to that position on January 1, 1995. Prior to
becoming the Director of Manufacturing in March 1994, he was the Director of
Engineering, Industrial/Automotive Division, a position which he assumed in 1988
when he joined the Company.
Mark W. Sheahan, 36, was elected Vice President and Treasurer on December 11,
1998. Effective December 17, 1996, he was elected Treasurer. Prior to joining
the Company as Treasury Operations Manager in 1995, he was a Senior Manager with
KPMG Peat Marwick LLP.
Fred A. Sutter, 40, was appointed Vice President, Asia Pacific and Latin America
effective March 1, 1999. From March 1995 to February 28, 1999 he was Director of
Industrial Marketing. Prior to joining the Company in 1995, he held various
positions with Fisher-Rosemount, most recently as Director of Marketing.
The Board of Directors elected Messrs. Aristides, Johnson, Graner, Lowe,
Mattison, Rescorla and Sheahan on May 2, 2000, all to hold office until the next
annual meeting of directors or until their successors are elected and qualify.
PART II
Item 5. Market for the Company's Common Stock and Related Shareholder Matters
Graco Common Stock. Graco common stock is traded on the New York Stock Exchange
under the ticker symbol "GGG." As of March 5, 2001, the share price was $26.90
and there were 30,747,876 shares outstanding and 2,500 common shareholders of
record, which includes nominees or broker dealers holding stock on behalf of an
estimated 4,600 beneficial owners.
Quarterly Financial Information
(In thousands, except per share amounts)
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
- ------------------------ -------- -------- -------- --------
Net sales<F1> $122,227 $132,768 $123,100 $116,278
Gross profit 62,129 66,102 62,949 59,672
Net earnings 14,975 18,331 18,073 18,729
Per common share:<F2>
Basic net earnings 0.49 0.60 0.60 0.62
Diluted net earnings 0.48 0.59 0.59 0.61
Dividends declared 0.09 0.09 0.09 0.10
-------- -------- -------- --------
Stock price (per share)
High $ 22.75 $ 23.33 $ 23.92 $ 27.67
Low 19.33 20.00 20.42 20.13
Close<F3> 19.33 21.67 21.67 27.59
-------- -------- -------- --------
Volume (# of shares) 4,532 4,880 2,223 2,904
-------- -------- -------- --------
1999
- ------------------------
Net sales<F1> $105,141 $116,803 $112,076 $116,454
Gross profit 52,857 59,619 57,510 61,149
Net earnings 11,201 17,961 15,043 15,136
Per common share:<F2>
Basic net earnings 0.37 0.59 0.49 0.49
Diluted net earnings 0.36 0.57 0.48 0.48
Dividends declared 0.07 0.07 0.07 0.09
-------- -------- -------- --------
Stock price (per share)
High $ 20.17 $ 21.75 $ 23.25 $ 23.92
Low 13.33 14.33 19.00 21.29
Close<F3> 14.29 19.54 22.04 23.92
-------- -------- -------- --------
Volume (# of shares) 4,289 4,496 3,503 3,792
-------- -------- -------- --------
[FN]
<F1>
1 Pursuant to EITF 00-10, freight expense for products shipped to customers,
previously netted against sales, has been reclassified to cost of products
sold.
<F2>
2 All share and per share data has been restated for the three-for-two stock
split declared on December 8, 2000 and distributed February 6, 2001.
<F3>
3 As of the last trading day of the calendar quarter.
</FN>
Item 6. Selected Financial Data
Graco Inc. & Subsidiaries
(In thousands, except per share amounts) 2000 1999 1998 1997 1996
- ---------------------------------------- -------- -------- -------- -------- --------
Net sales<F1> $494,373 $450,474 $440,585 $423,897 $399,356
Net earnings 70,108 59,341 47,263 44,716 36,169
======== ======== ======== ======== ========
Per common share:<F2>
Basic net earnings $ 2.31 $ 1.95 $ 1.37 $ 1.17 $ 0.93
Diluted net earnings 2.27 1.90 1.34 1.14 0.92
-------- -------- -------- -------- --------
Total assets $237,976 $236,033 $233,702 $264,532 $247,814
Long-term debt (including current portion) 19,360 66,910 115,739 7,959 9,920
Cash dividends declared per common share $ 0.38 $ 0.31 $ 0.29 $ 0.25 $ 0.22
======== ======== ======== ======== ========
<FN>
<F1>
1 Pursuant to EITF 00-10, freight expense for products shipped to customers,
previously netted against sales, has been reclassified to cost of products
sold.
<F2>
2 All share and per share data has been restated for the three-for-two stock
split declared on December 8, 2000 and distributed February 6, 2001.
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S REVIEW AND DISCUSSION
Graco's net earnings of $70.1 million in 2000 are 18 percent higher than the
$59.3 million earned in 1999 and are 48 percent higher than the $47.3 million
recorded in 1998. The increase in 2000 was a result of higher sales, improved
manufacturing efficiencies (largely due to increased volume), improved business
processes and price increases. The increase in 1999 is primarily due to enhanced
profit margins resulting from many factors, including improved business
processes, exiting the custom systems business, closing facilities, improved
manufacturing efficiencies and price increases.
The table below reflects the percentage relationship between income and expense
items included in the Consolidated Statements of Earnings for the three fiscal
years and the percentage changes in those items for such years.
Revenue & Expense Item Revenue & Expense Item
As a Percentage of Net Sales % Increase (Decrease)
2000 1999 1998 00/99 99/98
----- ----- ----- ----- -----
Net Sales 100.0 100.0 100.0 10 2
----- ----- ----- ----- -----
Cost of products sold 49.3 48.7 50.2 11 (1)
Product development 4.0 4.4 4.1 2 8
Selling, marketing and
distribution 17.5 17.7 18.9 8 (4)
General and administrative 6.7 8.5 9.4 (14) (7)
----- ----- ----- ----- -----
Operating profit 22.5 20.7 17.4 19 21
----- ----- ----- ----- -----
Interest expense 0.8 1.6 1.2 (41) 32
Other expense (income), net 0.3 (0.6) -- * *
----- ----- ----- ----- -----
Earnings before income taxes 21.4 19.7 16.2 19 24
Income taxes 7.2 6.5 5.5 21 22
----- ----- ----- ----- -----
Net Earnings 14.2 13.2 10.7 18 26
===== ===== ===== ===== =====
* Not a meaningful figure.
NET SALES
Worldwide net sales in 2000 reached a record $494.4 million, a 10 percent
increase over 1999 net sales of $450.5 million. Foreign currency translations
had a negative impact on reported sales in 2000 when compared to 1999, reducing
sales by 2 percent. By segment, 2000 net sales versus 1999 increased in the
Contractor Equipment and Lubrication Equipment by 24 percent and 2 percent,
respectively. Sales in the Industrial/Automotive segment were flat. The large
increase in Contractor Equipment sales in 2000 was due primarily to the
introduction of a new line of sprayers for entry into the home center channel.
After growing in the first half of 2000, Industrial/Automotive equipment sales
declined in the second half of 2000 due primarily to a slowing North American
economy. Lubrication Equipment sales in 2000 were flat in a market that is
mature and well served.
Geographically, sales outside of the Americas represented 27 percent of total
sales in 2000, compared to 30 percent in 1999. Net sales gains in Asia Pacific
were offset by lower sales in Europe. In the Americas, 2000 sales increased 15
percent for the year, primarily due to strong sales in the Company's Contractor
Equipment business segment. In Europe, sales measured in local currencies
increased 6 percent but reported net sales were 6 percent lower than 1999 after
unfavorable currency translations. In the Asia Pacific Region, sales measured in
local currencies increased 3 percent but reported net sales were 7 percent
higher than 1999 after favorable currency translations.
Worldwide net sales in 1999 were $450.5 million, a 2 percent increase over 1998.
Foreign currency translations had no net impact on reported sales in 1999 when
compared to 1998. The 1999 increase was due to higher sales in all regions
except Europe. Net sales in the Americas, which accounted for 70 percent of net
sales, advanced 3 percent, primarily due to strong sales in the Contractor
Equipment segment. Lower sales in Europe offset net sales gains in the Asia
Pacific Region.
Consolidated backlog on December 29, 2000 was $12 million, which the Company
expects to fill within the current fiscal year. Backlog was $21 million at the
end of 1999 and $13 million at the end of 1998. The decrease in 2000 backlog
reflected a return to normal levels from the large backlog that resulted from
orders in late 1999 for the home center channel products that were shipped in
the first quarter of 2000.
