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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 27, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________ to
___________.
Commission File No. 1-9249
Graco Inc.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0285640
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4050 Olson Memorial Highway
Golden Valley, Minnesota 55422-5332
(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 7, 1997, 17,217,589 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 11,059,977 shares held by
non-affiliates of the registrant was approximately $344 million on March 7,
1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on May 6, 1997, are incorporated by reference into Part
III, as specifically set forth in said Part III.
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1
GRACO INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
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Page
Part I
Item 1 Business...........................................................3
Item 2 Properties.........................................................5
Item 3 Legal Proceedings..................................................6
Item 4 Submission of Matters to a Vote of Security Holders................6
Executive Officers of the Company..................................6
Part II
Item 5 Market for the Company's Common Stock and
Related Stockholder Matters....................................8
Item 6 Selected Financial Data............................................8
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................9
Item 8 Financial Statements and Supplementary Data.......................13
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure .......................26
Part III
Item 10 Directors and Executive Officers of the Company...................27
Item 11 Executive Compensation............................................27
Item 12 Security Ownership of Certain Beneficial Owners and Management....27
Item 13 Certain Relationships and Related Transactions....................27
Part IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K...27
Signatures ..................................................................29
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NOTE: Certain exhibits listed in the Index to Exhibits beginning on
page 27, 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
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2
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. Based in Minneapolis, Minnesota, Graco serves customers around the
world in the manufacturing, processing, construction and maintenance industries.
It designs, manufactures and markets systems, products and technology to move,
measure, control, dispense and apply a wide variety of fluids and viscous
materials. The Company helps customers solve difficult manufacturing problems,
increase productivity, improve quality, conserve energy, save expensive
material, control environmental emissions and reduce labor costs. Primary uses
of the Company's equipment include the application of coatings and finishes to
various industrial and commercial products; the mixing, metering, dispensing and
application of adhesive, sealant and chemical bonding materials; the application
of paint and other materials to architectural structures; the lubrication and
maintenance of vehicles and industrial machinery; and the transferring and
dispensing of various fluids. Graco is the successor to Gray Company, Inc.,
which was incorporated in 1926 as a manufacturer of auto lubrication equipment,
and became a public company in 1969.
It is Graco's goal to become the highest quality, lowest cost, most responsive
supplier in the world for its principal products. In working to achieve these
goals to become a world class manufacturer, Graco continues to organize its
manufacturing operations around focused factories which contain product-based
cells. Substantial investments in new manufacturing technology have reduced
cycle time and improved quality.
The Company operates in one industry segment, namely the design, manufacture,
marketing, sale and installation of systems and equipment for the handling of
fluids. Financial information concerning geographic operations and export sales
for the last three fiscal years is set forth in Note B Consolidated Financial
Statements.
Recent Developments. The David A. Koch Center, a world-class manufacturing and
global distribution facility, was opened in November 1996 in Rogers, Minnesota.
The Koch Center provides additional production capacity and enhanced
build-to-order capability for projected growth. All distribution operations
conducted by the Company at its distribution center in Brooklyn Center,
Minnesota were transferred to the new facility, together with the engineering
and manufacturing groups for the Contractor Equipment Division ("CED") and final
assembly operations for Industrial pumps. During 1996, the Company's product
development efforts resulted in the introduction of approximately 130 new
products and packages. To enhance product development efficiencies, the CED
Advanced Product Development Group headquartered in Denver, Colorado, was
consolidated with the CED Engineering Group in Minneapolis, Minnesota and the
Denver facility was closed. The application engineering, manufacturing and
customer service functions formerly performed in Franklin Park, Illinois were
moved to Minneapolis, Minnesota, in order to realize process improvements in
manufacturing and distribution and to take advantage of the enhanced technical
capabilities available at the recently expanded Russell J. Gray Technical Center
and the Franklin Park facility has closed. Graco is currently constructing a
laboratory in its Riverside facility to support the consolidation of product
development activities in Minneapolis and to provide world-class demonstration,
training, test and display capabilities. This laboratory is expected to be
completed during the second quarter of 1997.
Products. Graco manufactures a wide array of specialized pumps, applicators,
regulators, valves, meters, atomizing devices, replacement parts, and
accessories, which are used in industrial and commercial applications in the
movement, measurement, control, dispensing and application of many fluids and
semi-solids, including paints, adhesives, sealants, and lubricants. In addition,
it offers an extensive line of portable equipment which is used in construction
and maintenance businesses for the application of paint and other materials.
Graco fluid systems incorporate sophisticated paint circulating and fluid
application technology.
Commercial and industrial equipment offered by Graco includes specialized pumps,
air and airless spray units, manual finishing equipment and fluid handling
systems. A variety of pumps provide fluid pressures ranging from 20 to more than
6,000 pounds per square inch and flow rates from under 1 gallon to 140 gallons
per minute. In 1995, Graco introduced a new generation of pumps, which produce
higher pressures, have improved corrosion resistance and are easier to service
than existing products.
The Company sells accessories for use with its equipment, including hoses,
couplings, regulators, valves, filters, reels, meters, and gauges, as well as a
complete line of spray guns, tips and applicators. These accessories increase
the flexibility, efficiency and effectiveness of Graco equipment. Packings,
seals, hoses and other parts, which must be replaced periodically in order to
maintain efficiency and prevent loss of material, are also sold by the Company.
3
Sales of replacement parts and accessories have averaged 45.6 percent of the
Company's consolidated net sales and approximately 51.3 percent of gross profits
during the last three years. The following table summarizes the consolidated net
sales and gross profits (net sales less cost of products sold) by the Company's
principal product groups for that same period.
Product Group Sales and Gross Profit
(In thousands) 1996 1995 1994
------------------- ------------------- -------------------
$ % $ % $ %
-------- ----- -------- ----- -------- -----
NET SALES
Commercial and industrial equipment $207,327 52.9% $206,558 53.5% $204,584 56.8%
Accessories and replacement parts 184,429 47.1 179,756 46.5 155,429 43.2
-------- ----- -------- ----- -------- -----
$391,756 100.0% $386,314 100.0% $360,013 100.0%
======== ===== ======== ===== ======== =====
GROSS PROFIT
Commercial and industrial equipment $ 92,480 47.2% $ 90,526 47.7% $ 89,262 51.3%
Accessories and replacement parts 103,501 52.8 99,101 52.3 84,749 48.7
-------- ----- -------- ----- -------- -----
$195,981 100.0% $189,627 100.0% $174,011 100.0%
======== ===== ======== ===== ======== =====
Marketing and Distribution. Graco's operations are organized to allow its full
line of products and systems to be offered in each of its major geographic
markets: the Americas, Europe and Asia Pacific. The Industrial Equipment
Division, the Automotive Equipment Division, the Contractor Equipment Division,
and the Lubrication Equipment Division provide worldwide marketing direction and
product design and application assistance to each of these geographic markets.
Graco sells its equipment worldwide principally through independent
distributors. In Canada, Japan, Korea, and Europe, Graco equipment is sold to
distribution through sales subsidiaries. In the Americas and Europe, the Company
maintains a specialized direct sales force, which handles sales of large systems
and sales to certain corporate accounts. Manufacturers' representatives are used
with some product lines.
In 1996, Graco's net sales in the Americas were $252,615,000 or approximately 65
percent of the Company's consolidated net sales; in Europe (including the Middle
East and Africa) net sales were $78,666,000 or approximately 20 percent; and in
the Asia Pacific region, net sales were $60,475,000 or approximately 15 percent.
Consolidated backlog at December 27, 1996, was $19 million compared to $20
million at the end of 1995.
Research, Product Development and Technical Services. Graco's research,
development and engineering activities focus on new product design, product
improvements, applied engineering and strategic technologies. A dedicated
support group of application engineers and technicians also provides specialized
technical assistance to customers in the design and evaluation of fluid transfer
and application systems. It is one of Graco's financial goals to generate 30
percent of each year's sales from products introduced in the prior three years.
To achieve this goal, Graco increased its new product design and application
engineering staff, and more than doubled the size of the Russell J. Gray
Technical Center in 1995 to provide space for engineering, testing and
laboratory activities. During 1996, the CED Advanced Product Development Group,
formerly located in Denver, Colorado, was merged with the CED Engineering Group
in Minneapolis, and the Engineered Application Solutions Group from Franklin
Park, Illinois was consolidated with the Industrial Application Engineering
Group in Minneapolis to realize efficiencies in the product development and
application engineering processes. Total research and development expenditures
were $17,909,000, $15,715,000 and $14,591,000 for the 1996, 1995 and 1994 fiscal
years, respectively.
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.
