NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Graco Inc. and Subsidiaries
Years Ended
December 29, 2017
,
December 30, 2016
and
December 25, 2015
A. Summary of Significant Accounting Policies
Fiscal Year
.
The fiscal year of Graco Inc. and Subsidiaries (the “Company”) is 52 or 53 weeks, ending on the last Friday in December. The years ended
December 29, 2017
and
December 25, 2015
were 52-week years. The year ended
December 30, 2016
was a 53-week year.
Basis of Statement Presentation
.
The consolidated financial statements include the accounts of the parent company and its subsidiaries after elimination of intercompany balances and transactions. As of
December 29, 2017
, all subsidiaries are 100 percent controlled by the Company. All share and per share data have been adjusted to reflect the
three-for-one
stock split distributed on December 27, 2017. Certain other prior year disclosures have been revised to conform with current year reporting.
As more fully described in Note M (Divestiture), in 2015, the Company sold the Liquid Finishing business assets acquired in 2012 that were held as a cost-method investment. Investment income in the Company’s consolidated statements of earnings includes the pre-tax gain on the sale, net of transaction and other related expenses, along with dividend income received prior to the sale from after-tax earnings of Liquid Finishing.
Foreign Currency Translation
.
The functional currency of certain subsidiaries is the local currency. Accordingly, adjustments resulting from the translation of those subsidiaries’ financial statements into U.S. dollars are charged or credited to accumulated other comprehensive income (loss). The U.S. dollar is the functional currency for all other foreign subsidiaries. Accordingly, gains and losses from the translation of foreign currency balances and transactions of those subsidiaries are included in other expense (income), net.
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. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements.
The three levels of inputs in the fair value measurement hierarchy are as follows:
Level 1 – based on quoted prices in active markets for identical assets
Level 2 – based on significant observable inputs
Level 3 – based on significant unobservable inputs
Assets and liabilities measured at fair value on a recurring basis and fair value measurement level were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Level
|
|
2017
|
|
2016
|
Assets
|
|
|
|
|
|
Cash surrender value of life insurance
|
2
|
|
$
|
16,128
|
|
|
$
|
13,785
|
|
Forward exchange contracts
|
2
|
|
—
|
|
|
571
|
|
Total assets at fair value
|
|
|
$
|
16,128
|
|
|
$
|
14,356
|
|
Liabilities
|
|
|
|
|
|
Contingent consideration
|
3
|
|
$
|
4,081
|
|
|
$
|
4,081
|
|
Deferred compensation
|
2
|
|
3,836
|
|
|
3,265
|
|
Forward exchange contracts
|
2
|
|
517
|
|
|
—
|
|
Total liabilities at fair value
|
|
|
$
|
8,434
|
|
|
$
|
7,346
|
|
Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.
The Company’s policy and accounting for forward exchange contracts are described below, in Derivative Instruments and Hedging Activities.
Contingent consideration liability represents the estimated value (using a probability-weighted expected return approach) of future payments to be made to previous owners of an acquired business based on its future revenues (see Note L, Acquisitions).
Disclosures related to other fair value measurements are included below in Impairment of Long-Lived Assets, in Note F (Debt) and in Note J (Retirement Benefits).
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.
Accounts Receivable.
Accounts receivable includes trade receivables of
$244 million
in
2017
and
$209 million
in
2016
. Other receivables totaled
$12 million
in
2017
and
$9 million
in
2016
.
Inventory Valuation
.
Inventories are stated at the lower of cost or net realizable value. The last-in, first-out (LIFO) cost method is used for valuing most U.S. inventories. Inventories of foreign subsidiaries are valued using the first-in, first-out (FIFO) cost method.
Other Current Assets.
Amounts included in other current assets were (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Prepaid income taxes
|
$
|
8,934
|
|
|
$
|
10,723
|
|
Restricted cash
|
9,242
|
|
|
9,230
|
|
Prepaid expenses and other
|
14,318
|
|
|
11,070
|
|
Total
|
$
|
32,494
|
|
|
$
|
31,023
|
|
Cash balances included within other current assets were restricted to funding of certain self-insured loss reserves.