% Increase (Decrease)
(In thousands) 2000 1999 1998 00/99 99/98
- --------------------------------- -------- -------- -------- ----- -----
Segment Sales:
Industrial/Automotive Equipment $227,963 $227,772 $235,328 -- (3)
Contractor Equipment 221,538 178,616 160,718 24 11
Lubrication Equipment 44,872 44,086 44,539 2 (1)
-------- -------- -------- ----- -----
Consolidated $494,373 $450,474 $440,585 10 2
======== ======== ======== ===== =====
Geographic Sales:
Americas $359,881 $313,915 $305,860 15 3
Europe 84,733 90,112 95,938 (6) (6)
Asia Pacific 49,759 46,447 38,787 7 20
-------- -------- -------- ----- -----
Consolidated $494,373 $450,474 $440,585 10 2
======== ======== ======== ===== =====
GROSS MARGINS
Gross margins, expressed as a percentage of sales, were 50.7 percent in 2000,
compared with 51.3 percent in 1999. The effects of higher production levels,
enhanced pricing, and improved manufacturing efficiencies were offset by the mix
of products sold and the negative foreign exchange rate impact. 1999 gross
margins of 51.3 percent were up from 1998 gross margins of 49.8 percent. The mix
of products sold, pricing, improved manufacturing efficiencies, exiting the
custom-engineered systems business, and slightly higher sales all contributed to
the enhanced gross margin.
OPERATING EXPENSES
Overall, operating expenses, expressed as a percentage of net sales, decreased
2.4 percentage points in 2000 versus 1999. Product development expenses were
$20.0 million in 2000, $19.7 million in 1999 and $18.2 million in 1998. Graco
continues to make significant investments in product development to grow its
sales revenue.
Selling, marketing, distribution and general and administrative expenses were
higher in 2000 due to higher sales, but decreased as a percentage of sales to
24.2 percent in 2000 from 26.2 percent in 1999. In 2000, selling, marketing, and
distribution expenses were higher than in 1999 due to higher sales and expenses
related to the launch of home center products. General and administrative
expenses were lower than 1999 due to corporate expense reduction initiatives and
lower information systems expenditures. In 1999, selling, marketing,
distribution and administrative expenses, expressed as a percentage of sales,
decreased to 26.2 percent from 28.2 percent in 1998. In 1999, overall selling,
marketing, distribution and administrative expenses were lower than in 1998 due
to the benefits of prior year corporate expense reduction initiatives, lower
information systems expenditures, and reduced non-recurring charges.
The Company recorded pension income of $3.8 million in 2000, $2.1 million in
1999 and $2.1 million in 1998, which resulted from recognition of investment
gains attributable to pension plan assets. Pension expense/income is included in
cost of products sold and operating expenses based on salaries and wages.
SEGMENT OPERATING PROFITS
Increases in 2000 operating profits are the result of several factors, including
higher sales, expense reduction initiatives and improved manufacturing
efficiencies. Operating profits for Industrial/Automotive Equipment increased by
20.1 percent versus 1999 and by 4.3 percentage points as a percentage of net
sales primarily as a result of improved gross margin rates along with lower
product development, marketing and sales-related expenses. Contractor Equipment
operating profits increased by 14.9 percent versus 1999 but decreased 1.8
percentage points as a percentage of net sales due to the mixture of products
sold. Lubrication Equipment operating profits increased by 2.8 percent versus
1999 and increased by .2 percentage points as a percentage of net sales.
FOREIGN CURRENCY EFFECTS
Approximately 27 percent of the Company's sales in 2000 and 5 percent of its
product costs are in currencies other than the U.S. dollar. The strong U.S.
dollar, versus European currencies, decreased the Company's profits. In 2000,
the adverse impact of the strengthening dollar in Europe was partially offset by
the dollar weakening against the Japanese yen and Korean won. The Company
estimates that fluctuations in exchange rates adversely impacted operating
earnings by $5 million in 2000 and had no significant impact in 1999.
OTHER EXPENSE (INCOME)
In 2000, interest expense, net of interest income, decreased to $4.1 million due
to the significant reduction in borrowings. In 1999, interest expense of $7.0
million was higher than the $5.3 million of interest expense in 1998 due to the
full year impact of borrowings for the July 2, 1998 stock repurchase of 5.8
million shares.
Other expense, net of other income, was $1.2 million in 2000 compared to other
income in 1999 of $2.6 million and other expense in 1998 of $0.2 million. Other
expense (income) includes, among other things, foreign currency translation
losses of $1.6 million in 2000. The Company sold its Golden Valley headquarters
building in 2000 and facilities in Los Angeles and Plymouth, Michigan in 1999
with gains of $2.2 million and $3.2 million respectively.
INCOME TAXES
The Company's net effective tax rate of 34 percent in 2000 is one percentage
point lower than the 2000 U.S. federal tax rate of 35 percent. The increase from
the 33 percent effective rate in 1999 is due primarily to earnings from sales
outside of the U.S. being taxed at higher effective rates. The 1999 effective
tax rate of 33 percent was lower than the 1998 effective tax rate of 34 percent
principally due to earnings from sales outside the U.S. being taxed at lower
effective rates. Reconciliations of the U.S. federal tax rate to the effective
rates for 2000, 1999 and 1998 are included in Note E to the Consolidated
Financial Statements.
ACCOUNTING CHANGES
To conform with the requirements of the Emerging Issues Task Force Issue Number
00-10, "Accounting for Shipping and Handling Fees and Costs," the Company
reclassified freight expenses for products shipped to customers into cost of
products sold. Such expenses were formerly classified as a reduction of net
sales. This change has no impact on previously reported gross profit amounts or
net earnings.
On December 30, 2000, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." Based on current practice, the
Company expects that adoption will have no effect on consolidated results of
operations or financial position.
The Company has reviewed its revenue recognition policy and practice and has
determined that they meet the requirements of SEC Staff Accounting Bulletin No.
101.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As discussed under Foreign Currency Effects, Graco sells and purchases products
and services in currencies other than the U.S. dollar. Consequently, the Company
is subject to profitability risk arising from exchange rate movements.
Graco uses foreign exchange contracts to reduce risks associated with foreign
currency net monetary asset and liability positions. These contracts typically
have maturities of 90 days or less, and gains or losses from changes in market
value of these contracts offset foreign exchange gains and losses on the
underlying balance sheet items. At December 29, 2000, the foreign currencies to
which the Company had the most significant balance sheet exchange rate exposure
were the European euro, Canadian dollar, Japanese yen, British pound, and Korean
won. The Company does not hold or issue derivative financial instruments for
trading purposes.
To evaluate its currency exchange rate risks on its foreign exchange contracts,
the Company uses sensitivity analysis, which measures the impact on earnings of
hypothetical changes in the value of foreign currencies to which it has
exposure. At December 29, 2000, due to the short-term nature of the Company's
hedging instruments, reasonably likely fluctuations in foreign currency exchange
rates in the near term would not materially affect Graco's consolidated
operating results, financial position or cash flows.
When appropriate, the Company utilizes interest rate swaps to manage its
exposure to fluctuations in earnings due to changes in interest rates on its
variable rate debt. At December 29, 2000, a 50 basis point increase or decrease
in market interest rates, principally LIBOR, would not materially increase or
decrease interest expense or cash flows.
For further discussion of the Company's foreign currency and interest rate
hedging strategy and position, see Note A to the Consolidated Financial
Statements.
OUTLOOK
Management's view of 2001 is that while pursuing the Company's growth strategies
of developing new products, expanding distribution, entering new markets, and
strategic acquisitions, it believes that 2001 will be a difficult economic
environment for Graco and its industry. In the current environment, where sales
growth will be a challenge, Graco is committed to improved profitability.
Graco's strong and capable distribution channel, productive manufacturing
operation, commitment to developing new products, and global marketing
capabilities position it well to take advantage of a global economic recovery.
SAFE HARBOR CAUTIONARY STATEMENT
The information in this Annual Report on Form 10-K 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 Annual Report on
Form 10-K for fiscal year 2000.
SHAREHOLDER ACTIONS
Periodically, the Company initiates measures aimed at enhancing shareholder
value, broadening common stock ownership, improving the liquidity of its common
shares and effectively managing its cash balances. A summary of recent actions
follows:
o a seven percent increase in the regular dividend in 2001;
o three-for-two stock splits in 2001, 1998 and 1996;
o a 27 percent increase in the regular dividend paid in 2000;
o repurchase of 5.8 million shares in 1998 from Graco's largest shareholder,
the Trust under the Will of Clarissa L. Gray; and
o an 18 percent increase in the regular dividend in 1997
LIQUIDITY AND SOURCES OF CAPITAL
The following table highlights several key measures of asset performance.
(In thousands) 2000 1999
- ------------------------------------ ------ -----
Cash and cash equivalents $11,071 $6,588
Working capital $61,901 $59,726
Current ratio 1.8 1.8
Average days receivables outstanding 63 65
Inventory turnover 7.4 5.6
In 2000, working capital increased $2.2 million to $61.9 million. As a result of
strong cash flow from operations, the Company reduced its total debt by $46.5
million in 2000. Total debt at the end of 2000 was $35.1 million as compared to
$81.6 million at the end of 1999. Receivables increased $6.1 million in 2000
compared with year-end 1999 due to higher sales volume. Inventories decreased
$4.6 million in 2000, compared to year-end 1999, primarily as a result of a
build-up in inventory in late 1999 in conjunction with the launch of the home
center products.