4
Competition. Graco faces substantial competition in all of its markets. The
nature and extent of this competition varies in different markets due to the
diversity of the Company's products. 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. Graco
believes it is one of the world's leading producers of high-quality specialized
fluid management equipment and systems. It is impossible, because of the absence
of reliable industry-wide figures, to determine its exact relative market
position.
Environmental Protection. During the fiscal year ending December 27, 1996, the
amounts incurred to comply with federal, state and local legislation pertaining
to environmental standards did not have a material effect upon the capital
expenditures or earnings of the Company.
Employees. As of December 27, 1996, the Company employed approximately 1,997
persons on a full-time basis. Of this total, approximately 332 were employees
based outside the United States, and 800 were hourly factory workers in the
United States.
Item 2. Properties
As of December 31, 1996, the Company's principal operations that occupy more
than 10,000 square feet were conducted in the following facilities:
Type of Facility Location Square Footage
---------------- -------- --------------
Owned
-----
Distribution/Manufacturing/Office Rogers, Minnesota 324,000
Manufacturing/Office Minneapolis, Minnesota 237,600
Manufacturing/Office Minneapolis, Minnesota 207,000
Engineering/Research & Development Minneapolis, Minnesota 138,200
Engineering/Manufacturing/Office Plymouth, Michigan 106,000
Engineering/Manufacturing/Office Franklin Park, Illinois 82,000
Assembly/European Headquarters/Warehouse Maasmechelen, Belgium 75,800
Corporate Headquarters Golden Valley, Minnesota 68,000
Manufacturing/Office Sioux Falls, South Dakota 55,000
Sales Office/Warehouse Los Angeles, California 21,000
Office/Warehouse Mississauga, Ontario, Canada 20,000
Leased
------
Engineering/Office/Warehouse Yokohama, Japan (3 facilities) 48,724
Sales Office Rungis, France 46,600
Assembly/Engineering/Office/Warehouse Neuss, Germany 41,765
Technical Publications Minneapolis, Minnesota 18,200
Sales Office West Midlands, United Kingdom 16,320
Warehouse Gwangju-Gun, Korea 10,549
The David A. Koch Center, a new manufacturing and global distribution center
located in Rogers, Minnesota, was completed and occupied during the last quarter
of 1996. The facility has 324,000 square feet of space and includes office,
engineering, research and development, manufacturing, customer service and
distribution functions. Functions formerly performed in the Distribution Center
(123,800 square feet) in Brooklyn Center, Minnesota, and the Communications
Center (18,200 square feet) in Minneapolis, Minnesota, were transferred to the
Koch Center, and the leases of these facilities were terminated on December 31,
1996 and February 28, 1997, respectively.
A 21,700 square foot building in Atlanta, Georgia was sold during the last
quarter of 1996. The sale of the 82,000 square foot building in Franklin Park,
Illinois was completed February 18, 1997. The lease on the Colorado facility
(11,600 square feet) terminated on November 30, 1996, and the operations were
transferred to Minneapolis, Minnesota. The sales office in Rungis, France will
be moved to a smaller facility during the first quarter of 1997.
5
The Company leases space for subsidiary sales or liaison offices around the
world, some of which have demonstration areas and/or warehouse space.
Graco's facilities are in satisfactory condition, suitable for their respective
uses and are sufficient and adequate to meet current needs, with the recent and
planned expansions. Manufacturing capacity met business demand in 1996. Future
production requirements are expected to be met through existing production
capabilities, efficiency and productivity improvement 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 1996.
Executive Officers of the Company
The following are all the executive officers of the Company as of March 7, 1997.
There are no family relationships between any of the officers named.
David A. Koch, 66, is Chairman of the Board, a position he has held since 1985.
Prior to January 1, 1996, he was also the Chief Executive Officer of the
Company, a position he had held since 1962. He joined the Company in 1956 and
held various sales and marketing positions with the Company prior to assuming
the office of President in 1962. He has served as a director of the Company
since 1962.
George Aristides, 61, was elected President and Chief Executive Officer
effective January 1, 1996. He became President and Chief Operating Officer in
June 1993. From March 1993 to June 1993, he was Executive Vice President,
Industrial/Automotive Equipment Division, Manufacturing, Distribution and
Eurafrican Operations. From 1985 until 1993, he was Vice President,
Manufacturing Operations and Controller. 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.
Clayton R. Carter, 58, was elected Vice President, Worldwide Industrial
Equipment Division, effective December 17, 1996. From January 1, 1995, he was
Vice President, Worldwide Lubrication Equipment Division. He became Director,
Vehicle Services Division, in February 1994. He joined the Company in 1962 and
has held various sales management positions.
James A. Graner, 52, 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.
Clyde W. Hansen, 64, was elected Vice President, Human Resources and Quality
Management Systems, in December 1993. He joined the Company in 1984 as Employee
Relations Director, a position he held until his election.
John L. Heller, 60, was elected Vice President, Latin America & Developing
Markets, effective January 4, 1996. From July 1993 to December 1995, he was
Senior Vice President and General Manager - Contractor Equipment Division. He
became Vice President, Far East Operations and Latin America, in 1992. Prior to
becoming Vice President, Far East Operations in 1984, he held various management
and staff positions in sales and human resources. He joined the Company in 1972.
Roger L. King, 51, was named Vice President & General Manager, European
Operations, effective January 4, 1996. From July 1993 to December 1995, he was
Senior Vice President and General Manager - International Operations. He became
Senior Vice President and Chief Financial Officer in March 1993, and Vice
President and Treasurer in 1987. Prior to becoming Vice President, Treasurer and
Secretary in 1980, he held the position of Treasurer and Secretary and various
treasury management positions with Graco. He joined the Company in 1970.
6
David M. Lowe, 41, was elected to the position of Vice President, Worldwide
Lubrication Equipment Division, in December 1996. From February 1995 to December
1996, he was Treasurer. Prior to joining the Company, he was employed by Ecolab
Inc., where he held various positions in the Treasury Department, including
Manager-Corporate Finance; Director, Corporate Finance and most recently
Director, Corporate Development.
Robert M. Mattison, 49, was elected Vice President, General Counsel and
Secretary, in January 1992, a position which he holds today. Prior to joining
the Company, he held various legal positions with Honeywell Inc., most recently
as Associate General Counsel.
Mark W. Sheahan, 32, was elected Treasurer, effective December 17, 1996. He
joined the Company as Treasury Operations Manager in September 1995. Prior to
joining the Company, he held various positions in public accounting with KPMG
Peat Marwick LLP and Coopers & Lybrand.
Robert A. Wagner, 46, was elected Vice President, Asia Pacific, of Graco Inc.
and President, Graco K.K. effective January 1995. He became Vice President and
Treasurer, Graco Inc., in February 1994. He joined the Company in December 1991,
as Vice President, Corporate Development and Planning. Prior to joining the
Company, he was employed by Texas Instruments for nearly five years, where he
held various managerial positions, most recently as Vice President and Manager,
Corporate Development.
Thomas J. Fay, 46, was appointed to the position of Vice President, Worldwide
Automotive Equipment Division, effective January 4, 1996. During 1995, he was
Vice President, European Operations. Prior to becoming General Manager of
European Operations in March 1994, he held the position of General Manager,
Region III, in Europe. Mr. Fay joined the Company in 1984 and held various sales
management positions before moving to Europe in 1990.
Dale D. Johnson, 42, was appointed Vice President, Worldwide Contractor
Equipment Division, on December 17, 1996. Prior to becoming the Director of
Marketing in June 1996, he held various marketing and sales positions in CED. He
joined the Company in 1976.
Charles L. Rescorla, 45, is Vice President, Manufacturing & Distribution
Operations, a position to which he was appointed on January 1, 1995. Prior to
becoming the Director of Manufacturing in March 1994, he was the Director of
Engineering, Industrial Division, a position which he assumed in 1988 when he
joined the Company.
The Board of Directors elected Messrs. Koch, Aristides, Graner, Hansen, Heller,
King, Mattison and Wagner on May 7, 1996, and Messrs. Carter, Lowe and Sheahan
on December 17, 1996, all to hold office until the next annual meeting of
directors or until their successors are elected and qualify. Messrs. Fay,
Johnson and Rescorla were appointed to their positions by management effective
January 4, 1996, December 17, 1996 and January 1, 1995, respectively.
7
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
Graco Common Stock. Graco common stock is traded on the New York Stock Exchange
under the ticker symbol "GGG." As of March 7, 1997, there were 17,217,589 shares
outstanding and 1,984 common shareholders of record, with another estimated
3,100 shareholders whose stock is held by nominees or broker dealers.
Quarterly Financial Information.