Impairment of Long-Lived Assets.
The Company evaluates long-lived assets (including property and equipment, goodwill and other intangible assets) for impairment annually in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
We completed our annual impairment review of all long-lived assets in the fourth quarter of 2017.
No
impairment charges were recorded as a result of that review. In 2016, we recorded an impairment charge of
$192 million
for our Oil and Natural Gas reporting unit within the Process segment. There were no impairment charges in 2015.
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
|
|
lesser of 5 to 10 years or life of lease
|
Manufacturing equipment
|
|
lesser of 5 to 10 years or life of equipment
|
Office, warehouse and automotive equipment
|
|
3 to 10 years
|
Goodwill and Other Intangible Assets.
Goodwill has been assigned to reporting units. Changes in the carrying amounts of goodwill for each reportable segment were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
|
|
Process
|
|
Contractor
|
|
Total
|
Balance, December 25, 2015
|
$
|
153,283
|
|
|
$
|
228,473
|
|
|
$
|
12,732
|
|
|
$
|
394,488
|
|
Additions from business acquisitions
|
—
|
|
|
28,130
|
|
|
—
|
|
|
28,130
|
|
Impairment
|
—
|
|
|
(146,669
|
)
|
|
—
|
|
|
(146,669
|
)
|
Foreign currency translation
|
(2,727
|
)
|
|
(13,373
|
)
|
|
—
|
|
|
(16,100
|
)
|
Balance, December 30, 2016
|
150,556
|
|
|
96,561
|
|
|
12,732
|
|
|
259,849
|
|
Additions (adjustments) from business acquisitions
|
7,152
|
|
|
(62
|
)
|
|
6,413
|
|
|
13,503
|
|
Foreign currency translation
|
3,965
|
|
|
1,472
|
|
|
—
|
|
|
5,437
|
|
Balance, December 29, 2017
|
$
|
161,673
|
|
|
$
|
97,971
|
|
|
$
|
19,145
|
|
|
$
|
278,789
|
|
Components of other intangible assets were (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite Life
|
|
Indefinite Life
|
|
|
|
Customer
Relationships
|
|
Patents and
Proprietary
Technology
|
|
Trademarks,
Trade Names
and Other
|
|
Trade
Names
|
|
Total
|
As of December 29, 2017
|
|
|
|
|
|
|
|
|
|
Cost
|
$
|
179,826
|
|
|
$
|
18,479
|
|
|
$
|
1,071
|
|
|
$
|
59,553
|
|
|
$
|
258,929
|
|
Accumulated amortization
|
(54,076
|
)
|
|
(7,795
|
)
|
|
(542
|
)
|
|
—
|
|
|
(62,413
|
)
|
Foreign currency translation
|
(9,186
|
)
|
|
(727
|
)
|
|
(61
|
)
|
|
(3,486
|
)
|
|
(13,460
|
)
|
Book value
|
$
|
116,564
|
|
|
$
|
9,957
|
|
|
$
|
468
|
|
|
$
|
56,067
|
|
|
$
|
183,056
|
|
Weighted average life in years
|
13
|
|
|
10
|
|
|
4
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2016
|
|
|
|
|
|
|
|
|
|
Cost
|
$
|
170,284
|
|
|
$
|
17,321
|
|
|
$
|
895
|
|
|
$
|
57,853
|
|
|
$
|
246,353
|
|
Accumulated amortization
|
(41,599
|
)
|
|
(6,088
|
)
|
|
(337
|
)
|
|
—
|
|
|
(48,024
|
)
|
Foreign currency translation
|
(13,630
|
)
|
|
(1,055
|
)
|
|
(59
|
)
|
|
(5,249
|
)
|
|
(19,993
|
)
|
Book value
|
$
|
115,055
|
|
|
$
|
10,178
|
|
|
$
|
499
|
|
|
$
|
52,604
|
|
|
$
|
178,336
|
|
Weighted average life in years
|
13
|
|
|
10
|
|
|
4
|
|
|
N/A
|
|
|
|
Amortization of intangibles was
$14.8 million
in
2017
,
$17.8 million
in
2016
and
$17.2 million
in
2015
. Estimated future annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
Estimated Amortization Expense
|
$
|
15,418
|
|
|
$
|
15,089
|
|
|
$
|
14,910
|
|
|
$
|
14,740
|
|
|
$
|
14,740
|
|
|
$
|
52,092
|
|
Other Assets.
