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 and equipment to move, measure, control, dispense and apply fluid materials. The Company helps customers solve difficult manufacturing problems, increase productivity, improve quality, conserve energy, save expensive materials, 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 has been converting its Minneapolis manufacturing operations to focused factories organized around team-directed manufacturing cells, a process expected to be completed in 1997. 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 management of fluids. Financial information concerning geographic operations and export sales for the last three fiscal years is set forth in Note B of the Notes to Consolidated Financial Statements.
Recent Developments. In December, 1995, George Aristides was named Chief Executive Officer of the Company to succeed David A. Koch, who had held the position since 1962. Mr. Koch will remain as Chairman of the Board. During 1995, the Company continued the restructuring and consolidation of its operations in Europe and Japan. Management of its European operations was centralized at the Company's recently expanded facility in Maasmechelen, Belgium. In 1995, Graco implemented recommendations generated by an intensive evaluation of its marketing and sales groups worldwide. Field sales groups were restructured and investments in globally-focused marketing resources were increased. A Customer Support Team, combining customer service, technical assistance, product service and national account program management, was created in the Lubrication Equipment Division and an in-house telemarketing team was organized in the Contractor Equipment Division. The size of the Russell J. Gray Technical Center was more than doubled in 1995 to house additional testing and product development activities and personnel. During 1995, the Company's increased product development efforts resulted in the introduction of approximately 110 new products. Graco recently announced the construction of a world-class manufacturing facility and global distribution center in Rogers, Minnesota, to provide additional production capacity for projected growth. All distribution operations currently being conducted by the Company at its distribution center in Brooklyn Center, Minnesota will be transferred to the new Rogers facility, together with the engineering and manufacturing groups for the Contractor Equipment Division and final assembly operations for Industrial pumps. Manufacturing capacity met the Company's production requirements during 1995, with excess capacity in the last half of the year due to efforts to reduce inventories and the slowdown in incoming orders.
Products. Graco Inc. 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.
Sales of replacement parts and accessories have averaged 46.5 percent of the Company's consolidated net sales and approximately 52.3 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
Marketing and Distribution. Graco's operations are organized to allow its full line of products and systems to be offered in each major geographic market: 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's equipment is sold worldwide principally through the Company's international sales subsidiaries, direct sales personnel and distributors. Manufacturers' representatives are used with some product lines. 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.
In 1995, Graco's net sales in the Americas were $238,874,000 or approximately 62 percent of the Company's consolidated net sales; in Europe (including the Middle East and Africa) net sales were $82,552,000 or approximately 21 percent; and in the Asia Pacific region, net sales were $64,888,000 or approximately 17 percent.
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 substantially increased its new product design and application engineering staff, and more than doubled the size of the Russell J. Gray Technical Center to provide space for engineering, testing and laboratory activities. Occupancy of the new wing of the Technical Center was completed in May 1995. Total research and development expenditures were $15,715,000, $14,591,000 and $12,382,000 for the 1995, 1994 and 1993 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.
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 29, 1995, 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 29, 1995, the Company employed approximately 1,945 persons on a full-time basis. Of this total, approximately 351 were employees based outside the United States, and 763 were hourly factory workers in the United States. Although Graco's U.S. employees are not covered by collective bargaining agreements, various national industry-wide labor agreements apply to certain employees in Europe. The Company believes it has a good relationship with its employees.
Item 2.

Item 2. Properties
The Company's principal operations that occupy more than 10,000 square feet are conducted in the following facilities:
An 80,000 square foot expansion of the Company's Russell J. Gray Technical Center in Minneapolis was completed and occupied during the first quarter of 1995. An expansion of 8,800 square feet to the Maasmechelen facility was completed in 1995 to accommodate the relocation of European headquarters operations from France to Belgium.
The Company's distribution operations, currently located in 123,800 square feet of space in a Minneapolis suburb under a lease which expires at the end of 1996, will be transferred to a manufacturing and global distribution center under construction in Rogers, Minnesota. The Rogers facility will have 324,000 square feet of space, including office, engineering, research and development, manufacturing, and distribution.