(In thousands, except per share amounts)
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- ---- -------- -------- -------- --------
Net Sales $ 90,153 $ 97,099 $ 97,680 $106,824
Gross Profit 44,837 49,422 49,976 51,746
Net Earnings 5,585 10,032 10,157 10,395
Per Common Share:
Net Earnings 0.32 0.57 0.58 0.60
Dividends Declared 0.12 0.12 0.12 0.14
-------- -------- -------- --------
Stock Price (per share)
High $ 20.75 $ 21.63 $ 20.38 $ 26.00
Low 17.75 17.88 18.25 18.50
Volume (# of shares) 1,795.1 1,888.2 1,513.1 1,512.8
-------- -------- -------- --------
1995
- ----
Net Sales $ 95,527 $103,402 $ 94,797 $ 92,588
Gross Profit 46,527 51,415 46,287 45,398
Net Earnings 5,436 8,532 6,569 7,169
Per Common Share:
Net Earnings 0.31 0.49 0.37 0.41
Dividends Declared 0.11 0.11 0.11 0.12
-------- -------- -------- --------
Stock Price (per share)
High $ 16.17 $ 19.50 $ 23.17 $ 25.50
Low 13.17 16.00 17.42 20.00
Volume (# of shares) 686.9 854.1 1,530.6 1,395.0
-------- -------- -------- --------
Item 6. Selected Financial Data
Graco Inc. & Subsidiaries
(In thousands, except per share amounts) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Net Sales $391,756 $386,314 $360,013 $322,602 $320,334
Earnings Before Change in Accounting Principles 36,169 27,706 15,326 9,493 11,145
Net Earnings 36,169 27,706 15,326 9,493 5,301
-------- -------- -------- -------- --------
Per Common Share:
Earnings Before Change in Accounting Principles $ 2.07 $ 1.59 $ .88 $ .55 $ .65
Net Earnings 2.07 1.59 .88 .55 .31
-------- -------- -------- -------- --------
Total Assets $247,814 $217,833 $228,385 $216,365 $220,418
Long-term Debt (including current portion) 9,920 12,009 32,483 19,480 22,762
Redeemable Preferred Stock -- -- 1,474 1,485 1,487
-------- -------- -------- -------- --------
Cash Dividends Declared per Common Share $ 0.50 $ 0.45 $ 0.39 $ 2.15 $ 0.33
======== ======== ======== ======== ========
1 Includes the special one-time dividend of $1.80 per post-split share declared
December 17, 1993.
2 Includes Lockwood Technical, Inc. (LTI), a former wholly-owned subsidiary,
sold in 1992.
8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S REVIEW AND DISCUSSION
The following is Management's Review and Discussion and is not covered by the
Independent Auditors' Report.
Graco's net earnings of $36.2 million in 1996 are 31 percent higher than the
$27.7 million earned in 1995 and are significantly higher than the $15.3 million
recorded in 1994. The large increases in 1996 and 1995 primarily reflect a
reduced effective tax rate, enhanced profit margins, and higher sales. Operating
costs include increased product development expenditures.
The table below indicates the percentage relationship between income and expense
items included in the Consolidated Statements of Earnings for the three most
recent fiscal years and the percentage changes in those items for such years.
Revenue & Expense Item Revenue & Expense Item
As a Percentage of Net Sales Percentage Increase (Decrease)
---------------------------- ------------------------------
1996 1995 1994 1996/95 1995/94
----- ----- ----- ------- -------
Net Sales 100.0 100.0 100.0 1 7
----- ----- ----- ------- -------
Cost of Products Sold 50.0 50.9 51.7 -- 6
Product Development 4.6 4.1 4.0 14 8
Selling 21.8 22.4 25.8 (2) (7)
General & Administrative 10.1 10.9 11.2 (5) 4
----- ----- ----- ------- -------
Operating Profit 13.5 11.7 7.3 17 71
----- ----- ----- ------- -------
Interest Expense (0.2) (0.6) (0.5) (64) 21
Other Income (Expense), Net 0.1 0.2 (0.3) * *
----- ----- ----- ------- -------
Earnings Before Income Taxes 13.4 11.3 6.5 21 86
Income Taxes 4.2 4.1 2.2 5 96
----- ----- ----- ------- -------
Net Earnings 9.2 7.2 4.3 31 81
===== ===== ===== ======= =======
* Not a Meaningful Figure
NET SALES
In 1996, Graco recorded its fourth consecutive year of record net sales, posting
a 1 percent increase over 1995 to $392 million. The 1996 increase was
principally due to an increase in North American sales. Geographically, net
sales in the Americas of $253 million in 1996 increased by 6 percent when
compared to 1995. With slow economies and weak currencies during most of the
year, European sales declined 5 percent in 1996 to $79 million (a 3 percent
volume decrease and a 2 percent decline due to exchange rates). Sales in Asia
Pacific declined 7 percent in 1996 to $60 million. (Volume was flat and the
decline was due to exchange rates.)
In 1995, sales increased 7 percent over 1994, due primarily to higher worldwide
sales in all divisions except Contractor Equipment.
Periodic price increases have contributed to net sales. The Company's most
recent U.S. price increase was effective in January 1996 and represented an
average 2.5 percent increase from its January 1995 price lists. The January 1995
price change was an average 2 percent increase from April 1994 prices.
Consolidated backlog at December 27, 1996 was $19 million compared to $20
million at the end of 1995, and $25 million at the end of 1994.
9
% Increase (Decrease)
---------------------
(In thousands) 1996 1995 1994 1996/95 1995/94
- ------------------------ -------- -------- -------- ------- -------
Division Sales:
Industrial Equipment $154,866 $151,016 $136,995 3 10
Automotive Equipment 69,910 75,637 67,457 (8) 12
Contractor Equipment 124,392 118,818 121,478 5 (2)
Lubrication Equipment 42,588 40,843 34,083 4 20
-------- -------- -------- ------- -------
Consolidated $391,756 $386,314 $360,013 1 7
======== ======== ======== ======= =======
Geographic Sales:
Americas $252,615 $238,874 $241,169 6 (1)
Europe 78,666 82,552 65,888 (5) 25
Asia Pacific 60,475 64,888 52,956 (7) 23
-------- -------- -------- ------- -------
Consolidated $391,756 $386,314 $360,013 1 7
======== ======== ======== ======= =======
COST OF PRODUCTS SOLD
The cost of products sold, as a percentage of net sales, declined in 1996 to
50.0 percent from 50.9 percent in 1995. This decrease was the result of a
combination of factors, including modest price increases and improved
manufacturing efficiencies, partially offset by material and manufacturing cost
increases. In 1995, cost of products sold as a percent of net sales declined
from 51.7 percent in 1994, due to a combination of factors including modest
price increases.
OPERATING EXPENSES
Operating expenses in 1996 declined 1.0 percent from 1995, due to the impact of
lower selling and general and administrative expenses. The lower expense level
is also the result of lower non-recurring charges in 1996 when compared to 1995.
Operating expenses in 1995 declined 2.2 percent from 1994, due primarily to the
impact of Graco's worldwide cost restructuring initiatives, and reduced
restructuring charges.
Product development expenses in 1996 increased 14.0 percent over 1995 to $17.9
million. In 1995, product development costs were 7.7 percent higher than 1994
expenditures. These increases reflect Graco's commitment to expanding sales
through the development of new products.
FOREIGN CURRENCY EFFECTS
The costs of the Company's products are generally denominated in U.S. dollars,
with approximately 11 percent sourced in non-U.S. currencies. A greater
proportion of its sales, approximately 35 percent, are denominated in currencies
other than the U.S. dollar. As a result, a strengthening of the U.S. dollar
decreases sales more than costs and expenses, reducing the Company's gross and
operating profits. A weakening of the U.S. dollar has the reverse impact on the
Company's gross and operating profits. During 1996, the U.S. dollar was
generally stronger against other major currencies, and during 1995, the U.S.
dollar was generally weaker against other major currencies. Gains and losses
attributable to translating the financial statements for all non-U.S.
subsidiaries, and the gains and losses on the forward and option contracts used
to hedge these exposures, are included in Other income (expense).
The total effect of exchange rate changes on operating profits plus translation
gains and losses included in Other income (expense) decreased earnings before
income taxes by $2.7 million in 1996 when compared to 1995 and increased
earnings before income taxes by $3.5 million in 1995 when compared to 1994.
OTHER INCOME (EXPENSE)
The Company's interest expense fell in 1996, primarily reflecting a decline in
the average levels of debt during the year. This decrease in debt levels is due
to the reduction in short-term debt as operating cash flows exceeded working
capital and capital investment requirements.
10
Other income of $0.5 million in 1996 and $0.7 million in 1995, and other
expenses of $1.0 million for 1994, respectively, include, among other things,
the foreign currency translation gains and losses discussed above, a $1.5
million favorable settlement of an escrow dispute in 1996, and a $0.9 million
gain from the sale of unutilized real estate in 1995.