Components of other assets were (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Cash surrender value of life insurance
|
$
|
16,128
|
|
|
$
|
13,785
|
|
Capitalized software
|
1,784
|
|
|
1,812
|
|
Equity method investment
|
6,755
|
|
|
6,366
|
|
Prepaid pension
|
2,538
|
|
|
—
|
|
Deposits and other
|
3,015
|
|
|
3,350
|
|
Total
|
$
|
30,220
|
|
|
$
|
25,313
|
|
The Company has entered into contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans. These insurance contracts are used to fund the non-qualified pension and deferred compensation arrangements. The insurance contracts are held in a trust and are available to general creditors in the event of the Company’s insolvency. Changes in cash surrender value are recorded in operating expense and were not significant in
2016
and
2015
. In
2017
, increases in cash surrender value totaled
$2.3 million
and were offset by expenses related to the non-qualified pension and deferred compensation plans funded by the insurance contracts.
Capitalized software is amortized over its estimated useful life (generally 2 to 5 years) beginning at date of implementation.
Other Current Liabilities.
Components of other current liabilities were (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Accrued self-insurance retentions
|
$
|
7,956
|
|
|
$
|
7,105
|
|
Accrued warranty and service liabilities
|
10,535
|
|
|
8,934
|
|
Accrued trade promotions
|
10,588
|
|
|
6,007
|
|
Payable for employee stock purchases
|
10,053
|
|
|
9,328
|
|
Customer advances and deferred revenue
|
22,632
|
|
|
9,400
|
|
Income taxes payable
|
7,564
|
|
|
8,608
|
|
Other
|
31,628
|
|
|
22,505
|
|
Total
|
$
|
100,956
|
|
|
$
|
71,887
|
|
Self-Insurance.
The Company is self-insured for certain losses and costs relating to product liability, workers’ compensation, employee medical benefit claims and representations and warranties associated with the Liquid Finishing business divestiture. The Company has stop-loss coverage in order to limit its exposure to significant claims. Accrued self-insurance retentions are based on claims filed, estimates of claims incurred but not reported, and other actuarial assumptions. Self-insured reserves totaled
$8.5 million
as of
December 29, 2017
, and
$9.8 million
as of
December 30, 2016
, including
$0.5 million
and
$2.7 million
, respectively, classified as other long-term liabilities in the Consolidated Balance Sheets.
Product Warranties.
A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors including evaluating specific product warranty issues. Following is a summary of activity in accrued warranty and service liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Balance, beginning of year
|
$
|
8,934
|
|
|
$
|
7,870
|
|
Charged to expense
|
7,930
|
|
|
7,516
|
|
Margin on parts sales reversed
|
2,826
|
|
|
1,796
|
|
Reductions for claims settled
|
(9,155
|
)
|
|
(8,248
|
)
|
Balance, end of year
|
$
|
10,535
|
|
|
$
|
8,934
|
|
Revenue Recognition
.
Sales are recognized when revenue is realized or realizable and has been earned. The Company’s policy is to recognize revenue when risk and title passes to the customer. This is generally on the date of shipment, however certain sales have terms requiring recognition when received by the customer. In cases where there are specific customer acceptance provisions, revenue is recognized at the later of customer acceptance or shipment (subject to shipping terms). Payment terms are established based on the type of product, distributor capabilities and competitive market conditions. Rights of return are typically contractually limited, amounts are estimable, and the Company records provisions for anticipated returns and warranty claims at the time revenue is recognized. Historically, sales returns have been less than
3 percent
of sales. Provisions for sales returns are recorded as a reduction of net sales, and provisions for warranty claims are recorded in selling, marketing and distribution expenses. From time to time, the Company may promote the sale of new products by agreeing to accept returns of superseded products. In such cases, provisions for estimated returns are recorded as a reduction of net sales.