A 55,000 square foot building in Farmington Hills, Michigan and a 57,000 square foot building in Wixom, Michigan were sold during the last quarter of 1995.
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.
Item 3.

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.

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 1995.
Executive Officers of the Company
The following are all the executive officers of the Company as of March 8, 1996. There are no family relationships between any of the officers named.
David A. Koch, 65, 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. For a five month period from January to June 1993, he also held the office of President. He has served as a director of the Company since 1962.
George Aristides, 60, 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.
James A. Graner, 51, 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, 63, 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, 59, 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, 50, 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.
David M. Lowe, 40, was elected to the position of Treasurer in February 1995. 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, 48, was elected Vice President, General Counsel and Secretary, in January 1992. Prior to joining the Company, he held various legal positions with Honeywell Inc., most recently as Associate General Counsel.
Robert A. Wagner, 45, 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.
Clayton R. Carter, 57, was appointed to the position of Vice President, Worldwide Lubrication Equipment Division, effective January 1, 1995. He became Director, Vehicle Services Division, in February 1994. He joined the Company in 1962 and has held various sales management positions, most recently in the Contractor Equipment Division.
Thomas J. Fay, 45, 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.
Charles L. Rescorla, 44, is Vice President, Manufacturing 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.
With the exception of Clayton R. Carter, Thomas J. Fay, and Charles L. Rescorla, the officers identified were elected by the Board of Directors on May 2, 1995, to hold office until the next annual meeting of directors or until their successors are elected and qualify. George Aristides was elected to the office of President and Chief Executive Officer on December 15, 1995, effective January 1, 1996. Additionally, John L. Heller was elected to the office of Vice President, Latin America & Developing Markets, and Roger L. King was elected to the office of Vice President & General Manager, European Operations on December 15, 1995 effective January 4, 1996. Messrs. Carter, Fay, and Rescorla were appointed to their positions by management effective January 1, 1995, January 4, 1996, and January 1, 1995, respectively.
PART II
Item 5.

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 8, 1996, there were 17,434,828 shares outstanding and 1,800 common shareholders of record, with another estimated 3,000 shareholders whose stock is held by nominees or broker dealers.
Above information includes Lockwood Technical, Inc. (LTI) and Graco Robotics Inc. (GRI), former wholly-owned subsidiaries, sold in 1992 and 1991, respectively.
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. All per share data has been restated for the three-for-two stock splits declared December 15, 1995 and December 17, 1993 and paid February 7, 1996 and February 2, 1994, respectively.
Graco's net earnings of $27.7 million in 1995 are 81 percent higher than the $15.3 million earned in 1994 and are significantly higher than the $9.5 million recorded in 1993. The large increases in 1995 and 1994 primarily reflect higher global sales and enhanced profit margins. Operating costs include increased product development expenditures and restructuring charges.
The following table 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.
NET SALES
In 1995, Graco posted a year of record net sales, with a 7 percent increase over 1994 to $386 million. The 1995 increase was principally due to higher worldwide sales in all divisions except Contractor Equipment. Geographically, net sales in the Americas of $239 million in 1995 decreased by 1 percent when compared to 1994. With improving economies and strong currencies during most of the year, European sales increased 25 percent in 1995 to $82 million (a 15 percent volume increase and a 10 percent gain due to foreign currency exchange rates). Sales in Asia Pacific were up 23 percent in 1995 to $65 million (a 15 percent volume increase and an 8 percent gain due to foreign currency exchange rates). The impact of foreign currency exchange rate translations on sales was not significant in 1994 when compared to 1993.
Consolidated backlog at December 29, 1995 was $20 million compared to $25 million at the end of 1994 and $20 million at the end of 1993.
Sales increased 7 percent in 1995 when compared to 1994 and 12 percent in 1994 compared to 1993.