INCOME TAXES
The Company's net effective tax rate of 31 percent in 1996 is four percentage
points lower than the 1996 U.S. federal tax rate of 35 percent. The decrease
from the 36 percent rate in 1995 is due primarily to foreign earnings being
taxed at effective rates lower than the U.S. rate from the utilization of prior
net operating losses. The effective tax rate of 36 percent in 1995 was higher
than the 1994 rate of 35 percent principally due to the reduced relative effect
of U.S. business tax credits. Detailed reconciliations of the U.S. federal tax
rate to the effective rates for 1996, 1995, and 1994 are discussed in Note D to
the Consolidated Financial Statements.
EARNINGS
In 1996, earnings increased by 31 percent to $36.2 million, or $2.07 per share
as compared to 1995, when earnings increased by 81 percent to $27.7 million or
$1.59 per share as compared to 1994.
ACCOUNTING CHANGES
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock Based Compensation" in 1996. Refer to Notes A and H
to the Consolidated Financial Statements for more detailed information.
OUTLOOK
Graco anticipates higher sales in 1997, driven primarily by continued new
product introductions, an improved worldwide distribution network, satisfactory
economic conditions in North America and Europe, and robust growth in the Asia
Pacific region other than Japan, which remains stagnant.
Graco has undertaken a number of restructuring efforts in recent years that have
improved operating margins and net profit. It is anticipated that these efforts
will continue to have a favorable impact on margins and profits in 1997. The
Company is looking for additional opportunities to improve operating efficiency.
Currency fluctuations, especially the strength of the U.S. dollar relative to
other major currencies, may have an impact on operating margins. In 1997, Graco
anticipates a higher effective tax rate.
SAFE HARBOR CAUTIONARY STATEMENT
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 Report on Form 10-K for fiscal year
1996.
11
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:
- - a three-for-two stock split paid in 1996;
- - repurchase of 406,000 shares in 1996;
- - a 17 percent increase in the regular dividend in 1996;
- - a 13 percent increase in the regular dividend in 1995;
- - a 14 percent increase in the regular dividend in 1994.
ASSETS
The following table highlights several key measures of asset performance.
(in thousands) 1996 1995
- ------------------------------------ ------- -------
Cash and Cash Equivalents $ 6,535 $ 1,643
Working Capital $63,884 $56,899
Current Ratio 1.8 1.8
Average Days Receivables Outstanding 75 73
Inventory Turnover 4.7 4.3
Average inventory balances decreased during 1996 when compared to 1995; however,
year-end inventory was flat at $41.5 million. Accounts receivable increased 14.0
percent to $83.5 million. The increase is primarily due to a combination of
factors, including higher fourth quarter consolidated sales.
LIABILITIES
At the end of 1996, the Company's long-term debt (including the current portion
thereof) was 7.3 percent of total capital (long-term debt plus shareholders'
equity) compared to 10.4 percent in 1995. The Company's total debt (notes
payable to banks plus long-term debt including the current portion thereof) as a
percentage of capital fell to 9.8 percent at the end of 1996, down from 14.1
percent in 1995. The Company had $66.7 million in unused credit lines available
at December 27, 1996. The Company believes that available lines plus operating
cash flows are adequate to fund its short and long-term initiatives.
SHAREHOLDERS' EQUITY
Shareholders' equity totaled $126.1 million on December 27, 1996, $22.5 million
higher than 1995.
CASH FLOWS FROM OPERATING ACTIVITIES
During 1996, the Company's operating cash flow of $48.6 million was slightly
lower than 1995 due to changes in working capital requirements. Cash flow from
operating activities in 1995 was $51.7 million, $43.1 million higher than the
$8.6 million recorded in 1994.
Cash flows from operating activities have been, and are expected to be, the
principal source of funds required for future additions to property, plant, and
equipment, and working capital, as well as for other corporate purposes.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures were $30.0 million in 1996, $19.8 million in 1995, and
$23.1 million in 1994. These expenditures have enhanced the Company's
engineering and manufacturing capabilities, improved product quality, increased
capacity, and lowered costs. Substantial expenditures in 1996 included the
construction of the David A. Koch Center located in Rogers, Minnesota, and the
addition of manufacturing equipment.
12
The Company expects to spend in excess of $20 million on capital improvements in
1997. Capital expenditures in 1997 will include manufacturing equipment, and
cellular manufacturing and information systems initiatives.
CASH FLOWS FROM FINANCING ACTIVITIES
The amount of common stock issued represents the funds received for shares sold
through the Company's Dividend Reinvestment Plan, its Employee Stock Purchase
Plan, and the distribution of shares pursuant to its Long Term Stock Incentive
Plan, more fully described in Note H to the Consolidated Financial Statements.
Graco offers an Automatic Dividend Reinvestment Plan, which gives shareholders a
simple and convenient way to reinvest quarterly cash dividends in additional
shares of Graco common stock. Brokerage and service charges are paid by the
Company.
All Graco employees in the U.S. participate in the Graco Employee Stock
Ownership Plan (ESOP). The final distribution of common shares from the ESOP
will be made to eligible U.S. employees in 1997. Eligible employees may also
purchase Graco common stock through the Company's Employee Stock Purchase Plan.
From time to time, the Company may make open market purchases of its common
shares. On February 23, 1996, the Company's Board of Directors authorized
management to repurchase up to 800,000 shares for a period ending on February
28, 1998. In 1996, under this repurchase program, the Company repurchased
406,000 shares at an average price per share of $19.99.
Graco is currently paying 14 cents per share as its regular quarterly dividend.
Annual cash dividends paid on the Company's common and preferred stock, were
$8.3 million in 1996, $7.5 million in 1995, and $37.7 million in 1994 (including
a special one-time dividend of $31.2 million paid on March 21, 1994). The
Company expects to continue paying regular quarterly dividends to its common
shareholders at amounts which will be adjusted periodically to reflect earnings
performance and management expectations.
During 1996, debt was reduced by $2.4 million. Debt was reduced by $27.1 million
in 1995, reflecting strong cash flows from operations attributable to higher net
income and lower working capital requirements.
In 1995, the Company redeemed all of its 5 percent cumulative preferred stock
for approximately $1.5 million.
Item 8. Financial Statements and Supplementary Data
Page
o Responsibility for Financial Reporting 14
o Independent Auditors' Report 14
o Consolidated Statements of Earnings for fiscal years 1996, 1995,
and 1994 15
o Consolidated Statements of Changes in Shareholders' Equity Accounts
(See Footnote F, Notes to Consolidated Financial Statements) 22
o Consolidated Balance Sheets for fiscal years 1996 and 1995 16
o Consolidated Statements of Cash Flows for fiscal years 1996, 1995,
and 1994 17
o Notes to Consolidated Financial Statements 18
o Selected Quarterly Financial Data (See Part II, Item 5, Market
for the Company's Common Stock and Related Stockholder Matters) 8
13
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 controls 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 27, 1996 and December 29, 1995, and
the related statements of earnings and cash flows for each of the three years in
the period ended December 27, 1996. Our audit 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 generally accepted auditing
standards. 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 27, 1996 and December 29, 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 27,
1996 in conformity with generally accepted accounting principles. 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.