Cash provided by operations was $79.6 million in 2000, versus $75.8 million in
1999 and $77.1 million in 1998. Significant uses of cash in 2000 included
retirement of debt, capital expenditures, dividends and share repurchases.
Significant uses of cash in 1999 included the retirement of debt, the
acquisition of certain assets of Bollhoff Verfahrenstechnik, capital
expenditures, dividends and share repurchases. In 1998, additional cash needs
were funded by bank borrowings and significant uses of cash included the
purchase of 5.8 million shares of Graco Inc. common stock for $191 million,
capital expenditures and dividends.
At December 29, 2000, Graco had various lines of credit totaling $95.3 million,
of which $66.0 million was unused. The Company believes that the combination of
present capital resources, internally generated funds and unused financing
sources are more than adequate to meet cash requirements for 2001. In 2001, the
Company is building a new factory and distribution center in Minneapolis,
Minnesota. The incremental capital required for this project is estimated to be
approximately $15 million.
Item 8. Financial Statements and Supplementary Data
Page
o Selected Quarterly Financial Data (See Part II, Item 5,
Market for the Company's Common Stock and Related
Shareholder Matters) 9
o Responsibility for Financial Reporting 14
o Independent Auditors' Report 15
o Consolidated Statements of Earnings for fiscal years 2000,
1999 and 1998 16
o Consolidated Balance Sheets for fiscal years 2000 and 1999 17
o Consolidated Statements of Cash Flows for fiscal years
2000, 1999 and 1998 18
o Consolidated Statements of Changes in Shareholders'
Equity for fiscal years 2000, 1999 and 1998 19
o Consolidated Statements of Comprehensive Income for fiscal
years 2000, 1999 and 1998 19
o Notes to Consolidated Financial Statements 20
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 schedule 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 comprehensive
systems of internal control provide 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 these accounting and control systems. Deloitte & Touche LLP, independent
certified public accountants, are retained to audit the consolidated financial
statements, and express an opinion thereon. Their opinion is included below.
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
systems of internal control, 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 29, 2000 and December 31, 1999 and the
related statements of earnings, shareholders' equity, comprehensive income, and
cash flows for each of the three years in the period ended December 29, 2000.
Our audits also included the financial statement schedule listed in the Index at
Item 14. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 29, 2000 and December 31, 1999 and the results of their operations and
cash flows for each of the three years in the period ended December 29, 2000, in
conformity with accounting principles generally accepted in the United States of
America. Also, in 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.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
January 22, 2001
CONSOLIDATED STATEMENTS OF EARNINGS Graco Inc. and Subsidiaries
Years Ended
-------------------------------------------------------------
(In thousands, except per share amounts) December 29, 2000 December 31, 1999 December 25, 1998
- ---------------------------------------- ----------------- ----------------- -----------------
Net Sales $494,373 $450,474 $440,585
Cost of products sold 243,521 219,339 221,184
----------------- ----------------- -----------------
Gross Profit 250,852 231,135 219,401
Product development 19,998 19,688 18,213
Selling, marketing and distribution 86,598 79,922 83,169
General and administrative 33,014 38,334 41,146
----------------- ----------------- -----------------
Operating Earnings 111,242 93,191 76,873
Interest expense 4,127 7,016 5,319
Other expense (income), net 1,207 (2,666) 191
----------------- ----------------- -----------------
Earnings before Income Taxes 105,908 88,841 71,363
Income taxes 35,800 29,500 24,100
----------------- ----------------- -----------------
Net Earnings $ 70,108 $ 59,341 $ 47,263
================= ================= =================
Basic Net Earnings per Common Share $ 2.31 $ 1.95 $ 1.37
================= ================= =================
Diluted Net Earnings per Common Share $ 2.27 $ 1.90 $ 1.34
================= ================= =================
All per share data has been restated for the three-for-two stock split declared
on December 8, 2000, to be distributed February 6, 2001.
See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS Graco Inc. and Subsidiaries
(In thousands, except per share amounts) December 29, 2000 December 31, 1999
- ----------------------------------------------------------- ----------------- -----------------
Assets
Current Assets:
Cash and cash equivalents $ 11,071 $ 6,588
Accounts receivable, less allowances of $4,700 and $4,500 85,836 79,696
Inventories 33,079 37,702
Deferred income taxes 11,574 12,357
Other current assets 2,182 1,646
----------------- -----------------
Total current assets 143,742 137,989
Property, Plant and Equipment, net 83,989 86,493
Other Assets 10,245 11,551
----------------- -----------------
Total Assets $237,976 $236,033
================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable to banks $ 15,713 $ 14,640
Current portion of long-term debt 1,310 1,215
Trade accounts payable 12,899 13,500
Salaries, wages and commissions 14,532 12,832
Accrued insurance liabilities 10,622 10,332
Income taxes payable 4,642 2,323
Other current liabilities 22,123 23,421
----------------- -----------------
Total current liabilities 81,841 78,263
Long-Term Debt, less current portion 18,050 65,695
Retirement Benefits and Deferred Compensation 27,230 29,135
Commitments and Contingencies (Note K)
Shareholders' Equity
Common stock, $1 par value; 45,000,000 shares authorized;
shares outstanding, 20,273,561 and 20,415,827 in 2000
and 1999 20,274 20,416
Additional paid-in capital 39,954 31,755
Retained earnings 50,233 9,279
Accumulated comprehensive income 394 1,490
----------------- -----------------
Total shareholders' equity 110,855 62,940
----------------- -----------------
Total Liabilities and Shareholders' Equity $237,976 $236,033
================= =================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Graco Inc. and Subsidiaries
Years Ended
---------------------------------------------------------
(In thousands) December 29, 2000 December 31, 1999 December 25, 1998
- ----------------------------------------------------- ----------------- ----------------- -----------------
Cash Flows from Operating Activities
Net earnings $ 70,108 $ 59,341 $ 47,263
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 15,452 14,701 13,736
Deferred income taxes 1,644 1,152 (593)
(Gain) loss on sale of fixed assets (1,561) (2,936) (139)
Change in:
Accounts receivable (8,287) 2,097 6,293
Inventories 4,161 3,309 10,547
Trade accounts payable (516) 1,551 (761)
Salaries, wages and commissions 1,921 (946) (934)
Retirement benefits and deferred compensation (3,999) (2,112) (3,255)
Other accrued liabilities 1,416 (1,257) 2,695
Other (730) 921 2,257
----------------- ----------------- -----------------
Net cash provided by operating activities 79,609 75,821 77,109
----------------- ----------------- -----------------
Cash Flows from Investing Activities
Property, plant and equipment additions (14,523) (9,140) (11,962)
Proceeds from sale of property, plant and equipment 4,845 9,695 2,201
Acquisition of business -- (18,388) --
----------------- ----------------- -----------------
Net cash used in investing activities (9,678) (17,833) (9,761)
----------------- ----------------- -----------------
Cash Flows from (for) Financing Activities
Borrowing on notes payable and lines of credit 188,552 118,900 65,869
Payments on notes payable and lines of credit (187,144) (119,201) (54,376)
Borrowings on long-term debt 43,665 25,001 180,985
Payments on long-term debt (91,215) (73,711) (73,273)
Common stock issued 9,630 6,760 4,876
Retirement of common stock (19,182) (5,077) (190,899)
Cash dividends paid (11,361) (8,927) (10,701)
----------------- ----------------- -----------------
Net cash used in financing activities (67,055) (56,255) (77,519)
----------------- ----------------- -----------------
Effect of exchange rate changes on cash 1,607 1,300 203
----------------- ----------------- -----------------
Net increase (decrease) in cash and cash equivalents 4,483 3,033 (9,968)
Cash and cash equivalents
Beginning of year 6,588 3,555 13,523
----------------- ----------------- -----------------
End of year $ 11,071 $ 6,588 $ 3,555
================= ================= =================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Graco Inc. and Subsidiaries
(In thousands) December 29, 2000 December 31, 1999 December 25, 1998
- ---------------------------------------- ----------------- ----------------- -----------------
Common Stock, $1 par value
Balance, beginning of year $ 20,416 $ 20,097 $ 25,553
Shares issued 475 466 344
Shares repurchased (617) (147) (5,800)
----------------- ----------------- -----------------
Balance, end of year 20,274 20,416 20,097
----------------- ----------------- -----------------
Additional Paid-In Capital
Balance, beginning of year 31,755 23,892 26,085
Shares issued 9,155 8,184 4,535
Shares repurchased (956) (321) (6,728)
----------------- ----------------- -----------------
Balance, end of year 39,954 31,755 23,892
----------------- ----------------- -----------------
Retained Earnings (deficit)
Balance, beginning of year 9,279 (35,878) 105,030
Net income 70,108 59,341 47,263
Dividends declared (11,545) (9,575) (10,102)
Change in accounting period -- -- 300
Shares repurchased (17,609) (4,609) (178,369)
----------------- ----------------- -----------------
Balance, end of year 50,233 9,279 (35,878)
----------------- ----------------- -----------------
Foreign Currency Translation Adjustments
Balance, beginning of year 1,490 1,817 1,817
Current period change (1,096) (327) --
----------------- ----------------- -----------------
Balance, end of year 394 1,490 1,817
----------------- ----------------- -----------------
Unearned Compensation
Balance, beginning of year -- (615) (976)
Current period change -- 615 361
----------------- ----------------- -----------------
Balance, end of year -- -- (615)
----------------- ----------------- -----------------
Total Shareholders' Equity $110,855 $ 62,940 $ 9,313
================= ================= =================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Graco Inc. and Subsidiaries
Years Ended
-----------------------------------------------------------
(In thousands) December 29, 2000 December 31, 1999 December 25, 1998
- --------------------------------------------- ----------------- ----------------- -----------------
Net Earnings $ 70,108 $ 59,341 $ 47,263
Other comprehensive income, net of tax:
Foreign currency translation adjustments (1,096) (327) --
Additional minimum pension liability
adjustment 16 (90) --
----------------- ----------------- -----------------
Comprehensive Income $69,028 $58,924 $47,263
================= ================= =================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GRACO Inc. & Subsidiaries
Years Ended December 29, 2000, December 31, 1999 and December 25, 1998
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. The year ended December 31, 1999 was a 53-week year. Years
ended December 29, 2000 and December 25, 1998 were 52-week years.