COST OF PRODUCTS SOLD
The cost of products sold, as a percent of net sales, declined in 1995 to 50.9 percent from 51.7 percent in 1994. This decrease was the result of a combination of factors, including modest price increases. In 1994, cost of products sold, as a percent of net sales, declined from 52.6 percent in 1993, primarily due to manufacturing efficiencies gained from continued investment in state-of-the-art manufacturing technology and increased manufacturing volumes.
Periodic price increases have generally permitted the Company to recover increases in the cost of products sold. The Company's most recent U.S. price increase was effective in January of 1996, and represented an average 4 percent increase from its January 1995 price lists. The January 1995 price change was an average 2 percent increase from April 1994 prices.
OPERATING EXPENSES
Operating expenses in 1995 decreased 2.2 percent from 1994, due primarily to the impact of Graco's worldwide cost restructuring initiatives and reduced restructuring charges in 1995. Operating expenses in 1994 increased 8.4 percent from 1993, due primarily to continuing investment in product development and ongoing restructuring initiatives. In 1994, restructuring and workforce reduction charges accounted for over half of the increase from 1993 operating expenses.
Product development expenses in 1995 increased 7.7 percent over 1994 to $15.7 million. In 1994, product development costs were 17.8 percent higher than 1993. These increases reflect Graco's commitment to expanding sales through new product introductions.
FOREIGN CURRENCY EFFECTS
The costs of the Company's products are generally denominated in U.S. dollars, with approximately 16 percent sourced in non-U.S. currencies. A greater proportion of sales, approximately 38 percent, is denominated in currencies other than the U.S. dollar. As a result, a weakening of the U.S. dollar increases sales more than costs and expenses, improving the Company's gross margin and operating profits. During both 1995 and 1994, the U.S. dollar was generally weaker against other major currencies.
The gains and losses that resulted from the translation of the financial statements for all non-U.S. subsidiaries and the gains and losses on the forward and option contracts the Company uses to hedge these exposures, are included in Other income (expense).
In total, the effect of the changes in foreign currency exchange rates on operating profits and the gains and losses included in Other income (expense) increased earnings before income taxes by $3.5 million in 1995 when compared to 1994, and by $2.3 million in 1994 when compared to 1993.
OTHER INCOME (EXPENSE)
The Company's interest expense grew in 1995, reflecting an increase in the average levels of debt during the year and slightly higher interest rates. This increase was principally used to support the funding of Graco's working capital requirements and capital expenditures during the first half of the year. Strong cash flows from operations during the second half of the year resulted in long term debt (including the current portion thereof) declining to $12 million as compared to $32 million at the end of 1994 and $19 million at the end of 1993.
Other income of $0.7 million, and other expense of $1 million and $0.8 million for 1995, 1994, and 1993, respectively, include, among other things, the foreign currency exchange gains and losses discussed above 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 36 percent in 1995 is 1 percentage point higher than the 1995 U.S. federal tax rate of 35 percent. The increase from the 35 percent effective tax rate in 1994 was due primarily to the reduced relative effect of U.S. general business tax credits. The effective tax rate of 31 percent in 1993 was less than the 1994 rate of 35 percent, principally as a result of a non-recurring tax benefit. Detailed reconciliations of the U.S. federal tax rate to the effective rates for 1995, 1994, and 1993 are discussed in Note D to the consolidated financial statements.
EARNINGS
In 1995, earnings increased by 81 percent to $27.7 million, or $1.59 per share as compared to 1994, when earnings increased by 61 percent to $15.3 million or $.88 per share as compared to 1993.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," which encourages a fair value based method of accounting for stock based compensation plans and requires adoption of disclosure provisions no later than fiscal years beginning after December 15, 1995. Graco has not yet determined if it will elect to change to the fair value method, nor has it determined the effect the new standard will have on net income and earnings per share should it elect to make such a change. Adoption of this new standard will have no effect on Graco's cash flows.
OUTLOOK
Graco is cautiously optimistic about improved financial performance in 1996 given softness in the North American and German economies. Graco has successfully undertaken significant restructuring efforts in recent years and anticipates implementing additional measures in 1996. These efforts have resulted in improving customer service and profit margins along with providing resources that will be used for investments in product development and capital additions.