Trade promotions are offered to distributors and end users through various programs, generally with terms of one year or less. Such promotions include cooperative advertising arrangements, rebates based on annual purchases and sales growth, coupons and reimbursement for competitive products. Payment of incentives may take the form of cash, trade credit, promotional merchandise or free product. Under cooperative advertising arrangements, the Company reimburses the distributor for a portion of its advertising costs related to the Company’s products; estimated costs are accrued at the time of sale and classified as selling, marketing and distribution expense. Rebates are accrued based on the program rates and progress toward the estimated annual sales amount and sales growth, and are recorded as a reduction of sales (cash, trade credit) or cost of products sold (free goods). The estimated costs related to coupon programs are accrued at the time of sale and classified as selling, marketing and distribution expense or cost of products sold, depending on the type of incentive offered.
Shipping and Handling.
Shipping and handling costs incurred for the delivery of goods to customers are included in cost of goods sold in the accompanying Consolidated Statements of Earnings. Amounts billed to customers for shipping and handling are included in net sales.
Earnings Per Common Share
.
Basic net earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the year. Diluted net earnings per share is computed after giving effect to the exercise of all dilutive outstanding option grants.
Comprehensive Income.
Comprehensive income is a measure of all changes in shareholders’ equity except those resulting from investments by and distributions to owners, and includes such items as net earnings, certain foreign currency translation items, changes in the value of qualifying hedges and pension liability adjustments.
Derivative Instruments and Hedging Activities
.
The Company accounts for all derivatives, including those embedded in other contracts, as either assets or liabilities and measures those financial instruments at fair value. The accounting for changes in the fair value of derivatives depends on their intended use and designation.
As part of its risk management program, the Company may periodically use forward exchange contracts to manage known market exposures. Terms of derivative instruments are structured to match the terms of the risk being managed and are generally held to maturity. The Company does not hold or issue derivative financial instruments for trading purposes. All other contracts that contain provisions meeting the definition of a derivative also meet the requirements of, and have been designated as, normal purchases or sales. The Company’s policy is to not enter into contracts with terms that cannot be designated as normal purchases or sales.
The Company periodically evaluates its monetary asset and liability positions denominated in foreign currencies. The Company enters into forward contracts or options, or borrows in various currencies, in order to hedge its net monetary positions. These instruments are recorded at fair value and the gains and losses are included in other expense, net. The notional amounts of contracts outstanding as of
December 29, 2017
, totaled
$34 million
. 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 Company uses significant other observable inputs (level 2 in the fair value hierarchy) to value the derivative instruments used to hedge net monetary positions, including reference to market prices and financial models that incorporate relevant market assumptions. Net derivative assets are reported on the balance sheet in accounts receivable and net derivative liabilities are reported as other current liabilities. The fair market value of such instruments follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Foreign Currency Contracts
|
|
|
|
Assets
|
$
|
—
|
|
|
$
|
621
|
|
Liabilities
|
(517
|
)
|
|
(50
|
)
|
Net Assets (Liabilities)
|
$
|
(517
|
)
|
|
$
|
571
|
|
Recent Accounting Pronouncements.
Share-based Payments
A new accounting standard that changed certain aspects of accounting for share-based payments became effective for the Company in the first quarter of 2017. Excess tax benefits on exercised stock options that were previously credited to equity now reduce the current income tax provision. The change in accounting for excess tax benefits decreased the current income tax provision and increased net earnings for the year by
$36.3 million
, reduced the effective income tax rate by
10 percentage points
and increased diluted earnings per share by
$0.21
. Under the new standard, excess tax benefits are no longer reclassified out of cash flows from operating activities to financing activities in the Consolidated Statements of Cash Flows. We elected to apply the cash flow presentation requirements retrospectively to all periods presented, which resulted in an increase in previously reported net cash provided by operating activities and a decrease in net cash provided by financing activities of
$6.9 million
for the year ended
December 30, 2016
and
$1.8 million
for the year ended
December 25, 2015
. Also under the new standard, the Company elected to account for share-based grant forfeitures as they occur. The impact of the change in accounting for forfeitures was
no
t significant, and was reflected in share-based compensation cost in the first quarter of 2017.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (FASB) issued a final standard on revenue from contracts with customers, contained in Accounting Standards Codification Topic 606 (“ASC 606”). The new standard sets forth a single comprehensive model for recognizing and reporting revenue. ASC 606 will become effective for the Company beginning with the first quarter of 2018, and the Company plans to adopt the new accounting standard using the modified retrospective transition approach. The modified retrospective transition approach will recognize any changes from the beginning of the year of initial application through retained earnings with no restatement of comparative periods.