Deloitte & Touche LLP
Minneapolis, Minnesota
January 20, 1997
14
CONSOLIDATED STATEMENTS OF EARNINGS GRACO INC. & Subsidiaries
Years Ended
-----------
December 27, December 29, December 30,
(In thousands, except per share amounts) 1996 1995 1994
- ---------------------------------------- ------------ ------------ ------------
Net Sales .................................................. $ 391,756 $ 386,314 $ 360,013
Cost of products sold .................................... 195,775 196,687 186,002
------------ ------------ ------------
Gross Profit ............................................... 195,981 189,627 174,011
Product development ...................................... 17,909 15,715 14,591
Selling .................................................. 85,281 86,634 92,752
General and administrative ............................... 39,734 42,044 40,279
------------ ------------ ------------
Operating Profit ........................................... 53,057 45,234 26,389
Interest expense ......................................... (831) (2,335) (1,923)
Other income (expense), net .............................. 543 657 (1,040)
------------ ------------ ------------
Earnings before Income Taxes ............................... 52,769 43,556 23,426
Income taxes ............................................. 16,600 15,850 8,100
------------ ------------ ------------
Net Earnings ............................................... $ 36,169 $ 27,706 $ 15,326
============ ============ ============
Net Earnings Per Common Share .............................. $ 2.07 $ 1.59 $ .88
============ ============ ============
See Notes to Consolidated Financial Statements
15
CONSOLIDATED BALANCE SHEETS GRACO INC. & Subsidiaries
December 27, December 29,
(In thousands, except share amounts) 1996 1995
- ------------------------------------ ------------ ------------
Assets
Current Assets:
Cash and cash equivalents .......................................................... $ 6,535 $ 1,643
Accounts receivable, less allowances of $4,700 in 1996 and $4,800 in 1995........... 83,474 73,205
Inventories ........................................................................ 41,531 41,693
Deferred income taxes, net ......................................................... 11,633 10,608
Other current assets ............................................................... 1,321 1,333
------------ ------------
Total current assets .............................................................. 144,494 128,482
Property, Plant and Equipment, at Cost:
Land ............................................................................... 5,227 3,502
Buildings and improvements ......................................................... 63,213 50,534
Manufacturing equipment ............................................................ 82,544 71,437
Office, warehouse and automotive equipment ......................................... 31,049 28,578
Construction in progress ........................................................... 1,052 2,117
------------ ------------
Total property, plant and equipment, at cost ...................................... 183,085 156,168
Accumulated depreciation ........................................................... (88,913) (79,310)
------------ ------------
Net property, plant and equipment ................................................. 94,172 76,858
Other Assets ......................................................................... 9,148 12,493
$247,814 $217,833
============ ============
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable to banks ............................................................. $ 3,813 $ 5,051
Current portion of long-term debt .................................................. 1,845 1,935
Trade accounts payable ............................................................. 13,854 13,849
Salaries, wages and commissions .................................................... 14,808 14,260
Accrued insurance liabilities ...................................................... 10,925 10,792
Income taxes payable ............................................................... 4,647 4,229
Other current liabilities .......................................................... 30,718 21,467
------------ ------------
Total current liabilities ......................................................... 80,610 71,583
Long-term Debt, less current portion ................................................. 8,075 10,074
Retirement Benefits and Deferred Compensation ........................................ 33,079 32,605
Commitments and Contingencies (Note J)
Shareholders' Equity
Common stock, $1 par value; 22,500,000 shares authorized;
shares outstanding, 17,047,166 and 17,264,509, in 1996
and 1995, respectively ............................................................ 17,047 17,265
Additional paid-in capital ......................................................... 22,254 20,397
Retained earnings .................................................................. 85,232 64,949
Other, net ......................................................................... 1,517 960
------------ ------------
Total shareholders' equity ........................................................ 126,050 103,571
------------ ------------
$247,814 $217,833
============ ============
See Notes to Consolidated Financial Statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS GRACO INC. & Subsidiaries
Years Ended
--------------------------------------------------
December 27, December 29, December 30,
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------- ------------ ------------ ------------
Cash Flows from Operating Activities:
Net earnings ............................................................ $ 36,169 $ 27,706 $ 15,326
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ....................................... 12,658 11,082 10,447
Deferred income taxes ............................................... 781 1,938 (4,042)
Change in:
Accounts receivable ............................................... (10,192) 4,499 (10,806)
Inventories ....................................................... (394) 9,693 (13,967)
Trade accounts payable ............................................ 459 (6,193) 2,358
Salaries, wages and commissions ................................... 1,081 999 1,439
Retirement benefits and deferred compensation ..................... 928 2,448
1,670
Other accrued liabilities ......................................... 6,963 (3,417) 6,858
Other ............................................................. 148 2,955 (696)
------------ ------------ ------------
48,601 51,710 8,587
------------ ------------ ------------
Cash Flows from Investing Activities:
Property, plant and equipment additions ................................. (30,038) (19,848) (23,100)
Proceeds from sale of property, plant and equipment ..................... 1,058 3,036 693
Purchases of marketable securities ...................................... -- -- (5,464)
Proceeds from sales of marketable securities ............................ -- -- 31,809
------------ ------------ ------------
(28,980) (16,812) 3,938
------------ ------------ ------------
Cash Flows from Financing Activities:
Borrowing on notes payable and lines of credit........................... 15,890 44,248 10,411
Payments on notes payable and lines of credit............................ (16,657) (50,927) (2,395)
Proceeds from long-term debt ............................................ -- -- 16,632
Payments on long-term debt .............................................. (1,652) (20,333) (5,380)
Common stock issued ..................................................... 2,525 2,485 3,102
Retirement of common and preferred stock ................................ (8,115) (1,547) (4,564)
Cash dividends paid ..................................................... (8,344) (7,490) (37,732)
------------ ------------ ------------
(16,353) (33,564) (19,926)
------------ ------------ ------------
Effect of exchange rate changes on cash ................................... 1,624 (2,135) (1,250)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ...................... 4,892 (801) (8,651)
Cash and cash equivalents
Beginning of year ....................................................... 1,643 2,444 11,095
------------ ------------ ------------
End of year ............................................................. $ 6,535 $ 1,643 $ 2,444
============ ============ ============
See Notes to Consolidated Financial Statements.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GRACO INC. & Subsidiaries
Years Ended December 27, 1996, December 29, 1995, and December 30, 1994
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.
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 27, 1996, all
subsidiaries are 100 percent owned. Subsidiaries outside North America have been
included principally on the basis of fiscal years ended November 30 to effect
more timely consolidated financial reporting. The U.S. dollar is the functional
currency for all foreign subsidiaries.
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 and 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.
Currenty Hedges. 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. Consistent with financial reporting
requirements, these hedges and net monetary positions are recorded at current
market values and the gains and losses are included in Other income (expense).
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 indictative of credit or
market risk) of such contracts were (in U.S. dollars) $9,322,000 and $10,226,000
at December 27, 1996 and December 29, 1995, respectively.
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 3 to 10 years Manufacturing equipment and tooling 3 to 10
years Office, warehouse and automotive equipment4 to 10 years
Revenue Recognition. Revenue is recognized on large contracted systems using the
percentage-of-completion method of accounting. The Company recognizes revenue on
other products when title passes, which is usually upon shipment.
Earnings Per Common Share. Earnings per common share are computed on earnings
reduced by dividend requirements on preferred stock and based upon the weighted
average number of common shares and common equivalent shares, consisting of the
dilutive effect of stock options outstanding during each year. Earnings per
common share assuming full dilution are substantially the same.
Stock Based Compensation. Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995
and requires companies to measure employee stock compensation plans based on the
fair value method of accounting. However, the statement allows the alternative
of continued use of Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," with pro forma disclosure of net
income and earnings per share determined as if the fair value method had been
applied in measuring compensation cost. The Company adopted SFAS No. 123 in 1996
and elected the continued use of APB No. 25.
18
B. Industry Segment and Foreign Operations
The Company operates in one industry segment, namely, the design, manufacture,
marketing, sale and installation of systems and equipment for the management of
fluids.
The Company's operations by geographical area for the last three years are shown
below.
(In thousands) 1996 1995 1994
- ----------------------------------------------------- --------- --------- ---------
Sales to unaffiliated customers:
Americas $ 252,615 $ 238,874 $ 241,169
Europe 78,666 82,552 65,888
Asia Pacific 60,475 64,888 52,956
--------- --------- ---------
391,756 386,314 360,013
Intercompany sales between geographic areas:
Americas 54,615 56,703 51,939
Europe 57 32 14
Asia Pacific 433 1,398 450
Eliminations (55,105) (58,133) (52,403)
--------- --------- ---------
Total sales $ 391,756 $ 386,314 $ 360,013
========= ========= =========
Operating profit:
Americas $ 71,909 $ 70,037 $ 62,650
Europe 9,153 1,916 (5,463)
Asia Pacific 6,312 4,384 1,639
Eliminations 1,203 1,139 (2,205)
--------- --------- ---------
88,577 77,476 56,621
General corporate expenses and corporate initiatives (34,977) (31,585) (31,272)
Interest expense (831) (2,335) (1,923)
--------- --------- ---------
Earnings before income taxes $ 52,769 $ 43,556 $ 23,426
========= ========= =========
Assets:
Americas $ 180,467 $ 152,831 $ 163,201
Europe 40,938 46,618 50,503
Asia Pacific 26,492 26,985 26,605
Corporate 6,536 1,643 2,444
Eliminations (6,619) (10,244) (14,368)
--------- --------- ---------
Total assets $ 247,814 $ 217,833 $ 228,385
========= ========= =========
1 Included are U.S. export sales to unaffiliated customers of $27,989, $29,549,
and $23,408, in 1996, 1995, and 1994, respectively.
2 Transfers between entities are made at prices which allow appropriate markups
to the manufacturing and selling unit.
Net earnings (loss) for subsidiaries operating outside the U.S. were
$10,468,000, $12,506,000, and ($5,624,000) for 1996, 1995, and 1994,
respectively.
Retained earnings for subsidiaries operating outside the U.S. were $8,872,000
and $4,373,000 for 1996 and 1995, respectively.
Net transaction and translation gains or losses, included in Other income
(expense), were ($617,000), $528,000, and $366,000 for 1996, 1995, and 1994,
respectively.