Margins are expected to improve slightly in 1996, subject to fluctuations in the U.S. dollar and increased sales volumes. Operating expenses as a percentage of net sales are expected to decline, even though product development expenses will increase as the Company continues to invest in its long-term strategic initiatives in product development.
DIVIDEND 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 declared in 1995; - a 13 percent increase in the regular dividend in 1995; - a 14 percent increase in the regular dividend in 1994; - a three-for-two stock split declared in 1993; - a special one-time dividend of $1.80 per post-split share declared in 1993 ($31.2 million in total); and - a 10 percent increase in the regular dividend in 1993.
ASSETS
The following table highlights several key measures of asset performance.
Average inventory balances increased during 1995 when compared to 1994; however, year-end inventory decreased 17.5 percent to $41.7 million. The year-end decline in inventories was primarily due to shipments of several large engineered systems in the last quarter and efforts to bring inventory levels in line with reduced sales volume. Accounts receivable decreased 3.2 percent to $73.2 million. The decrease was due to a combination of factors, including lower sales during the last quarter of 1995.
LIABILITIES
During 1995, total debt (notes payable plus long-term debt, including the current portion) was reduced by $27.1 million. At the end of 1995, the Company's long-term debt (including the current portion thereof) was 10 percent of capital (long-term debt plus shareholders' equity) compared to 28 percent in 1994 and 21 percent in 1993. The Company's total debt to total capital (notes payable plus long-term debt plus shareholders' equity) fell to 14 percent at the end of 1995; down from 35 percent in 1994. The Company had $67.5 million in unused credit lines available at December 29, 1995. While the Company believes that available credit lines plus operating cash flows are adequate to fund its short and long-term initiatives, additional credit lines may be arranged from time to time as deemed necessary.
SHAREHOLDERS' EQUITY
Shareholders' equity totaled $103.6 million on December 29, 1995, $21.7 million higher than 1994, and $28.9 million higher than 1993.
CASH FLOWS FROM OPERATING ACTIVITIES
During 1995, the Company's operating cash flow of $51.7 million increased significantly over 1994 due to higher net earnings and changes in working capital requirements. Cash flow from operating activities in 1994 was $8.6 million, $14.5 million less than the $23.1 million recorded in 1993.
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 $19.8 million in 1995, $23.1 million in 1994, and $16.2 million in 1993. These expenditures have enhanced the Company's engineering and manufacturing capabilities, improved product quality, increased capacity, and lowered costs. Substantial expenditures in 1995 included the completion of the Russell J. Gray Technical Center expansion located in Minneapolis, Minnesota and the addition of major manufacturing equipment assets.
The Company expects to spend approximately $35 million on capital improvements in 1996. This amount includes approximately $17 million for the construction of the new manufacturing and distribution facility in Rogers, Minnesota. The balance of capital expenditures in 1996 will be primarily for manufacturing equipment and cellular manufacturing initiatives.
During 1995, the Company realized cash proceeds of $3.0 million from sales of unutilized real estate. In 1994, the Company sold its marketable securities to fund a special one-time dividend of $31.2 million paid to shareholders on March 21, 1994.
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 F to the Consolidated Financial Statements.
Graco offers an Automatic Dividend Reinvestment Plan, which provides shareholders with 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. 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 25, 1994, the Company's Board of Directors authorized management to repurchase up to 600,000 shares for a period not to exceed two years. As of December 29, 1995, under this repurchase program, the Company has repurchased 380,100 shares at an average price per share of $11.96. No shares were acquired in 1995. On February 23, 1996, the Board of Directors authorized management to repurchase up to 800,000 shares for a period ending on February 28, 1998.
Graco is currently paying 12 cents per share as its regular quarterly dividend. Annual cash dividends paid on the Company's common and preferred stock, including a special one-time dividend of $31.2 million paid on March 21, 1994, were $7.5 million in 1995, $37.7 million in 1994, and $5.9 million in 1993. 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.