Because the new standard impacted our business processes, systems and controls, we developed a comprehensive change management project plan to guide the implementation. This project plan included analyzing the standard’s impact on our revenue streams and associated contracts, comparing our historical accounting policies and practices to the requirements of the new standard, and identifying differences from applying the requirements of the new standard to our contracts. We developed internal controls to ensure that we adequately evaluated our portfolio of contracts under the five-step model to ensure proper assessment of our operating results under ASC 606. We reported on the progress of the implementation to the Audit Committee and the Board of Directors on a regular basis during the project’s duration.
For most of our contracts, we will record revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. We have made the necessary changes to our business processes, policies, systems and controls to support recognition and disclosure under the new standard. Further, we will include incremental disaggregated revenue and other disclosures as required in our consolidated financial statements.
Based on the results of the evaluation, nothing has come to our attention that would indicate that adoption of the new standard will have a material impact on our consolidated financial statements. Application of the transition requirements of the new standard will not have a material impact on opening retained earnings.
Presentation of Pension Cost
In March 2017, the FASB issued a final standard that changes the presentation of net periodic benefit cost related to defined benefit plans. The Company will adopt the standard when it becomes effective in fiscal 2018 and it will be applied retrospectively to all periods presented. Under the new standard, net periodic benefit costs are required to be disaggregated between service costs presented as operating expenses and other components of pension costs presented as non-operating expenses. The Company currently charges service costs to segment operations and includes other components of pension cost in unallocated corporate operating expenses. Under the new standard, unallocated corporate operating expenses will decrease, operating earnings will increase and other expense will increase by the amount of other (non-service) components of pension cost. There will be no impact on reported segment earnings, net earnings or earnings per share.
Leases
In February 2016, the FASB issued a final standard on accounting for leases. The new standard is effective for the Company in fiscal 2019 and requires most leases to be recorded on the balance sheet. The Company is evaluating the effect of the new standard on its consolidated financial statements and related disclosures and accounting systems.
B. Segment Information
The Company has
six
operating segments which are aggregated into
three
reportable segments: Industrial, Process and Contractor.
The Industrial segment includes our Industrial Products and Applied Fluid Technologies divisions. The Industrial segment markets equipment and pre-engineered packages for moving and applying paints, coatings, sealants, adhesives and other fluids. Markets served include automotive and vehicle assembly and components production, wood and metal products, rail, marine, aerospace, farm, construction, bus, recreational vehicles and various other industries.
The Process segment includes our Process, Oil and Natural Gas, and Lubrication divisions. The Process segment markets pumps, valves, meters and accessories to move and dispense chemicals, oil and natural gas, water, wastewater, petroleum, food, lubricants and other fluids. Markets served include food and beverage, dairy, oil and natural gas, pharmaceutical, cosmetics, electronics, wastewater, mining, fast oil change facilities, service garages, fleet service centers, automobile dealerships and industrial lubrication applications.
The Contractor segment markets sprayers for architectural coatings for painting, corrosion control, texture and line striping.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The cost of manufacturing for each segment is based on product cost, and expenses are based on actual costs incurred along with cost allocations of shared and centralized functions based on activities performed, sales or space utilization. Depreciation expense is charged to the manufacturing or operating cost center that utilizes the asset, and is then allocated to segments on the same basis as other expenses within that cost center. Reportable segments are defined by product. Segments are responsible for development, manufacturing, marketing and sales of their products. This allows for focused marketing and efficient product development. The segments share common purchasing, certain manufacturing, distribution and administration functions.
