UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995.
Commission File Number: 1-9249
GRACO INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
(State of incorporation) (I.R.S. Employer Identification Number)
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422
(Address of principal executive offices) (Zip Code)
(612) 623-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
11,489,516 common shares were outstanding as of March 31, 1995.
GRACO INC. AND SUBSIDIARIES
INDEX
Page Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
Stock Option Agreement (Non-ISO) Exhibit 10
Computation of Net Earnings per Common Share Exhibit 11
Financial Data Schedule Exhibit 27
2
PART I
GRACO INC. AND SUBSIDIARIES
Item 1.
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Thirteen Weeks Ended
March 31, 1995 April 1, 1994
(In thousands except per share amounts)
Net sales $95,527 $80,930
Cost of products sold 49,000 42,494
Gross profit 46,527 38,436
Product development 3,921 3,556
Selling 21,690 22,299
General and administrative 11,100 9,488
Operating profit 9,816 3,093
Interest expense 684 368
Other expense, net 396 39
Earnings before income taxes 8,736 2,686
Income taxes 3,300 850
Net earnings $5,436 $1,836
Net earnings per common share $0.47 $0.16
Cash dividend per common share $0.16 $0.14
See notes to consolidated financial statements.
3
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1995 December 31, 1994
ASSETS
(In thousands)
Current Assets:
Cash and cash equivalents $809 $2,444
Accounts receivable, less allowances of
$5,167 and $4,700 80,097 75,589
Inventories 54,589 50,529
Deferred income taxes 12,086 11,755
Other current assets 2,799 3,628
Total current assets 150,380 143,945
Property, plant and equipment:
Cost 151,774 145,164
Less accumulated depreciation (77,767) (75,124)
74,007 70,040
Other assets 14,590 14,400
$238,977 $228,385
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $21,706 $11,675
Current portion of long-term debt 5,916 5,685
Trade accounts payable 17,588 19,764
Dividends payable 1,820 1,857
Income taxes payable 7,943 5,761
Other current liabilities 40,426 44,798
Total current liabilities 95,399 89,540
Long-term debt, less current portion above 24,460 26,798
Retirement benefits and deferred compensation 31,233 30,196
Shareholders' equity:
Preferred stock 1,474 1,485
Common stock 11,495 11,366
Additional paid-in capital 20,242 18,289
Retained earnings 54,270 50,702
Other, net 404 9
87,885 81,851
$238,977 $228,385
See notes to consolidated financial statements.
4
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Ended
March 31, 1995 April 1, 1994
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net earnings $5,436 $1,836
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,282 2,600
Deferred income taxes (292) (340)
Change in:
Accounts receivable (3,044) (5,213)
Inventories (3,848) (6,231)
Trade accounts payable (2,405) (1,216)
Accrued salaries (3,770) (2,154)
Retirement benefits and deferred compensation 1,342 938
Other accrued liabilities 671 (1,747)
Other 1,297 (852)
(1,331) (12,379)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (7,526) (2,711)
Proceeds from sale of property, plant, and equipment 322 123
Purchases of marketable securities 0 (5,464)
Proceeds from marketable securities 0 31,450
(7,204) 23,398
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 33,557 10,155
Payments on notes payable (23,739) (1,053)
Payments on long-term debt (2,210) 0
Common stock issued 2,071 2,663
Cash dividends paid (1,905) (32,829)
7,774 (21,064)
Effect of exchange rate changes on cash (874) 66
Net decrease in cash and cash equivalents (1,635) (9,979)
Cash and cash equivalents:
Beginning of year 2,444 11,095
End of period $809 $1,116
See notes to consolidated financial statements.
5
GRACO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of March 31, 1995, the
consolidated statements of earnings for the thirteen weeks ended
March 31, 1995, and April 1, 1994, and the consolidated statements
of cash flows for the thirteen weeks then ended have been prepared
by the Company without being audited.
In the opinion of management, these consolidated statements
reflect all adjustments necessary to present fairly the financial
position of Graco Inc. at March 31, 1995, and April 1, 1994,
and the results of operations and cash flows for all periods
presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
Therefore, these statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
1994 Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal
year.
2. Major components of inventories were as follows:
Mar. 31, 1995 DEC. 30, 1994
Finished products and components $50,406 $46,694
Products and components in
various stages of completion 28,086 24,826
Raw materials 11,169 13,918
Reduction to LIFO cost (35,072) (34,909)
$54,589 $50,529
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Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net earnings in the first quarter of $5,436,000 increased
$3,600,000 from the same period a year ago as the Company
continues to have strong sales in the Americas and growth in
Europe and in most of the Pacific, despite the economic downturn
in Japan. In addition to increased sales, gross margin levels
have improved from 1994 and operating expenses as a percent of
sales have declined due primarily to cost reduction efforts taken
in 1994.
Sales in the first quarter of $95,527,000 increased $14,597,000,
or 18 percent, from the same period in 1994. Sales in the
Americas increased 11 percent to $65,115,000, and European sales
were up 35 percent to $16,242,000 (a 23 percent volume increase,
and a 12 percent gain due to exchange rates). In the Pacific
(excluding Japan), sales increased 79 percent to $8,542,000 (a 78
percent volume increase, and a gain of 1 percent on exchange
rates). In Japan, sales increased 4 percent to $ 5,628,000 (a 7
percent volume decrease offset by a gain of 11 percent on
exchange rates).
Operating expenses of $36,711,000 increased $1,368,000, or 4
percent, from the first quarter of 1994. Product development
expense increased 10 percent over 1994, as previously announced
initiatives continue. Selling expenses were 3 percent lower than
the same period last year, largely due to lower headcount levels
associated with the Company's cost reduction efforts taken in
1994. General and administrative costs were up by 17 percent,
due primarily to expense items related to increased profitability
and special charges.
The income tax rate for the quarter was 38 percent compared to 32
percent for the same period in 1994. The increase was due
primarily to foreign results effectively taxed at higher rates.
For the quarter, consolidated bookings were up 4%. Bookings were
up modestly in all regions, with the most significant improvement
in Europe. Backlog at March 31, 1995 was $28,000,000,
approximately 11 percent higher than it was on December 30, 1994
and 14 percent lower than the first quarter of 1994.
The Company expects continued strong performance in the Americas
and improved performance in Europe as the economies there
continue to strengthen. Performance in Japan remains weak. The
Company intends to continue making investments in manufacturing
efficiency and new product development, and is striving for a
more efficient global sales and marketing organization to improve
its financial performance.
Financial Condition
Cash was used for operating activities and fixed asset additions.
Accounts receivable increased $4,508,000 from the prior year-end
due to the increased sales volume, and inventories increased
$4,060,000 primarily in production. Property, plant and
equipment totaling $7,526,000 was purchased during the first
quarter.
The Company has unused lines of credit available at March 31,
1995, totaling $15 million.
7
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Stock Option Agreeement Exhibit 10
Form of Agreement used for
award of non-incentive stock
options to executive officers,
dated March 1, 1995.
Statement on Computation Exhibit 11
of Per Share Earnings
Financial Data Schedule Exhibit 27
(b) No reports on Form 8-K have been
filed during the quarter for which this
report is filed.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GRACO INC.
Date: May 11, 1995 By: /s/ David A. Koch
David A. Koch
Chairman and Chief Executive Officer
Date: May 11, 1995 By: /s/David M. Lowe
David M. Lowe
Treasurer
(Principal Financial Officer)
9