In 1995, the Company redeemed all of its 5 percent cumulative preferred stock for approximately $1.5 million.
During 1995, debt was reduced by $27.1 million, reflecting strong cash flows from operations attributable to higher net income and lower working capital requirements.
Item 8. Financial Statements and Supplementary Data Page - Responsibility for Financial Reporting 14 - Independent Auditors' Report 14 - Consolidated Statements of Earnings for fiscal years 1995, 1994 and 1993 15 - Consolidated Statements of Changes in ShareholdersO Equity Accounts (See Footnote F, Notes to Consolidated Financial Statements) 22 - Consolidated Balance Sheets for fiscal years 1995, 1994 and 1993 16 - Consolidated Statements of Cash Flows for fiscal years 1995, 1994 and 1993 17 - Notes to Consolidated Financial Statements 18 - Selected Quarterly Financial Data (See Part II, Item 5, Market for the Company's Common Stock and Related Stockholder Matters) 8
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 schedules 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 internal control structure provides 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 the internal control structure. Deloitte & Touche LLP, independent certified public accountants, are retained to audit the consolidated financial statements, and express an opinion thereon. Their opinion follows.
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 internal control structure, accounting practices, financial reporting, and the results of auditing activities.
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors Graco Inc. Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Graco Inc. and Subsidiaries (the "Company") as of December 29, 1995, December 30, 1994, and December 31, 1993, and the related consolidated statements of earnings and consolidated cash flows for each of the three years in the period ended December 29, 1995. 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 29, 1995, December 30, 1994, and December 31, 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 1995, 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.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP Minneapolis, Minnesota January 23, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GRACO INC. & Subsidiaries Years Ended December 29, 1995, December 30, 1994, and December 31,
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 29, 1995, 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 was the functional currency for all foreign subsidiaries. Prior to 1995, the local currency was the functional currency for Graco K.K. (Japan), and prior to 1994 for Graco N.V. (Belgium).
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES. All highly liquid investments with a maturity of three months or less at the date of purchase are considered to be cash equivalents. Marketable securities include debt securities of various maturities. Realized gains and losses are computed based on the specific identified cost method. At December 31, 1993, the securities were reported at fair value, which approximated cost.
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.
CURRENCY HEDGES. The Company periodically evaluates its monetary asset and liability positions denominated in foreign currencies. Subsequently, 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 of 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 counterparties in these transactions and that the resulting credit risk under these hedging strategies is not significant. The notional amounts (which do not represent credit or market risk) of such contracts were (in U.S. dollars) $10,226,000, $9,086,000, and $15,258,000, at December 29, 1995, December 30, 1994, and December 31, 1993, 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 equipment 4 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.
INCOME TAXES. The Company provides taxes on unremitted earnings of subsidiaries.
EARNINGS PER COMMON SHARE. The Board of Directors approved three-for-two stock splits on December 15, 1995 and on December 17, 1993 effected in the form of 50 percent stock dividends payable February 7, 1996 and February 2, 1994, respectively, to shareholders of record on January 3, 1996 and January 5, 1994, respectively. All share and per share data has been restated to reflect the splits. 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. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," which encourages a fair value based method of accounting for stock based compensation plans and requires adoption of disclosure provisions no later than fiscal years
beginning after December 15, 1995. The new standard encourages a fair value method of accounting for stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The Company has not yet determined if it will elect to change to the fair value method, nor has it determined the effect the new standard will have on net income and earnings per share should it elect to make such a change. Adoption of the new standard would have no effect on the Company's cash flows.
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.
Net earnings (loss) for subsidiaries operating outside the U.S. were $12,506,000, ($5,624,000), and ($2,261,000) for 1995, 1994, and 1993, respectively.
Retained earnings for subsidiaries operating outside the U.S. were $4,373,000, $8,860,000, and $9,760,000 for 1995, 1994, and 1993, respectively.
Transaction and translation net gains or losses, included in Other income (expense), net were $528,000, $366,000, and ($1,294,000) for 1995, 1994, and 1993, respectively.