Segments information follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Net Sales
|
|
|
|
|
|
Industrial
|
$
|
691,978
|
|
|
$
|
629,581
|
|
|
$
|
616,069
|
|
Process
|
294,652
|
|
|
266,630
|
|
|
273,631
|
|
Contractor
|
488,114
|
|
|
433,082
|
|
|
396,785
|
|
Total
|
$
|
1,474,744
|
|
|
$
|
1,329,293
|
|
|
$
|
1,286,485
|
|
Operating Earnings
|
|
|
|
|
|
Industrial
|
$
|
237,700
|
|
|
$
|
207,183
|
|
|
$
|
201,749
|
|
Process
|
52,216
|
|
|
35,750
|
|
|
43,833
|
|
Contractor
|
113,898
|
|
|
91,837
|
|
|
86,447
|
|
Unallocated corporate (expense)
|
(43,367
|
)
|
|
(28,871
|
)
|
|
(29,904
|
)
|
Impairment
|
—
|
|
|
(192,020
|
)
|
|
—
|
|
Total
|
$
|
360,447
|
|
|
$
|
113,879
|
|
|
$
|
302,125
|
|
Assets
|
|
|
|
|
|
Industrial
|
$
|
572,436
|
|
|
$
|
546,366
|
|
|
|
Process
|
345,572
|
|
|
318,444
|
|
|
|
Contractor
|
255,615
|
|
|
208,016
|
|
|
|
Unallocated corporate
|
205,582
|
|
|
170,283
|
|
|
|
Total
|
$
|
1,379,205
|
|
|
$
|
1,243,109
|
|
|
|
Management assesses performance of segments by reference to operating earnings excluding unallocated corporate expenses and asset impairments. Unallocated corporate (expense) includes such items as stock compensation, divestiture and certain acquisition transaction costs, bad debt expense, charitable contributions, certain portions of pension expense and certain central warehouse expenses. Unallocated assets include cash, allowances and valuation reserves, deferred income taxes, certain capital and other assets.
Geographic information follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Net Sales (based on customer location)
|
|
|
|
|
|
United States
|
$
|
743,344
|
|
|
$
|
685,981
|
|
|
$
|
653,534
|
|
Other countries
|
731,400
|
|
|
643,312
|
|
|
632,951
|
|
Total
|
$
|
1,474,744
|
|
|
$
|
1,329,293
|
|
|
$
|
1,286,485
|
|
Long-lived Assets
|
|
|
|
|
|
United States
|
$
|
163,416
|
|
|
$
|
151,911
|
|
|
|
Other countries
|
40,882
|
|
|
37,685
|
|
|
|
Total
|
$
|
204,298
|
|
|
$
|
189,596
|
|
|
|
Sales to Major Customers.
Worldwide sales to
one
customer in the Contractor and Industrial segments individually represented over
10 percent
of the Company’s consolidated sales in 2017, 2016 and 2015.
C. Inventories
Major components of inventories were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Finished products and components
|
$
|
124,327
|
|
|
$
|
113,643
|
|
Products and components in various stages of completion
|
61,274
|
|
|
50,557
|
|
Raw materials and purchased components
|
103,407
|
|
|
84,631
|
|
Subtotal
|
289,008
|
|
|
248,831
|
|
Reduction to LIFO cost
|
(49,659
|
)
|
|
(47,222
|
)
|
Total
|
$
|
239,349
|
|
|
$
|
201,609
|
|
Inventories valued under the LIFO method were
$135.9 million
in
2017
and
$103.2 million
in
2016
. All other inventory was valued on the FIFO method.
In 2017, there were no reductions in inventory quantities resulting in liquidation of LIFO inventory quantities carried at lower costs from prior years.