19
C. Inventories
Major components of inventories for the last two years were as follows:
(In thousands) 1996 1995
- ------------------------------------------------------- -------- --------
Finished products and components $ 38,707 $ 40,335
Products and components in various stages of completion 24,691 22,597
Raw materials 15,192 13,152
-------- --------
78,590 76,084
Reduction to LIFO cost (37,059) (34,391)
$ 41,531 $ 41,693
-------- --------
Inventories valued under the LIFO method were $26,303,000 and $23,783,000 for
1996 and 1995, respectively. All other inventory was valued on the FIFO method.
In 1995, certain inventory quantities were reduced, resulting in liquidation of
LIFO inventory quantities carried at lower costs from prior years. The effect
was to decrease net earnings in 1995 by approximately $100,000.
D. Income Taxes
Earnings before income tax expense consist of:
(In thousands) 1996 1995 1994
- -------------- -------- -------- --------
Domestic $ 33,844 $ 27,247 $ 28,168
Foreign 18,925 16,309 (4,742)
-------- -------- --------
Total $ 52,769 $ 43,556 $ 23,426
======== ======== ========
Income tax expense consists of:
(In thousands) 1996 1995 1994
- --------------------- -------- -------- --------
Current:
Domestic:
Federal $ 10,518 $ 9,629 $ 9,383
State and local 1,201 1,591 1,030
Foreign 4,638 3,479 2,596
-------- -------- --------
16,357 14,699 13,009
-------- -------- --------
Deferred:
Domestic (227) 227 (3,617)
Foreign 470 924 (1,292)
-------- -------- --------
243 1,151 (4,909)
-------- -------- --------
Total $ 16,600 $ 15,850 $ 8,100
======== ======== ========
Income taxes paid were $14,967,000, $16,019,000, and $12,136,000 in 1996, 1995,
and 1994, respectively.
A reconciliation between the U.S. federal statutory tax rate and the effective
tax rate is as follows:
1996 1995 1994
---- ---- ----
Statutory tax rate 35% 35% 35%
Foreign earnings with (lower) higher tax rates (4) (1) 2
State taxes, net of federal effect 2 2 3
U.S. general business tax credits (1) (1) (3)
Other (1) 1 (2)
---- ---- ----
Effective tax rate 31% 36% 35%
==== ==== ====
20
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) 1996 1995
- ----------------------------------------------------------- -------- --------
Inventory valuations $ 3,307 $ 3,726
Cost reductions and severance accruals 922 1,115
Insurance accruals 3,669 3,505
Vacation accruals 1,417 1,378
Bad debt reserves 1,281 961
Other 1,037 (77)
-------- --------
Current 11,633 10,608
-------- --------
Unremitted earnings of consolidated foreign subsidiaries (3,800) (3,529)
Excess of tax over book depreciation (4,906) (3,896)
Postretirement benefits 4,891 4,653
Pension and deferred compensation 5,352 5,666
Net operating loss carryforward 1,272 4,404
Other 594 1,207
Valuation allowance (1,995) (5,015)
-------- --------
Non-current 1,408 3,490
-------- --------
Net deferred tax assets $ 13,041 $ 14,098
======== ========
1 Payable at the time these earnings are distributed to the parent.
Net non-current deferred tax assets above are included in Other Assets. Total
deferred tax assets were $22,247,000 and $23,040,000, and total deferred tax
liabilities were $9,206,000 and $8,942,000 on December 27, 1996 and December 29,
1995, respectively. A valuation allowance of $1,995,000 and $5,015,000, has been
recorded as of December 27, 1996 and December 29, 1995, respectively, primarily
related to the uncertainty of obtaining tax benefits for subsidiary operating
losses. The effect of these allowances has been considered in "Foreign earnings
with (lower) higher tax rates" in the Company's tax rate reconciliation.
E. Debt
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------- ------- -------
Term debt, 5.05% at December 27, 1996, payable in equal annual installments through 1997 $ 300 $ 600
Industrial development refunding revenue bonds, 4.65% at December 27, 1996,
payable through 2002 (property carried at $3,056 pledged as collateral) 4,000 4,500
Obligations related to low-income housing investments 3,205 4,063
Other 2,415 2,846
------- -------
Total long-term debt 9,920 12,009
Less current portion 1,845 1,935
------- -------
Long-term portion $ 8,075 $10,074
======= =======
Aggregate annual scheduled maturities of long-term debt for the next five years
are as follows: 1997-$1,845,000; 1998-$1,796,000; 1999-$3,295,000;
2000-$1,123,000; 2001-$1,310,000. Interest paid on debt during 1996, 1995, and
1994 amounted to $841,000, $2,179,000, and $1,923,000, respectively. The fair
value of the Company's long-term debt at December 27, 1996 and December 29,
1995, is not materially different than its recorded value.
The Company has an interest rate swap agreement in place whereby it fixed the
interest rate of the remaining principal amounts of the Company's previously
variable interest rate revenue bond debt at 4.65 percent through 1997, at which
time the debt will revert back to a variable interest rate. The cash flows
related to the swap agreement are recorded as income when received and expense
when paid. Market and credit risk are not significant.
21
On December 27, 1996, the Company had lines of credit with U.S. and foreign
banks of $70,379,000, including a $25,000,000 revolving credit agreement. The
unused portion of these credit lines was $66,666,000 at December 27, 1996.
Borrowing rates under these facilities vary with the prime rate, rates on
domestic certificates of deposit, and the London interbank market. The weighted
short-term borrowing rates were 3.6 percent and 2.2 percent, at December 27,
1996 and December 29, 1995, respectively. The Company pays commitment fees of up
to 3/16 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 covenants of its debt agreements. Under
the most restrictive terms of the agreements, approximately $19,710,000 of
retained earnings were available for payment of cash dividends at December 27,
1996.
F. Shareholders' Equity
Changes in shareholders' equity accounts are as follows:
(In thousands) 1996 1995 1994
- -------------------------- --------- --------- ---------
Preferred Stock
Balance, beginning of year $ -- $ 1,474 $ 1,485
Shares repurchased -- (1,474) (11)
--------- --------- ---------
Balance, end of year -- -- 1,474
--------- --------- ---------
Common Stock
Balance, beginning of year 17,265 11,377 11,449
Stock split -- 5,754 --
Shares issued 188 143 188
Shares repurchased (406) (9) (260)
--------- --------- ---------
Balance, end of year 17,047 17,265 11,377
--------- --------- ---------
Additional Paid-In Capital
Balance, beginning of year 20,397 18,289 19,813
Shares issued 2,337 2,342 2,914
Shares repurchased (480) (234) (4,438)
--------- --------- ---------
Balance, end of year 22,254 20,397 18,289
--------- --------- ---------
Retained Earnings
Balance, beginning of year 64,949 50,702 42,430
Net income 36,169 27,706 15,326
Cash dividends declared (8,657) (7,705) (7,054)
Stock split -- (5,754) --
Shares repurchased (7,229) -- --
--------- --------- ---------
Balance, end of year 85,232 64,949 50,702
--------- --------- ---------
Other, Net
Balance, end of year 1,517 960 9
--------- --------- ---------
Total Shareholders' Equity $ 126,050 $ 103,571 $ 81,851
========= ========= =========
At December 27, 1996, the Company had 22,549 authorized, but not issued,
cumulative preferred shares. The Company also has authorized, but not issued, a
separate class of 3,000,000 shares of preferred stock, $1 par value.
During 1995, the Company redeemed all 14,740 outstanding shares of cumulative
preferred stock at the call price of $105 per share plus accrued and unpaid
dividends. Prior to the redemption, the holders of the cumulative preferred
stock were entitled to fixed cumulative dividends of 5 percent per annum on the
par value before cash dividends were paid or declared on common stock.
22
The Board of Directors approved a three-for-two stock split on December 15,
1995, effected in the form of a 50 percent stock dividend payable February 7,
1996, to shareholders of record on January 3, 1996. Accordingly, December 29,
1995 balances reflect the split with an increase in common stock and reduction
in retained earnings of $5,754,000. All stock option, share, and per share data
has been restated to reflect the split.
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 one-hundredth of a share of a new series of junior participating
preferred stock at an exercise price of $80, subject to adjustment. The Rights
are exercisable only if a person or group acquires beneficial ownership of 20
percent or more of the Company's outstanding common stock. The Rights expire in
March 2000 and may be redeemed earlier by the Board of Directors for $.01 per
Right.