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 29, 2000, all
subsidiaries are 100 percent owned. Subsidiaries in Japan and Korea have been
included on the basis of fiscal years ended November 30 to effect more timely
consolidated financial reporting.
Foreign Currency Translation. The U.S. dollar is the functional currency for all
foreign subsidiaries except Graco Verfahrenstechnik (GV) in Germany, whose
functional currency is the Euro. Accordingly, adjustments resulting from the
translation of GV's financial statements into U.S. dollars are charged or
credited to a separate component of shareholders' equity. Gains and losses from
the translation of foreign currency balances and transactions of other foreign
subsidiaries are included in other expense (income).
Accounting Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents. All highly liquid investments with a maturity of three months
or less at the date of purchase are considered to be cash equivalents.
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.
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 30 years
Leasehold improvements 5 to 10 years
Manufacturing equipment and tooling 5 to 10 years
Office, warehouse and automotive equipment 3 to 10 years
Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment
whenever events or changes in business circumstances indicate the carrying value
of the assets may not be recoverable. There have been no write downs of any
long-lived assets in the periods presented.
Self-Insurance. The Company is self-insured for certain losses relating to
product liability, workers' compensation and employee medical benefits claims.
The Company has purchased stop-loss coverage in order to limit its exposure to
significant claims. Accrued insurance liabilities are based on claims filed and
estimates of claims incurred but not reported.
Revenue Recognition. The Company recognizes revenue when title passes, which is
usually upon shipment. The Company records provisions for anticipated returns
and warranty claims at the time revenue is recognized. Provisions for sales
returns are recorded as a reduction of net sales, and provisions for warranty
claims are recorded in selling, marketing and distribution expenses.
Freight Expense. Freight expenses for products shipped to customers are included
in cost of products sold, in accordance with EITF No. 00-10, "Accounting for
Shipping and Handling Fees and Costs." Such expenses were formerly reported as a
reduction of net sales. Freight-out expenses for 1999 and 1998 have been
reclassified to cost of products sold, which had no effect on previously
reported gross profit amounts or net earnings.
Earnings Per Common Share. Basic earnings per share is computed by dividing
earnings available to common shareholders by the weighted average number of
shares outstanding during the year. Diluted earnings per share is computed after
giving effect to the exercise of all dilutive outstanding option grants.
Comprehensive Earnings. Comprehensive earnings is a measure of all changes in
shareholders' equity except those resulting from investments by and
distributions to owners, and includes such items as net earnings, certain
foreign currency translation items, minimum pension liability adjustments and
changes in the value of available-for-sale securities.
Stock-Based Compensation. As allowed under SFAS No. 123 "Accounting for
Stock-Based Compensation," the Company has elected to apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
its stock option and purchase plans and adopt the "disclosure only" provisions
of SFAS No. 123.
Derivative Instruments and Hedging Activities. As part of its risk management
program, the Company uses currency hedges and interest rate swaps to hedge known
market exposures. Terms of derivative instruments are structured to match the
terms of the risk being hedged and are generally held to maturity. The Company
does not hold or issue derivative financial instruments for trading purposes.
The Company periodically evaluates its monetary asset and liability positions
denominated in foreign currencies. The Company enters into forward contracts,
borrowings in various currencies or options, in order to hedge its net monetary
positions. These hedges and net monetary positions are recorded at current
market values and the gains and losses are included in other expense (income).
The Company believes it uses strong financial counterparts in these transactions
and that the resulting credit risk under these hedging strategies is not
significant. The notional amounts (which may not be indicative of credit or
market risk) of such contracts were $12 million and $23 million at December 29,
2000 and December 31, 1999.
The Company utilizes interest rate swaps to convert a portion of its underlying
debt from a variable rate to a fixed rate. Gains and losses on these agreements
are included in interest expense under the settlement method of accounting. The
notional amounts of such contracts were $1.5 million and $52 million at December
29, 2000 and December 31, 1999.
On December 30, 2000, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that all derivatives, including those embedded in other contracts,
be recognized as either assets or liabilities and that those financial
instruments be measured at fair value. The accounting for changes in the fair
value of derivatives depends on their intended use and designation.
The Company has reviewed the requirements of SFAS No. 133 and has determined
that the forward currency contracts and the interest rate swap discussed above
are freestanding derivatives. The forward currency contracts are used to hedge
the net monetary position of subsidiaries whose translation adjustments are
recorded in earnings and therefore no designated hedging strategy is required to
achieve the Company's economic strategy. The fair value of the interest rate
swap is insignificant.
All contracts that contain provisions meeting the definition of a derivative
also meet the requirements of, and have been designated as, normal purchases or
sales. The Company's policy is to not enter into contracts with terms that
cannot be designated as normal purchases or sales. The adoption of SFAS No. 133
on December 30, 2000, resulted in no transition adjustment.
B. Segment Information
The Company has three reportable segments: Industrial/Automotive, Contractor and
Lubrication. The Industrial/Automotive segment markets equipment and
pre-engineered packages for moving and applying paints, coatings, sealants,
adhesives and other fluids. Markets served include automotive and truck assembly
and components plants, wood products, rail, marine, aerospace, farm,
construction, bus, recreational vehicles, and various other industries. The
Contractor segment markets sprayers for architectural coatings for painting,
roofing, texture, corrosion control and line striping and also high-pressure
washers. The Lubrication segment markets products to move and dispense
lubricants for fast oil change facilities, service garages, fleet service
centers, automobile dealerships, the mining industry and industrial lubrication.
All segments market parts and accessories for their products.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The cost of manufacturing for each
segment is based on product cost, and expenses are based on actual costs
incurred along with cost allocations of shared and centralized functions.
Certain products are sold across segments, in which case the segment marketing
the product is credited with the sale. Assets of the Company are not tracked
along reportable segment lines.
Reportable segments are defined by product and type of customer. Segments are
responsible for the sales, marketing and development of their products and
market channel. This allows for focused marketing and efficient product
development. The segments share common purchasing, manufacturing, distribution
and administration functions.
Unallocated
(In thousands) Industrial/ Corporate
Reportable Segments Automotive Contractor Lubrication Expenses Total
- ----------------------------------- ----------- ---------- ----------- ----------- --------
2000
Net sales to unaffiliated customers $227,963 $221,538 $44,872 $494,373
Segment operating earnings 57,798 47,935 10,600 (5,091) 111,242
1999
Net sales to unaffiliated customers 227,772 178,616 44,086 450,474
Segment operating earnings 48,143 41,736 10,307 (6,995) 93,191
1998
Net sales to unaffiliated customers 235,328 160,718 44,539 440,585
Segment operating earnings 42,973 35,836 8,829 (10,765) 76,873
----------- ---------- ----------- ----------- --------
Geographic Information 2000 1999 1998
- ------------------------ -------- -------- --------
Sales
United States $329,068 $286,483 $270,337
Other countries 165,305 163,991 170,248
-------- -------- --------
Total $494,373 $450,474 $440,585
-------- -------- --------
Long-lived assets
United States $80,811 $80,259 $91,068
Belgium 10,437 11,298 5,554
Other countries 3,555 5,972 4,569
-------- -------- --------
Total $94,803 $97,529 $101,191
======== ======== ========
Sales to Major Customers
No customer represented 10 percent or more of consolidated sales in 2000 or
1998. In 1999, sales to a paint manufacturer and retailer in the Contractor
segment totaled 11 percent of consolidated sales.