D. Property, Plant and Equipment
Property, plant and equipment were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Land and improvements
|
$
|
24,469
|
|
|
$
|
23,253
|
|
Buildings and improvements
|
145,009
|
|
|
132,343
|
|
Manufacturing equipment
|
298,719
|
|
|
286,742
|
|
Office, warehouse and automotive equipment
|
41,747
|
|
|
37,940
|
|
Additions in progress
|
18,170
|
|
|
9,364
|
|
Total property, plant and equipment
|
528,114
|
|
|
489,642
|
|
Accumulated depreciation
|
(323,816
|
)
|
|
(300,046
|
)
|
Net property, plant and equipment
|
$
|
204,298
|
|
|
$
|
189,596
|
|
Depreciation expense was
$29.5 million
in
2017
,
$28.8 million
in
2016
and
$25.7 million
in
2015
.
E. Income Taxes
Passage of the 2017 Tax Cuts and Jobs Act (the "Tax Act") required a revaluation of net deferred tax assets that increased the 2017 tax provision by
$29.0 million
and instituted a transition tax on un-repatriated foreign earnings that increased the tax provision by
$6.6 million
. Those adjustments increased the effective income tax rate by
10 percentage points
. Adjustments recorded in 2017 were prepared on a provisional basis using estimates based on reasonable and supportable assumptions and available inputs and underlying information. The ultimate impact of the Tax Act may differ from those estimates due to continuing analysis or further regulatory guidance that may be issued. Any adjustments to the provisional amounts recorded as of December 29, 2017 that are identified within one year of the Tax Act enactment date will be included as an adjustment to tax expense in the period the amounts are determined.
Adoption of a new accounting standard, requiring excess tax benefits related to stock option exercises to be credited to the income tax provision (formerly credited to equity), reduced the 2017 tax provision by
$36.3 million
, decreasing the effective tax rate by
10 percentage points
.
No additional income or withholding taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax as these amounts continue to be indefinitely reinvested in foreign operations. As of
December 29, 2017
, the amount of cash held outside the U.S. was not significant to the Company’s liquidity and was available to fund investments abroad.
Earnings before income tax expense (income) consist of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
$
|
269,258
|
|
|
$
|
107,440
|
|
|
$
|
402,453
|
|
Foreign
|
77,836
|
|
|
(10,785
|
)
|
|
72,260
|
|
Total
|
$
|
347,094
|
|
|
$
|
96,655
|
|
|
$
|
474,713
|
|
Income tax expense (income) consists of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Current
|
|
|
|
|
|
Federal
|
$
|
41,996
|
|
|
$
|
67,126
|
|
|
$
|
117,883
|
|
State and local
|
3,088
|
|
|
4,868
|
|
|
4,576
|
|
Foreign
|
19,486
|
|
|
18,195
|
|
|
18,115
|
|
Current income tax expense
|
64,570
|
|
|
90,189
|
|
|
140,574
|
|
Deferred
|
|
|
|
|
|
Domestic
|
35,782
|
|
|
(27,509
|
)
|
|
(10,175
|
)
|
Foreign
|
(5,670
|
)
|
|
(6,699
|
)
|
|
(1,399
|
)
|
Deferred income tax expense (benefit)
|
30,112
|
|
|
(34,208
|
)
|
|
(11,574
|
)
|
Total
|
$
|
94,682
|
|
|
$
|
55,981
|
|
|
$
|
129,000
|
|
Income taxes paid were
$61.0 million
in
2017
,
$78.6 million
in
2016
and
$150.5 million
in
2015
.