G. Employee Stock Ownership Plan
The Company has a leveraged Employee Stock Ownership Plan (ESOP) under which
outstanding debt was $300,000 and $600,000, at December 27, 1996 and December
29, 1995, respectively. This is also the remaining balance of a concurrent loan
to the ESOP Trust from the Company on the same terms. The Company's loan is
included in long-term debt with the receivable from the ESOP in a like amount
recorded as a reduction of shareholders' equity reflected in the Other, net
category. The Company is obligated to make annual contributions to the ESOP
Trust through 1997 sufficient to repay the loan and interest thereon.
H. Stock Option and Purchase Plans
Stock Option Plans. The Company has a Long Term Stock Incentive Plan, under
which a total of 3,475,000 common shares have been reserved for issuance, with
2,129,047 shares remaining reserved at December 27, 1996. Grants under this Plan
are in the form of restrictive share awards and stock options. Restrictive share
awards of 597,609 common shares have been made to certain key employees under
the Plan, such restrictions lapsing in 1997. Compensation cost charged to
operations for the restricted share awards was $256,000, $319,000, and $361,000
in 1996, 1995, and 1994, respectively. Stock options for 1,419,603 common shares
have also been granted under the Plan. The option price is the market price at
the date of grant. Options become exercisable at such time and in such
installments as set by the Company, and expire ten years from the date of grant.
In 1996, the shareholders approved a Nonemployee Director Stock Option Plan,
under which the Company makes initial and annual grants to the nonemployee
directors of the Company. There are 200,000 common shares authorized for
issuance under the Plan, 182,000 of which remained reserved at the end of 1996.
Nonemployee directors receive an initial option grant of 2,000 shares upon first
appointment or election and an annual option grant of 1,500 shares. 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 Average
Shares Exercise Price
------- ------
Outstanding, December 31, 1993 399,209 $10.43
Granted 387,555 13.06
Exercised (78,315) 9.37
Canceled (23,906) 10.17
------- ------
Outstanding, December 30, 1994 684,543 12.00
Granted 147,144 18.90
Exercised (38,985) 8.94
Canceled (88,839) 11.49
------- ------
Outstanding, December 29, 1995 703,863 13.70
Granted 70,026 19.65
Exercised (29,120) 12.03
Canceled (36,241) 12.14
------- ------
Outstanding, December 27, 1996 708,528 $14.34
======= ======
23
The number of stock options exercisable was 232,729, 139,242, and 110,774 at
December 27, 1996, December 29, 1995, and December 30, 1994, respectively. These
stock options had a weighted average exercise price per share of $11.96, $11.43,
and $10.24 at December 27, 1996, December 29, 1995, and December 30, 1994,
respectively.
Stock Purchase Plans. Under the Company's Employee Stock Purchase Plan,
3,900,000 common shares have been authorized for sale to employees, 1,064,568 of
which remained unissued at the end of 1996. 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.
In 1994, the shareholders approved a Nonemployee Director Stock Plan which
enables individual nonemployee directors of the Company to elect to receive all
or part of a director's annual retainer in the form of shares of the Company's
common stock instead of cash. The company issued 1,521 and 485 shares under this
plan during 1996 and 1995, respectively. No shares were issued during 1994. The
expense related to this plan is not significant.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized for the Employee Stock
Purchase Plan and stock options granted under the Long Term Incentive Plan and
the Nonemployee Director Stock Option Plan. Compensation cost for these plans
determined on the basis of fair value pursuant to SFAS No. 123 is not
significant.
I. 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. Currently, the Company matches employee
contributions at a 50 percent rate, up to 3 percent of the employee's
compensation. Employer contributions were $841,000, $852,000 and $850,000 in
1996, 1995, and 1994, respectively.
The Company has noncontributory defined benefit pension plans covering
substantially all U.S. employees and directors and most of the employees of the
Company's non-U.S. subsidiairies. 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 $11,070,000 and $9,188,000 at December 27, 1996 and December 29,
1995, respectively. The expenses for these plans consist of the following
components:
(In thousands) 1996 1995 1994
- ----------------------------------------------------- -------- -------- --------
Service cost - benefits earned during the period $ 2,366 $ 2,385 $ 2,499
Interest cost on projected benefit obligation 4,699 4,561 4,301
Actual return on assets (12,228) (12,774) 579
Net amortization and deferral 6,254 7,879 (5,583)
Cost of pension plans which are not significant
and have not adopted SFAS No. 87 171 65 312
-------- -------- --------
Net periodic pension cost $ 1,262 $ 2,116 $ 2,108
======== ======== ========
24
The plans' funded status and the amounts recognized in the Company's financial
statements are summarized below:
1996 1995
-------------------------------- --------------------------------
Plans Whose Plans Whose Plans Whose Plans Whose
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(In thousands) Benefits Exceed Assets Benefits Exceed Assets
- ----------------------------------- ------------- ------------- ------------- -------------
Actuarial present value:
Vested benefit obligation $ 55,688 $ 4,340 $ 51,266 $ 5,444
Accumulated benefit obligation $ 60,609 $ 4,772 $ 56,461 $ 5,947
============= ============= ============= =============
Projected benefit obligation $ 67,921 $ 6,258 $ 64,240 $ 7,437
Plan assets at fair value 76,797 -- 66,182 --
------------- ------------- ------------- -------------
Projected benefit obligation (in
excess of) less than plan assets 8,876 (6,258) 1,942 (7,437)
Unrecognized net (gain) loss (18,553) 43 (11,263) 656
Unrecognized net (asset) liability
being amortized (128) 144 (142) 255
Adjustment required to recognize
minimum liability -- (327) -- (473)
------------- ------------- ------------- -------------
Accrued pension cost ($ 9,805) ($ 6,398) ($ 9,463) ($ 6,999)
============= ============= ============= =============
Major assumptions at year-end:
1996 1995 1994
---------- ---------- ----------
Discount rate 4 - 7% 4 - 7% 4 - 7 1/2%
Rate of increase in future compensation levels 2 1/2 - 7% 2 1/2 - 7% 3 - 7%
Expected long-term rate of return on plan assets 9% 9% 9%
---------- ---------- ----------
In addition to providing pension benefits, the Company pays part of the health
insurance costs for its retired U.S. employees and their dependents.
The Company's retiree health benefit expense for 1996, 1995, and 1994 was as
follows:
(In thousands) 1996 1995 1994
- ------------------- ------- ------- -------
Service cost $ 457 $ 496 $ 503
Interest cost 924 890 947
------- ------- -------
Net benefit expense $ 1,381 $ 1,386 $ 1,450
======= ======= =======
The Company's policy is to fund these benefits on a pay-as-you-go basis. The
actuarial present value of these health benefit obligations and the amount
recognized in the consolidated balance sheets were as follows:
(In thousands) 1996 1995
- ---------------------------------------------- ---------- ----------
Accumulated postretirement benefit obligation:
Retirees and beneficiaries ($ 6,000) ($ 4,684)
Fully eligible active plan participants (2,531) (2,657)
Other active plan participants (5,738) (6,067)
---------- ----------
Accumulated benefit obligations (14,269) (13,408)
Unrecognized net loss 415 114
---------- ----------
Accrued postretirement benefit cost ($ 13,854) ($ 13,294)
========== ==========
The Company's retirement medical benefit 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 27, 1996. This rate is assumed to
remain constant through the year 2001, decline by 1/2 percent for each of the
following three years to 4.5 percent and remain at that level thereafter. The
discount rate assumption at year-end for 1996, 1995, and 1994 was 7.0 percent,
7.0 percent, and 7.5 percent, respectively. If
25
the assumed healthcare cost trend rate changed by 1 percent, the APBO as of
December 27, 1996 would change by 14.4 percent. The effect of a 1 percent change
in the cost trend rate on the service and interest cost components of the net
periodic postretirement benefits expense would be a change of 16.5 percent.
J. Commitments and Contingencies
Lease Commitments. Aggregate annual rental commitments at December 27, 1996,
under operating leases with noncancelable terms of more than one year, were
$7,031,000, payable as follows:
Vehicles &
(In thousands) Buildings Equipment Total
- -------------- --------- ---------- -------
1997 $ 1,993 $ 751 $ 2,744
1998 1,630 434 2,064
1999 844 187 1,031
2000 492 66 558
2001 182 15 197
Thereafter 437 -- 437
--------- ---------- -------
$ 5,578 $ 1,453 $ 7,031
========= ========== =======
Total rental expense was $3,815,000 for 1996, $4,722,000 for 1995, and
$4,103,000 for 1994.
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.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
26
PART III
Part III, Items 10, 11, 12 and 13, except for certain information relating to
Executive Officers included in Part I, is omitted as the Company intends to file
with the Securities and Exchange Commission within 120 days of the close of the
fiscal year ended December 27, 1996, a definitive proxy statement containing
such information pursuant to Regulation 14A of the Securities Exchange Act of
1934 and such information shall be deemed to be incorporated herein by reference
from the date of filing such document.