C. Inventories
Major components of inventories were as follows:
(In thousands) 2000 1999
------------------------------------------------------- ------- -------
Finished products and components $26,812 $25,748
Products and components in various stages of completion 20,153 23,560
Raw materials and purchased components 19,259 21,961
------- -------
66,224 71,269
Reduction to LIFO cost (33,145) (33,567)
------- -------
Total $33,079 $37,702
======= =======
Inventories valued under the LIFO method were $20,585,000 and $22,990,000 for
2000 and 1999. All other inventory was valued on the FIFO method.
In 2000 and 1999, certain inventory quantities were reduced, resulting in
liquidation of LIFO inventory quantities carried at lower costs from prior
years. The effect on net earnings was not significant.
D. Property, Plant and Equipment
Property, plant and equipment were as follows:
(In thousands) 2000 1999
- ------------------------------------------ --------- --------
Land $ 4,062 $ 3,923
Buildings and improvements 50,512 54,607
Manufacturing equipment 105,509 101,044
Office, warehouse and automotive equipment 22,652 22,196
Construction in progress 4,137 386
--------- --------
Total property, plant and equipment 186,872 182,156
Accumulated depreciation (102,883) (95,663)
--------- --------
Net property, plant and equipment $ 83,989 $ 86,493
========= ========
E. Income Taxes
Earnings before income tax expense consist of:
(In thousands) 2000 1999 1998
- -------------- -------- ------- -------
Domestic $ 95,440 $87,292 $61,709
Foreign 10,468 1,549 9,654
-------- ------- -------
Total $105,908 $88,841 $71,363
======== ======= =======
Income tax expense consists of:
(In thousands) 2000 1999 1998
- ------------------ ------- ------- -------
Current:
Domestic:
Federal $28,532 $23,081 $17,374
State and local 2,164 2,323 1,600
Foreign 3,018 2,867 5,628
------- ------- -------
$33,714 $28,271 $24,602
------- ------- -------
Deferred:
Domestic 2,414 1,778 (423)
Foreign (328) (549) (79)
------- ------- -------
2,086 1,229 (502)
------- ------- -------
Total $35,800 $29,500 $24,100
======= ======= =======
Income taxes paid were $30,919,000, $31,272,000 and $22,922,000 in 2000, 1999
and 1998.
A reconciliation between the U.S. federal statutory tax rate and the effective
tax rate is as follows:
2000 1999 1998
- ------------------------------------- ---- ---- ----
Statutory tax rate 35% 35% 35%
Earnings from non-U.S. sales at lower (1) (2) (1)
tax rates
State taxes, net of federal effect 1 2 2
U.S. general business tax credits (1) (2) (1)
Other -- -- (1)
---- ---- ----
Effective tax rate 34% 33% 34%
==== ==== ====
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:
(In thousands) 2000 1999
- -------------------------------------------------------- ------- -------
Inventory valuations $ 2,847 $ 3,365
Insurance accruals 3,247 3,202
Vacation accruals 1,435 1,207
Bad debt reserves 1,321 1,247
Net operating loss carryforward 334 653
Other 2,390 2,683
------- -------
Current 11,574 12,357
------- -------
Unremitted earnings of consolidated foreign subsidiaries (1,950) (2,544)
Excess of tax over book depreciation (7,494) (6,597)
Postretirement benefits 5,721 5,363
Pension and deferred compensation 1,880 3,239
Other 1,275 1,054
------- -------
Non-current (568) 515
------- -------
Net deferred tax assets $11,006 $12,872
======= =======
Total deferred tax assets were $20,923,000 and $22,319,000 and total deferred
tax liabilities were $9,917,000 and $9,447,000 on December 29, 2000 and December
31, 1999.
F. Debt
(In thousands) 2000 1999
- -------------------------------------------------------------- ------- -------
Reducing revolving credit facility, 7.14% at December 29, 2000 $17,500 $63,834
Other 1,860 3,076
------- -------
Total long-term debt 19,360 66,910
Less current portion 1,310 1,215
------- -------
Long-term portion $18,050 $65,695
======= =======
Aggregate annual scheduled maturities of long-term debt for the next five years
are as follows: 2001-$1,310,000; 2002-$550,000; 2003-$17,500,000; zero in 2004
and 2005. Interest paid on debt during 2000, 1999 and 1998 amounted to
$4,171,000, $6,843,000 and $4,742,000. The fair value of the Company's long-term
debt at December 29, 2000 and December 31, 1999 is not materially different than
its recorded value.
In July 1998, the Company entered into a five-year $190 million reducing
revolving credit facility (the "Revolver") with a syndicate of ten banks
including the lead bank, U.S. Bank National Association. The Revolver was
subsequently reduced to $132 million by December 31, 1999 and was further
reduced to $72 million by December 29, 2000. The $17,500,000 outstanding balance
bears interest at the London Interbank Offered Rate plus a spread of 0.45
percent. This spread changes as the ratio of total debt to earnings before
interest, taxes and depreciation and amortization declines. The Revolver
specifies quarterly reductions of the maximum amount of the credit line, and
requires the Company to maintain certain financial ratios as to net worth, cash
flow leverage and fixed charge coverage. The Revolver effectively restricts
dividend payments that would cause a violation of the tangible net worth ratio
covenant. The amount of the restriction on future dividend payments was $51
million at December 29, 2000.
The Company had an interest rate swap agreement in place whereby it fixed the
underlying interest rate on $50 million of the Revolver at 5.76 percent. This
contract matured on July 3, 2000. The cash flows related to the swap agreement
were recorded as an adjustment to interest expense.
On December 29, 2000, the Company had lines of credit with U.S. and foreign
banks of $95 million, including the $72 million Revolver. The unused portion of
these credit lines was $66 million at December 29, 2000. Borrowing rates under
these credit lines vary with the prime rate, rates on domestic certificates of
deposit and the London interbank market. The weighted short-term borrowing rates
were 6.2 percent, 5.4 percent and 6.3 percent for the years ended December 29,
2000, December 31, 1999, and December 25, 1998. The Company pays commitment fees
of up to 0.175 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 financial covenants of its debt
agreements.
G. Shareholders' Equity
In July 1998 the Company repurchased 5.8 million shares of common stock for
$190,887,000 from its largest shareholder, the Trust under the Will of Clarissa
L. Gray. The stock repurchase was funded with cash of $32,887,000 and
$158,000,000 from the Revolver.
The Board of Directors declared a three-for-two stock split on December 8, 2000,
to be distributed February 6, 2001, for shares outstanding on January 15, 2001.
All stock option, share and per share data has been restated to reflect the
split.
At December 29, 2000, the Company had 22,549 authorized, but not issued,
cumulative preferred shares. The Company also has authorized, but not issued, a
separate class of 3 million shares of preferred stock, $1 par value.
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 four-hundredth of a share of a new series of junior
participating preferred stock at an exercise price of $180, subject to
adjustment. The Rights are exercisable only if a person or group acquires
beneficial ownership of 15 percent or more of the Company's outstanding common
stock. The Rights expire in March 2010 and may be redeemed earlier by the Board
of Directors for $.001 per Right.
H. Stock Option and Purchase Plans
Stock Option Plans. In 1999, the Board of Directors approved an Employee Stock
Incentive Plan, under which the Company grants stock options to employees who
are not officers of the Company. The option price is the market price on the
date the grant is approved and the options vest three years from the date of the
grant and expire after ten years. 1,500,000 shares have been reserved for
issuance under the Plan, with 1,497,600 remaining reserved at December 29, 2000.
The Company has a Long-Term Stock Incentive Plan, under which a total of
7,818,750 common shares have been reserved for issuance, with 3,547,620 shares
remaining reserved at December 29, 2000. Grants under this Plan are in the form
of restricted share awards and stock options. The option price is the market
price on the date the grant is approved. Options become exercisable at such time
and in such installments as set by the Company, and expire ten years from the
date of grant. Restricted share awards of 963,914 common shares have been made
to certain key employees under the Plan. No restricted share awards are
outstanding at December 29, 2000 and there is no related compensation cost in
2000. Compensation cost charged to operations for the restricted share awards
was $615,000 and $361,000 in 1999 and 1998.
The Company has a Non-employee Director Stock Option Plan, under which the
Company makes initial and annual grants to the non-employee directors of the
Company. Non-employee directors receive an initial option grant of 3,000 shares
upon first appointment or election and an annual option grant of 2,500 shares.
There are 450,000 common shares authorized for issuance under the Plan; 444,936
remained reserved at the end of 2000. The exercise price of each option is the
fair market value at the date of grant. The options have a ten-year duration and
may be exercised in equal installments over four years, beginning one year from
the date of grant.