C. INVENTORIES
Major components of inventories for the last three years were as follows:
Inventories valued under the LIFO method were $23,783,000, $32,743,000, and $19,700,000 for 1995, 1994, and 1993, respectively. The balance of the inventory was valued on the FIFO method.
In 1995 and 1993, certain inventory quantities were reduced, resulting in liquidation of LIFO inventory quantities carried at different costs from prior years. The effect was to decrease net earnings in 1995 by approximately $100,000 and increase net earnings in 1993 by approximately $900,000.
D. INCOME TAXES
Earnings before income tax expense consists of:
Income tax expense consists of:
Income taxes paid were $16,019,000, $12,136,000, and $4,620,000 in 1995, 1994, and 1993, respectively.
A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows:
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:
Net non-current deferred tax assets above are included in other assets. Total deferred tax assets were $23,040,000, $22,506,000, and $18,637,000, and total deferred tax liabilities were $8,942,000, $6,801,000, and $7,509,000 on December 29, 1995, December 30, 1994, and December 31, 1993, respectively. A valuation allowance of $5,015,000, $6,893,000, and $2,740,000 has been recorded as of December 29, 1995, December 30, 1994, and December 31, 1993, respectively, primarily related to the uncertainty of obtaining tax benefits for subsidiary operating losses, which expire beginning in 1998 in Japan and in later years for other subsidiaries. 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
Long-term debt consists of the following:
Aggregate annual scheduled maturities of long-term debt for the next five years are as follows: 1996, $1,935,000; 1997, $1,781,000; 1998, $1,798,000; 1999, $3,433,000; 2000, $1,202,000. Interest paid on debt during 1995, 1994, and 1993
amounted to $2,179,000, $1,923,000, and $3,230,000, respectively. The fair value of the Company's long-term debt at December 29, 1995, December 30, 1994, and December 31, 1993, 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.
On December 29, 1995, the Company had lines of credit with U.S. and foreign banks of $71,697,000, including a $25,000,000 revolving credit agreement. The unused portion of these credit lines was $67,521,000 at December 29, 1995. 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 2.2 percent, 5.6 percent, and 4.4 percent at December 29, 1995, December 30, 1994, and December 31, 1993, 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 financial covenants of its debt agreements. Under the most restrictive terms of the agreements, approximately $18,669,000 of retained earnings were available for payment of cash dividends at December 29, 1995.
F. SHAREHOLDERS' EQUITY
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. At December 29, 1995, the Company has 22,549 authorized, but not issued, cumulative preferred shares.
The Company has authorized, but not issued, a separate class of 3,000,000 shares of preferred stock, $1 par value.
The Company has a leveraged Employee Stock Ownership Plan (ESOP) under which outstanding debt was $600,000, $900,000, and $1,200,000 at December 29, 1995, December 30, 1994, and December 31, 1993, 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.
The Board of Directors approved three-for-two stock splits on December 15, 1995, and on December 17, 1993, effected in the form of 50 percent stock dividends payable February 7, 1996 and February 2, 1994, respectively, to shareholders of record on January 3, 1996 and January 5, 1994, respectively. Accordingly, December 29, 1995, and December 31, 1993 balances reflect the splits with an increase in common stock and reduction in retained earnings of $5,754,000 and $3,817,000, respectively. All stock option, share, and per share data has been restated to reflect the splits.
On December 17, 1993, the Board of Directors approved a special one-time dividend of $1.80 per common share to be paid March 21, 1994, on post-split shares to shareholders of record on March 7, 1994. Dividends payable at December 31, 1993, reflect the special one-time dividend.
On May 3, 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. For the year ended December 29, 1995, the Company has issued 485 shares under this plan. No shares were issued during 1994.
Under the Company's Employee Stock Purchase Plan, 3,150,000 common shares have been authorized for sale to employees, 478,219 of which remained unissued at the end of 1995. 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.
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.