The Company knows of no contractual arrangements which may, at a subsequent
date, result in a change in control of the Company.
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
- Schedule II - Valuation and Qualifying Accounts..................28
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.).....................................................30
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 27, 1996.
(c) Exhibit Index............................................................30
27
Schedule II - Valuation and Qualifying Accounts
GRACO INC. & Subsidiaries
(In thousands)
Additions
Balance at charged to Deductions
beginning costs and from Balance at
Description of year expenses reserves end of year
---------- ---------- ---------- -----------
Year ended December 27, 1996:
Allowance for doubtful accounts $ 2,800 $ 900 $ 1,300 $ 2,400
Allowance for obsolete and overstock inventory 5,900 2,500 3,300 5,100
Allowance for returns and credits 2,000 4,100 3,800 2,300
Valuation allowance for tax benefits 5,020 -- 3,025 1,995
------- ------- -------- -------
$15,720 $ 7,500 $ 11,425 $11,795
======= ======= ======== =======
Year ended December 29, 1995:
Allowance for doubtful accounts $ 2,700 $ 700 $ 600 $ 2,800
Allowance for obsolete and overstock inventory 6,400 1,400 1,900 5,900
Allowance for returns and credits 2,000 3,400 3,400 2,000
Valuation allowance for tax benefits 6,900 -- 1,880 5,020
------- ------- -------- -------
$18,000 $ 5,500 $ 7,780 $15,720
======= ======= ======== =======
Year ended December 30, 1994:
Allowance for doubtful accounts $ 2,200 $ 1,200 $ 700 $ 2,700
Allowance for obsolete and overstock inventory 5,500 3,100 2,200 6,400
Allowance for returns and credits 1,900 2,000 1,900 2,000
Valuation allowance for tax benefits 2,740 4,160 -- 6,900
------- ------- -------- -------
$12,340 $10,460 $ 4,800 $18,000
======= ======= ======== =======
1 Accounts determined to be uncollectible and charged against reserve, net of
collections on accounts previously charged against reserves.
2 Items scrapped or otherwise disposed of during the year.
3 Credits issued and returns processed, related to prior years.
28
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 19, 1997
------------------------------------- --------------
George Aristides
President and 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 19, 1997
------------------------------------- --------------
George Aristides
President and Chief Executive Officer
(Principal Executive Officer)
/s/MARK W. SHEAHAN March 19, 1997
------------------------------------- --------------
Mark W. Sheahan
Treasurer
(Principal Financial Officer)
/s/JAMES A. GRANER March 19, 1997
------------------------------------- --------------
James A. Graner
Vice President and Controller
(Principal Accounting Officer)
D. A. Koch Director, Chairman of the Board
G. Aristides Director, President and Chief Executive Officer
R. O. Baukol Director
R. D. McFarland Director
L. R. Mitau Director
M. A.M. Morfitt Director
D. R. Olseth Director
C. M. Osborne 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 19, 1997
------------------------------------- --------------
George Aristides
(For himself and as attorney-in-fact)
29
Exhibit Index
Exhibit
Number Description
------- ------------------------------------------------------------
3.1 Restated Articles of Incorporation. See also Exhibit 4.3.
3.2 Restated Bylaws. (Incorporated by reference to Exhibit 2 to
the Company's Report on Form 8-K dated January 12, 1988.)
3.3 Bylaws Amendment. (Incorporated by reference to Exhibit 1 to
the Company's Report on Form 8-K dated March 1, 1990.)
4.1 Credit Agreement dated October 1, 1990, between the Company
and First Bank National Association. (Incorporated by
reference to Exhibit 5 to the Company's Report on Form 10-Q
for the thirty-nine weeks ended September 28, 1990.)
4.2 Amendment 1 dated June 12, 1992, to Credit Agreement dated
October 1, 1990, between the Company and First Bank National
Association; and Amendment 2 dated December 31, 1992, to the
same Agreement. (Incorporated by reference to Exhibit 1 to
the Company's Report on Form 8-K dated March 11, 1993.)
Amendment 3 dated November 8, 1993, and Amendment 4, dated
February 8, 1994. (Incorporated by reference to Exhibit 4.2
to the Company's 1993 Annual Report on Form 10-K.) Amendment
5, dated April 10, 1995. (Incorporated by reference to
Exhibit 4.2 to the Company's 1995 Annual Report on Form
10-K.) Amendment 6, dated September 27, 1996. (Incorporated
by reference to Exhibit 4 to the Company's Report on Form
10-Q for the thirty-nine weeks ended September 27, 1996.)
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.
4.3 Rights Agreement dated as of March 9, 1990, 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 1 to the Company's Report on Form 8-K
dated March 19, 1990.)
*10.1 1996 Corporate and Business Unit Annual Bonus Plan.
(Incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 10-Q for the twenty-six weeks ended June 28,
1996.)
*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.)
*10.3 Executive Deferred Compensation Agreement. Form of
supplementary agreement entered into by the Company which
provides a retirement benefit to 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.)
30
*10.5 Executive Long Term Incentive Agreements. Form of restricted
stock award agreement used for awards to executive officers.
(Incorporated by reference to Attachment B to Item 5 to the
Company's Report on Form 10-Q for the thirteen weeks ended
March 29, 1991.) Form of restricted stock award agreement
used for awards to Chairman. (Incorporated by reference to
Attachment A to Item 5 to the Company's Report on Form 10-Q
for the twenty-six weeks ended June 28, 1991.)
*10.6 Executive Long Term Incentive Agreement. Form of agreement
used for restricted stock awards to two new officers.
(Incorporated by reference to Attachment B to Company's
Report on Form 10-Q for the thirteen weeks ended March 27,
1992.)
*10.7 Executive Long Term Incentive Agreement. Form of agreement
used for one year restricted stock award to one officer.
(Incorporated by reference to Exhibit 2 to Company's Report
on Form 10-Q for the twenty-six weeks ended June 25, 1993.)
*10.8 Long Term Stock Incentive Plan as amended. (Incorporated by
reference to Exhibit 10.2 to the Company's Report on Form
10-Q for the twenty-six weeks ended June 28, 1996.)
*10.9 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.)
*10.10 Deferred Compensation Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit 2 to the Company's
Report on Form 8-K dated March 7, 1988.)
*10.11 Restoration Plan, restating Excess Benefit Plan, effective
as of July 1, 1988. (Incorporated by reference to Exhibit 1
to the Company's Report on Form 10-Q for the thirteen weeks
ended March 26, 1993.)
*10.12 Stock Option Agreement. Form of agreement used for incentive
stock option/alternative stock appreciation right award to
selected officers, dated February 25, 1993. (Incorporated by
reference to Exhibit 10.14 to the Company's 1993 Annual
Report on Form 10-K.)
*10.13 Stock Option Agreement. Form of agreement used for
non-incentive stock option/alternative stock appreciation
right award to selected officers, dated May 4, 1993.
(Incorporated by reference to Exhibit 10.15 to the Company's
1993 Annual Report on Form 10-K.)
*10.14 Nonemployee Director Stock Plan (Incorporated by reference
to Exhibit 10.1 to the Company's Report on Form 10-Q for the
twenty-six weeks ended July 1, 1994.)
*10.15 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.)
*10.16 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.)
*10.17 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to executive officers, dated
March 1, 1995. (Incorporated by reference to Exhibit 10 to
the Company's Report on Form 10-Q for the thirteen weeks
ended March 31, 1995.)
*10.18 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.)
31
*10.19 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to executive officers, dated
March 1, 1996. (Incorporated by reference to Exhibit 10.19
to the Company's 1995 Annual Report on Form 10-K.)
*10.20 Salary protection arrangement with one executive officer.
(Incorporated by reference to Exhibit 10.20 to the Company's
1995 Annual Report on Form 10-K.)
*10.21 Form of salary protection arrangement between the Company
and executive officers. (Incorporated by reference to
Exhibit 10.21 the Company's 1995 Annual Report on form
10-K.)
*10.22 Nonemployee Director Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 to the Company's Report on Form
10-Q for the twenty-six weeks ended June 28, 1996.)
*10.23 Stock Option Agreement. Form of agreement used for award of
nonstatutory stock options to nonemployee 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.)
*10.24 Stock Option Agreement. Form of agreement used for award of
non-incentive stock options to executive officers, dated
February 28, 1997.
*10.25 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.
*10.26 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.
11 Statement of Computation of Earnings per share included
herein on page 33.
21 Subsidiaries of the Registrant included herein on page 34.
23 Independent Auditor's Consent included herein on page 34.
24 Power of Attorney included herein on page 35.
27 Financial Data Schedule (EDGAR filing only).
99 Cautionary Statement Regarding Forward-Looking Statements.
*Management Contracts, Compensatory Plans or Arrangements.
32