Options on common shares granted and outstanding, as well as the weighted
average exercise price, are shown below:
Weighted Weighted
Average Average
Exercise Options Exercise
Options Price Exercisable Price
- ------------------------------ --------- -------- ----------- --------
Outstanding, December 26, 1997 1,655,577 $ 7.77 690,219 $ 5.82
Granted 479,625 19.86
Exercised (213,083) 5.73
Canceled (149,437) 11.89
--------- -------- ----------- --------
Outstanding, December 25, 1998 1,772,682 $10.86 766,329 $ 6.59
Granted 706,748 14.57
Exercised (424,580) 4.82
Canceled (55,705) 15.69
--------- -------- ----------- --------
Outstanding, December 31, 1999 1,999,145 $12.69 1,117,539 $10.00
Granted 438,000 20.59
Exercised (387,597) 10.69
Canceled (87,258) 15.39
--------- -------- ----------- --------
Outstanding, December 29, 2000 1,962,290 $14.74 943,151 $11.46
========= ======== =========== ========
The following table summarizes information for options outstanding and
exercisable at December 29, 2000:
Options
Options Exercisable
Options Outstanding Weighted
Outstanding Weighted Avg. Avg.
Range of Options Weighted Avg. Exercise Options Exercise
Prices Outstanding Remaining Life Price Exercisable Price
- ---------- ----------- -------------- ------------- ----------- -----------
$ 4-10 515,519 2 $ 6.74 512,091 $ 6.72
11-18 626,699 4 13.99 195,921 13.38
19-24 820,072 5 20.34 235,139 20.17
----------- -------------- ------------- ----------- -----------
$ 4-24 1,962,290 4 $14.74 943,151 $11.46
Stock Purchase Plans. Under the Company's Employee Stock Purchase Plan,
8,775,000 common shares have been reserved for sale to employees, 1,169,840 of
which remained unissued at the end of 2000. 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.
Non-employee Director Stock Plan. The Plan enables individual non-employee
directors of the Company to elect to receive or defer all or part of a
director's annual retainer, and/or payment for attendance at Board or Committee
meetings, in the form of shares of the Company's common stock instead of cash.
The Company issued 6,927, 6,161 and 5,035 shares under this Plan during 2000,
1999 and 1998. The expense related to this Plan is not significant.
Stock-Based Compensation. No compensation cost has been recognized for the
Employee Stock Purchase Plan and stock options granted under the Employee Stock
Incentive Plan, the Long-Term Stock Incentive Plan and the Non-employee Director
Stock Option Plan. Had compensation cost for the stock option plans been
determined based upon fair value at the grant date for awards under these plans,
the Company's net earnings and earnings per share would have been reduced as
follows:
2000 1999 1998
- ------------------------------ ------- ------- -------
Net earnings
As reported $70,108 $59,341 $47,263
Pro forma 65,506 55,998 45,144
Net earnings per common share
Basic as reported $ 2.31 $ 1.95 $ 1.37
Diluted as reported 2.27 1.90 1.34
Pro forma basic 2.16 1.84 1.31
Pro forma diluted 2.09 1.79 1.28
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
2000 1999 1998
- ---------------------- ---- ---- ----
Expected life in years 6.1 5.3 8.0
Interest rate 6.4% 5.1% 5.5%
Volatility 44.5% 43.5% 40.2%
Dividend yield 1.8% 1.9% 1.5%
Based upon these assumptions, the weighted average fair value at grant date of
options granted in 2000, 1999 and 1998 was $8.16, $5.19 and $8.25.
The fair value of the employees' purchase rights under the Employee Stock
Purchase Plan was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
2000 1999 1998
- ---------------------- ---- ---- ----
Expected life in years 1.0 1.0 1.0
Interest rate 6.4% 5.2% 5.5%
Volatility 45.2% 43.8% 40.2%
Dividend yield 1.9% 2.0% 1.5%
The benefit of the 15 percent discount from the lesser of the fair market value
per common share on the first day and the last day of the Plan year was added to
the fair value of the employees' purchase rights determined using Black-Scholes.
The weighted average fair value per common share was $5.95, $4.08 and $5.23 in
2000, 1999 and 1998.
I. Earnings per Share
Earnings per share for all years presented has been calculated to reflect the
three-for-two stock split to be distributed February 6, 2001. The following
table sets forth the computation of basic and diluted earnings per share:
(In thousands, except per share amounts) 2000 1999 1998
- -------------------------------------------------------------------- ------- ------- -------
Numerator:
Net earnings available to common shareholders $70,108 $59,341 $47,263
------- ------- -------
Denominators:
Denominator for basic earnings per share - weighted average shares 30,407 30,372 34,412
Dilutive effect of stock options computed based on the treasury
stock method using the average market price 498 927 909
------- ------- -------
Denominator for diluted earnings per share 30,905 31,299 35,321
======= ======= =======
Basic earnings per share $ 2.31 $ 1.95 $ 1.37
======= ======= =======
Diluted earnings per share $ 2.27 $ 1.90 $ 1.34
======= ======= =======
J. 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. The Company matches employee contributions
at a 100 percent rate, up to 3 percent of the employee's compensation. Employer
contributions were $2,162,000, $2,008,000 and $1,989,000 in 2000, 1999 and 1998.
The Company's postretirement medical plan provides certain medical benefits for
retired employees. U.S. employees are eligible for these benefits upon
retirement and fulfillment of other eligibility requirements as specified by the
Plan.
The Company has non-contributory defined benefit pension plans covering
substantially all U.S. employees and directors and some of the employees of the
Company's non-U.S. subsidiaries. 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, including the Company's common
stock. The market value of the Plans' investment in the common stock of the
Company was $16,090,000 and $19,472,000 at December 29, 2000 and December 31,
1999. The following tables provide a reconciliation of the changes in the Plans'
benefit obligations and fair value of assets over the periods ending December
29, 2000 and December 31, 1999, and a statement of the funded status as of the
same dates.
Pension Benefits Other Benefits
------------------- -------------------
(In thousands) 2000 1999 2000 1999
- ------------------------------------ -------- -------- -------- --------
Reconciliation of benefit obligation
Obligation, beginning of year $102,040 $ 95,141 $ 15,430 $ 15,623
Service cost 3,733 3,517 459 482
Interest cost 6,961 6,267 1,063 995
Acquisition -- 2,671 -- --
Curtailment -- (541) -- --
Actuarial (gain) loss 211 (2,162) 537 (573)
Benefit payments (3,363) (2,853) (1,191) (1,097)
-------- -------- -------- --------
Obligation, end of year $109,582 $102,040 $ 16,298 $ 15,430
-------- -------- -------- --------
Reconciliation of fair value of plan assets
Fair value, beginning of year $135,997 $103,106 $ -- $ --
Actual return on assets 3,770 35,454 -- --
Employer contribution 412 264 1,191 1,097
Benefit payments (3,363) (2,827) (1,191) (1,097)
-------- -------- -------- --------
Fair value, end of year $136,816 $135,997 $ -- $ --
-------- -------- -------- --------
Funded status
Funded status over (under), end of year $ 27,234 $ 33,957 $(16,298) $(15,430)
Unrecognized transition (asset) obligation (64) (68) -- --
Unrecognized prior service cost 1,734 1,954 -- --
Unrecognized (gain) loss (35,946) (46,058) 645 107
-------- -------- -------- --------
Net $ (7,042) $(10,215) $(15,653) $(15,323)
======== ======== ======== ========
The following table provides the amounts included in the Statement of Financial
Position as of December 29, 2000 and December 31, 1999.
Pension Benefits Other Benefits
-------------------- -------------------
(In thousands) 2000 1999 2000 1999
- ------------------------- -------- -------- -------- --------
Accrued benefit liability $(10,018) $(10,659) $(15,653) $(15,323)
Other assets 2,976 427 -- --
-------- -------- -------- --------
Net $ (7,042) $(10,232) $(15,653) $(15,323)
======== ======== ======== ========
The components of net periodic benefit cost for the plans for 2000, 1999 and
1998 were as follows:
Pension Benefits Other Benefits
------------------------------ --------------------------
(In thousands) 2000 1999 1998 2000 1999 1998
- ------------------------------------------------ -------- -------- -------- ------ ------ ------
Service cost - benefits earned during the period $ 3,733 $ 3,517 $ 2,959 $ 459 $ 482 $ 442
Interest cost on projected benefit obligation 6,961 6,267 5,595 1,063 995 954
Expected return on assets (12,086) (11,189) (9,711) -- -- --
Amortization of transition (asset) obligation (3) (4) (3) -- -- --
Amortization of prior service cost 220 231 230 -- -- --
Amortization of net (gain) loss (2,707) (629) (1,067) -- -- --
Cost of pension plans which are not significant
and have not adopted SFAS No. 87 130 266 371 N/A N/A N/A
-------- -------- -------- ------ ------ ------
Net periodic benefit (credit) cost (3,752) (1,541) (1,626) 1,522 1,477 1,396
-------- -------- -------- ------ ------ ------
Curtailment gain -- (541) (239) -- -- --
Settlement gain -- -- (271) -- -- --
-------- -------- -------- ------ ------ ------
Net periodic benefit (credit) cost after
curtailments and settlements $ (3,752) $ (2,082) $ (2,136) $1,522 $1,477 $1,396
======== ======== ======== ====== ====== ======
The Company's retirement medical plan limits the annual cost increase that will
be paid by the Company. In measuring the Accumulated Postretirement Benefit
Obligation (APBO), a 6 percent maximum annual trend rate for healthcare costs
was assumed for the year ending December 29, 2000. This rate is assumed to
remain constant through the year 2001, decline to 5.5 percent in 2002 and 4.5
percent in 2003, and remain at that level thereafter. The other assumptions used
in the measurement of the Company's benefit obligation are shown below:
Pension Benefits Other Benefits
-------------------- --------------------
Weighted average assumptions 2000 1999 1998 2000 1999 1998
- ---------------------------- ---- ---- ---- ---- ---- ----
Discount rate 7.0% 6.5% 6.5% 7.0% 6.5% 7.0%
Expected return on assets 9.0% 11.0% 11.0% N/A N/A N/A
Rate of compensation increase 3.6% 3.6% 3.3% N/A N/A N/A
==== ==== ==== ==== ==== ====
At December 29, 2000, a 1 percent change in assumed healthcare cost trend rates
would have the following effects:
(In thousands) 1% Increase 1% Decrease
- ---------------------------------------------------------- ----------- -----------
Effect on total of service and interest cost components of
net periodic postretirement healthcare benefit cost $ 247 $ (200)
Effect on the healthcare component of the accumulated
postretirement benefit obligation $2,276 $(1,882)
----------- -----------
K. Commitments and Contingencies
Lease Commitments. Aggregate annual rental commitments at December 29, 2000,
under operating leases with non-cancelable terms of more than one year, were
$6,230,000, payable as follows:
Vehicles &
(In thousands) Buildings Equipment Total
- -------------- --------- --------- ------
2001 $1,533 $1,128 $2,661
2002 969 692 1,661
2003 930 454 1,384
2004 280 183 463
2005 46 15 61
Thereafter -- -- --
--------- --------- ------
Total $3,758 $2,472 $6,230
========= ========= ======
Total rental expense was $2,499,000 for 2000, $3,492,000 for 1999 and $3,307,000
for 1998.