The Company has a Long Term Stock Incentive Plan, under which a total of 2,475,000 common shares have been reserved for issuance, with 1,158,167 shares remaining reserved at December 29, 1995. 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, with 48,551 shares still restricted for disposition, such restrictions lapse in 1996 and 1997. Unearned compensation expense relating to the remaining restricted shares is $256,000 at December 29, 1995, and is included as a reduction of shareholders' equity in the Other, net category.
Stock options for 1,349,577 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 in five to ten years from the date of grant.
In 1993, the Company granted Stock Appreciation Rights (SARs) to certain key employees, utilizing a portion of the above options. Upon exercise of the SARs, the employee will surrender the unexercised related option and will receive a cash payment equal to the excess of the fair market value at the time of exercise over the price of the related option. Compensation expense related to the SARs is not significant.
Shares and options on common shares granted and exercisable, as well as the exercise price, are shown for the last three years in the table below:
The changes in shareholders' equity accounts are as follows:
G. 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 $852,000 in 1995, $850,000 in 1994, and $819,000 in 1993.
The Company has non-contributory 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 plan's investment in the common stock of the Company was $9,188,000, $6,550,000, and $7,305,000 at December 29, 1995, December 30, 1994, and December 31, 1993, respectively. The expenses for these plans consist of the following components:
The status of the Company's plans and the amounts recognized in the financial statements are:
Major assumptions at year-end:
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 cost of retiree health benefit expense for 1995, 1994 and 1993 was as follows:
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 amounts recognized in the consolidated balance sheets were as follows:
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 ended December 29, 1995. 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 1995, 1994, and 1993 was 7.0 percent, 7.5 percent, and 7.5 percent, respectively. If the assumed healthcare cost trend rate changed by 1 percent, the APBO as of December 29, 1995 would change by 8.6 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 10.3 percent.
H. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS:
Aggregate annual rental commitments at December 29, 1995, under operating leases with noncancelable terms of more than one year, were $10,051,000, payable as follows:
Total rental expense was $4,722,000 for 1995, $4,103,000 for 1994, and $4,276,000 for 1993.
CONTINGENCIES:
In 1993, the U.S. District Court for the Southern District of Texas awarded the Company $2,750,000 in a patent infringement judgment. A subsequent ruling has disallowed treble damages and attorneys' fees, significantly reducing the potential recovery. The Company no longer considers this event material.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
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 29, 1995, 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 Schedules, 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. 30 (See Exhibit Index) Those entries marked by an asterisk are Management Contracts, Compensatory Plans or Arrangements.
(b) Reports on Form 8-K There were no reports on Form 8-K for the thirteen weeks ended December 29, 1995.
(c) Exhibit Index. 30
Schedule II - Valuation and Qualifying Accounts
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.
\George Aristides March 18, 1996 ------------------------------------- -------------- 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.
\George Aristides March 18, 1996 ------------------------------------- -------------- George Aristides President and Chief Executive Officer (Principal Executive Officer)
\David M. Lowe March 18, 1996 ------------------------------------- -------------- David M. Lowe Treasurer (Principal Financial Officer)
\James A. Graner March 18, 1996 ------------------------------------- -------------- 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 J. R. Lee Director R. D. McFarland Director L. R. Mitau Director M. A.M. Morfitt Director D. R. Olseth Director C. M. Osborne Director G. C. Planchon 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.
\George Aristides March 18, 1996 ------------------------------------- -------------- George Aristides (For himself and as attorney-in-fact)
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.
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 1995 Corporate and Business Unit Annual Bonus Plan. (Incorporated by reference to Exhibit 10 to the Company's Report on Form 10-Q for the twenty-six weeks ended June 30, 1995.)
*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.)
*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 (Incorporated by reference to Attachment C to the Company's Report on Form 10-Q for the thirteen weeks ended March 27, 1992.)
*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.
*10.19 Stock Option Agreement. Form of agreement used for award of non-incentive stock options to executive officers, dated March 1, 1996.
*10.20 Salary protection arrangement with one executive officer.
*10.21 Form of salary protection arrangement between the Company and executive 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).
*Management Contracts, Compensatory Plans or Arrangements.