Contingencies. The Company is party to various legal proceedings arising in the
normal course of business activities, none of which, in management's opinion, is
expected to have a material adverse impact on the Company's consolidated results
of operations or its financial position.
L. Acquisition
In 1999, the Company formed Graco Verfahrenstechnik which on June 1, 1999
purchased certain assets and assumed certain liabilities of Bollhoff
Verfahrenstechnik (BV), located in Bielefeld, Germany. BV designed, manufactured
and sold fluid application equipment for industrial and automotive markets,
primarily in Germany, and had 1998 sales of approximately $20 million.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information under the heading "Executive Officers of the Company" in Part I
of this 2000 Annual Report on Form 10-K and the information under the headings
"Election of Directors, Nominees and Other Directors" on pages 2 through 4 and
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" on
page 15, of the Company's Proxy Statement for its 2001 Annual Meeting of
Shareholders, to be held on May 1, 2001 (the "Proxy Statement"), is incorporated
herein by reference.
Item 11. Executive Compensation
The information contained under the heading "Executive Compensation" on pages 6
through 13 of the Proxy Statement is incorporated herein by reference, other
than the subsection thereunder entitled "Report of the Management Organization
and Compensation Committee" and "Comparative Stock Performance Graph."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Beneficial Ownership of Shares" on
pages 14 through 15 of the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the heading "Certain Business Relationships" on page 14 of
the Company's Proxy Statement for its 2001 Annual Meeting of Shareholders, to be
held on May 1, 2001 (the "Proxy Statement"), is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, 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
----
o Schedule II - Valuation and Qualifying Accounts..............31
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).............................................33
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 thirteen weeks ended
December 29, 2000.
(c) Exhibit Index ....................................................33
Schedule II - Valuation and Qualifying Accounts
Graco Inc. and Subsidiaries
Additions
Balance at charged to Deductions Change<F3> Balance
beginning costs and From Add at end of
Description of year expenses Reserves (Deduct) end of year
- ----------------------------------- ----------- ---------- ---------- -------- -----------
Year ended December 29, 2000:
Allowance for doubtful accounts $2,500 $ 100 $ 300<F1> $2,300
Allowance for returns and credits 2,000 7,300 6,900<F2> 2,400
----------- ---------- ---------- -------- -----------
$4,500 $7,400 $7,200 $4,700
----------- ---------- ---------- -------- -----------
Year ended December 31, 1999:
Allowance for doubtful accounts $2,600 $ 300 $ 600<F1> $200 $2,500
Allowance for returns and credits 1,800 6,000 5,800<F2> 2,000
----------- ---------- ---------- -------- -----------
$4,400 $6,300 $6,400 $200 $4,500
=========== ========== ========== ======== ===========
Year ended December 25, 1998:
Allowance for doubtful accounts $2,200 $ 900 $ 500<F1> $2,600
Allowance for returns and credits 1,900 3,400 3,500<F2> 1,800
----------- ---------- ---------- -------- -----------
$4,100 $4,300 $4,000 $4,400
=========== ========== ========== ======== ===========
<FN>
<F1>
1 Accounts determined to be uncollectible and charged against reserve, net of
collections on accounts previously charged against reserves.
<F2>
2 Credits issued and returns processed.
<F3>
3 Assumed or established in connection with acquisition.
</FN>
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.
/s/GEORGE ARISTIDES March 16, 2001
------------------- --------------
George Aristides
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.
/s/GEORGE ARISTIDES March 16, 2001
------------------- --------------
George Aristides
Chief Executive Officer
(Principal Executive Officer)
/s/MARK W. SHEAHAN March 16, 2001
------------------ --------------
Mark W. Sheahan
Vice President and Treasurer
(Principal Financial Officer)
/s/JAMES A. GRANER March 16, 2001
------------------ --------------
James A. Graner
Vice President and Controller
(Principal Accounting Officer)
D. A. Koch Director, Chairman of the Board
G. Aristides Director
R. O. Baukol Director
R. G. Bohn Director
W. J. Carroll Director
D. D. Johnson Director
L. R. Mitau Director
M. A.M. Morfitt Director
M. H. Rauenhorst Director
J. L. Scott Director
W. G. Van Dyke Director
George Aristides, 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.
/s/GEORGE ARISTIDES March 16, 2001
------------------- --------------
George Aristides
(For himself and as attorney-in-fact)
Exhibit Index
Exhibit
Number Description
------- -----------
3.1 Restated Articles of Incorporation as amended December 8,
2000.
3.2 Restated Bylaws as amended September 29, 2000.
4.1 Rights Agreement dated as of February 25, 2000, 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 4 to the Company's Report on Form 8-K
dated February 25, 2000.)
4.2 Credit Agreement dated July 2, 1998, between the Company and
U.S. Bank National Association, as Agent for a combination of
banks. (Incorporated by reference to Exhibit 4 to the
Company's Report on Form 10-Q for the thirty-nine weeks ended
September 25, 1998.)
4.3 Amendment dated August 31, 1999 to Credit Agreement dated June
26, 1998 between the Company and Wachovia Bank, N.A.
(Incorporated by reference to Exhibit 4 to the Company's
Report on Form 10-Q for the thirty-nine weeks ended September
24, 1999.)
*10.1 2000 Corporate and Business Unit Annual Bonus Plan.
(Incorporated by reference to Exhibit 10 to the Company's
Report on Form 10-Q for the thirteen weeks ended March 31,
2000.)
*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.) Amendment 1 dated
September 1, 1996. (Incorporated by reference to the Company's
Report on Form 10-Q for the twenty-six weeks ended June 27,
1997.)
*10.3 Executive Deferred Compensation Agreement. Form of
supplementary agreement entered into by the Company which
provides a retirement benefit to selected 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 Long Term Stock Incentive Plan, as amended and restated
December 10, 1999. (Incorporated by reference to Exhibit 10.5
to the Company's 1999 Annual Report on Form 10-K.)
*10.6 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.)
*10.7 Restoration Plan 1998 Restatement. (Incorporated by reference
to Exhibit 10.8 to the Company's 1997 Annual Report on Form
10-K.)
*10.8 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 10.3 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
July 1, 1994.)
*10.9 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.
(Incorporated by reference to Exhibit 10.16 to the Company's
1994 Annual Report on Form 10-K.)
*10.10 Stock Option Agreement. Form of agreement used for award of
non-incentive stock option to one executive officer, dated
December 15, 1995. (Incorporated by reference to Exhibit 10.18
to the Company's 1995 Annual Report on Form 10-K.)
*10.11 Form of salary protection arrangement between the Company and
executive officers. (Incorporated by reference to Exhibit
10.21 to the Company's 1995 Annual Report on Form 10-K.)
*10.12 Non-employee Director Stock Option Plan, as amended and
restated November 6, 1997. (Incorporated by reference to
Exhibit 10.18 to the Company's 1997 Annual Report on Form
10-K.)
*10.13 Stock Option Agreement. Form of agreement used for award of
nonstatutory stock options to non-employee directors, dated
May 7, 1996. (Incorporated by reference to Exhibit 10.4 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
June 28, 1996.)
*10.14 Stock Option Agreement Amendment. Form of amendment, dated
March 8, 1997, used to remove alternative stock appreciation
right from incentive stock option agreement dated February 25,
1993, for selected officers. (Incorporated by reference to
Exhibit 10.25 to the Company's 1996 Annual Report on Form
10-K.)
*10.15 Stock Option Agreement Amendment. Form of amendment, dated
March 8, 1997, used to remove alternative stock appreciation
right from non-incentive stock option agreement dated May 4,
1993, for selected officers. (Incorporated by reference to
Exhibit 10.26 to the Company's 1996 Annual Report on Form
10-K.)
*10.16 Key Employee Agreement. Form of agreement with officers and
other key employees relating to change of control, dated April
2, 1997. (Incorporated by reference to Exhibit 10.1 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
June 27, 1997.)
*10.17 Stock Option Agreement Amendment. Form of amendment, dated
April 14, 1997, used to add change of control provision to
non-incentive stock options to executive officer dated May 2,
1994, March 1, 1995 and March 1, 1996. (Incorporated by
reference to Exhibit 10.6 to the Company's Report on Form 10-Q
for the twenty-six weeks ended June 27, 1997.)
*10.18 Stock Option Agreement Amendment. Form of amendment, dated
April 14, 1997, used to add change of control provision to
non-incentive stock options to selected officers dated
December 15, 1994. (Incorporated by reference to Exhibit 10.7
to the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.19 Stock Option Agreement Amendment. Form of amendment, dated
April 14, 1997, used to add change of control provision to
non-incentive stock options to one executive officer dated
December 15, 1995. (Incorporated by reference to Exhibit 10.8
to the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.20 Stock Option Agreement. Form of agreement used for award of
non-incentive stock option to one executive officer, dated
April 23, 1997. (Incorporated by reference to Exhibit 10.9 to
the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.21 Stock Option Agreement. Form of agreement used for award of
nonstatutory stock options to non-employee directors, dated
May 6, 1997. (Incorporated by reference to Exhibit 10.10 to
the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.22 Executive Long Term Incentive Agreement. Form of restricted
stock award agreement used for award to one executive officer,
dated May 6, 1997. (Incorporated by reference to Exhibit 10.11
to the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.23 Stock Option Agreement. Form of agreement used for award of
non-incentive stock option to two executive officers, dated
May 6, 1997. (Incorporated by reference to Exhibit 10.12 to
the Company's Report on Form 10-Q for the twenty-six weeks
ended June 27, 1997.)
*10.24 Stock Option Agreement. Form of agreement used for award of
nonstatutory stock options to non-employee director, dated
September 5, 1997. (Incorporated by reference to Exhibit 10.1
to the Company's Report on Form 10-Q for the thirty-nine weeks
ended September 26, 1997.)
*10.25 Trust Agreement dated September 30, 1997, between the Company
and Norwest Bank Minnesota, N.A. (Incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q for the
thirty-nine weeks ended September 26, 1997.)
*10.26 Key Employee Agreement Amendment. Form of amendment dated
January 9, 1998, revising payment reduction provisions.
(Incorporated by reference to Exhibit 10.33 to the Company's
1997 Annual Report on Form 10-K.)
*10.27 Non-employee Director Stock Plan, as amended and restated June
18, 1999. (Incorporated by reference to Exhibit 10 to the
Company's Report on Form 10-Q for the twenty-six weeks ended
June 25, 1999.)
*10.28 Retirement and Release Agreement between Clayton R. Carter and
the Company dated June 26, 1999. (Incorporated by reference to
Exhibit 10 to the Company's Report on Form 10-Q for the
thirty-nine weeks ended September 24, 1999.)
*10.29 Separation and Release Agreement between Roger L. King and the
Company dated August 10, 1999. (Incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q for the
thirty-nine weeks ended September 24, 1999.)
*10.30 Separation and Release Agreement between James A. Earnshaw and
the Company dated December 31, 1999. (Incorporated by
reference to Exhibit 10.30 to the Company's 1999 Annual Report
on Form 10-K.)
*10.31 Stock Option Agreement. Form of agreement under the Long Term
Stock Incentive Plan dated December 12, 1997. (Incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q
for the thirteen weeks ended March 26, 1999.)
*10.32 Executive Long Term Incentive Agreement between the Company
and one executive officer dated February 22, 1999.
(Incorporated by reference to Exhibit 10.2 to the Company's
Report on Form 10-Q for the thirteen weeks ended March 26,
1999.)
*10.33 Key Employee Agreement between the Company and one executive
officer dated March 1, 1999. (Incorporated by reference to
Exhibit 10.3 to the Company's Report on Form 10-Q for the
thirteen weeks ended March 26, 1999.)
*10.34 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer, dated
March 1, 1999. (Incorporated by reference to Exhibit 10.4 to
the Company's Report on Form 10-Q for the thirteen weeks ended
March 26, 1999.)
*10.35 Executive Officer Annual Incentive Bonus Plan. (Incorporated
by reference to Exhibit 10.35 to the Company's 1999 Annual
Report on Form 10-K.)
*10.36 Stock Option Agreement. Form of agreement under the Long Term
Stock Incentive Plan dated December 12, 1997. (Incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q
for the thirteen weeks ended March 31, 2000.)
*10.37 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 9, 2000. (Incorporated by reference to Exhibit 10.2
to the Company's Report on Form 10-Q for the thirteen weeks
ended March 31, 2000.)
*10.38 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 24, 2000. (Incorporated by reference to Exhibit 10.3
to the Company's Report on Form 10-Q for the thirteen weeks
ended March 31, 2000.)
*10.39 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 23, 2001.
*10.40 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to one executive officer dated
February 23, 2001.
*10.41 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to selected officers, dated
February 23, 2001.
11 Statement of Computation of Earnings per share included in
Note I on page 27.
21 Subsidiaries of the Registrant included herein on page 37.
23 Independent Auditors' Consent included herein on page 37.
24 Power of Attorney included herein on page 38.
99 Cautionary Statement Regarding Forward-Looking Statements.
*Management Contracts, Compensatory Plans or Arrangements.
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 as exhibits because the amount of debt authorized
under any such instrument does not exceed 10 percent of the total assets of the
Company and its subsidiaries. The Company agrees to furnish copies thereof to
the Securities and Exchange Commission upon request.
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
---------------------------- ------------ --------------------
Equipos Graco Argentina S.A. Argentina 100%*
Graco Barbados FSC Limited Barbados 100%
Graco Canada Inc. Canada 100%
Graco do Brasil Limitada Brazil 100%*
Graco Europe N.V. Belgium 100%*
Graco GmbH Germany 100%
Graco Hong Kong Limited Hong Kong 100%*
Graco K.K. Japan 100%
Graco Korea Inc. Korea 100%
Graco Limited England 100%*
Graco Minnesota Inc. United States 100%
Graco N.V. Belgium 100%*
Graco S.A.S. France 100%
Graco South Dakota Inc. United States 100%***
Graco S.r.l. Italy 100%*
Graco Verfahrenstechnik GmbH Germany 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.
** Shares 100% held by Graco N.V.
***Shares 100% held by Graco Minnesota Inc.
Exhibit 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statements No.
333-17691, No. 333-17787, No. 33-54205, No. 333-03459, and No. 333-7530 on Form
S-8 of our report dated January 22, 2001, appearing in this Annual Report on
Form 10-K of Graco Inc. for the year ended December 29, 2000.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Minneapolis, Minnesota
March 16, 2001
Exhibit 24
Power of Attorney
Know all by these presents, that each person whose signature appears below
hereby constitutes and appoints George Aristides or Mark W. Sheahan, that
person's true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for that person and in that person's name, place
and stead, in any and all capacities, to sign the Report on Form 10-K for the
year ended December 29, 2000, 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 that person 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
------------------
/s/G. Aristides February 23, 2001
- --------------------------------- ------------------
G. Aristides
/s/R. O. Baukol February 23, 2001
- --------------------------------- ------------------
R. O. Baukol
/s/R. G. Bohn February 23, 2001
- --------------------------------- ------------------
R. G. Bohn
/s/W. J. Carroll February 23, 2001
- --------------------------------- ------------------
W. J. Carroll
/s/J. K. Gilligan February 23, 2001
- --------------------------------- ------------------
J. K. Gilligan
/s/D. D. Johnson February 23, 2001
- --------------------------------- ------------------
D. D. Johnson
/s/D. A. Koch February 23, 2001
- --------------------------------- ------------------
D. A. Koch
/s/L. R. Mitau February 23, 2001
- --------------------------------- ------------------
L. R. Mitau
/s/M. A.M. Morfitt February 23, 2001
- --------------------------------- ------------------
M. A.M. Morfitt
/s/M. H. Rauenhorst February 23, 2001
- --------------------------------- ------------------
M. H. Rauenhorst
/s/J. L. Scott February 23, 2001
- --------------------------------- ------------------
J. L. Scott
/s/W. G. Van Dyke February 23, 2001
- --------------------------------- ------------------
W. G. Van Dyke