A reconciliation between the U.S. federal statutory tax rate and the effective tax rate follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Statutory tax rate
|
35
|
%
|
|
35
|
%
|
|
35
|
%
|
Tax effect of international operations
|
(6
|
)
|
|
4
|
|
|
(3
|
)
|
State taxes, net of federal effect
|
1
|
|
|
1
|
|
|
1
|
|
U.S. general business tax credits
|
(1
|
)
|
|
(3
|
)
|
|
(1
|
)
|
Domestic production deduction
|
(2
|
)
|
|
(7
|
)
|
|
(2
|
)
|
Stock compensation excess tax benefit
|
(10
|
)
|
|
—
|
|
|
—
|
|
Impact of 2017 Tax Cuts and Jobs Act
|
10
|
|
|
—
|
|
|
—
|
|
Impairment
|
—
|
|
|
28
|
|
|
—
|
|
Dividends from Liquid Finishing
|
—
|
|
|
—
|
|
|
(3
|
)
|
Effective tax rate
|
27
|
%
|
|
58
|
%
|
|
27
|
%
|
Deferred income taxes are provided for temporary differences between the financial reporting and the tax basis of assets and liabilities. The deferred tax assets (liabilities) resulting from these differences were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Inventory valuations
|
$
|
(1,686
|
)
|
|
$
|
9,845
|
|
Self-insurance retention accruals
|
1,264
|
|
|
1,836
|
|
Warranty reserves
|
1,658
|
|
|
2,390
|
|
Vacation accruals
|
1,942
|
|
|
3,343
|
|
Bad debt reserves
|
2,620
|
|
|
3,824
|
|
Excess of tax over book depreciation and amortization
|
(30,381
|
)
|
|
(31,849
|
)
|
Pension liability
|
31,220
|
|
|
43,924
|
|
Postretirement medical
|
4,313
|
|
|
6,856
|
|
Acquisition costs
|
680
|
|
|
1,052
|
|
Stock compensation
|
14,185
|
|
|
24,521
|
|
Deferred compensation
|
1,801
|
|
|
1,495
|
|
Foreign tax credit carryforward
|
5,000
|
|
|
—
|
|
Other
|
1,047
|
|
|
1,744
|
|
Net deferred tax assets
|
$
|
33,663
|
|
|
$
|
68,981
|
|
Total deferred tax assets were
$68.8 million
and
$103.4 million
, and total deferred tax liabilities were
$35.1 million
and
$34.5 million
on
December 29, 2017
and
December 30, 2016
. The difference between the deferred income tax provision and the change in net deferred income taxes is due to the change in other comprehensive income (loss) items.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before
2011
.
The Company records penalties and accrued interest related to uncertain tax positions in income tax expense. Total reserves for uncertain tax positions were not material.
F. Debt
A summary of debt follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
December 29, 2017
|
|
Maturity
|
|
2017
|
|
2016
|
Private placement unsecured fixed-rate notes
|
|
|
|
|
|
|
|
Series A
|
4.00%
|
|
March 2018
|
|
$
|
—
|
|
|
$
|
75,000
|
|
Series B
|
5.01%
|
|
March 2023
|
|
75,000
|
|
|
75,000
|
|
Series C
|
4.88%
|
|
January 2020
|
|
75,000
|
|
|
75,000
|
|
Series D
|
5.35%
|
|
July 2026
|
|
75,000
|
|
|
75,000
|
|
Unsecured revolving credit facility
|
2.56%
|
|
December 2021
|
|
1,035
|
|
|
5,685
|
|
Notes payable to banks
|
0.77%
|
|
2018
|
|
6,578
|
|
|
8,913
|
|
Total debt
|
|
|
|
|
$
|
232,613
|
|
|
$
|
314,598
|
|
The estimated fair value of the fixed interest rate private placement debt was
$245 million
on
December 29, 2017
and
$325 million
on
December 30, 2016
. The fair value of variable rate borrowings approximates carrying value. The Company uses significant other observable inputs to estimate fair value (level 2 of the fair value hierarchy) based on the present value of future cash flows and rates that would be available for issuance of debt with similar terms and remaining maturities.
On December 15, 2016, the Company executed an amendment to its revolving credit agreement, extending the expiration date to December 15, 2021 and decreasing certain interest rates and fees. The amended agreement with a syndicate of lenders provides up to
$500 million
of committed credit, available for general corporate purposes, working capital needs, share repurchases and acquisitions. The Company may borrow up to
$50 million
under the swingline portion of the facility for daily working capital needs.
Under terms of the amended revolving credit agreement, borrowings may be denominated in U.S. dollars or certain other currencies. Loans denominated in U.S. dollars bear interest, at the Company’s option, at either a base rate or a LIBOR-based rate. Loans denominated in currencies other than U.S. dollars bear interest at a LIBOR-based rate. The base rate is an annual rate equal to a margin ranging from
zero percent
to
0.75 percent
, depending on the Company’s cash flow leverage ratio (debt to earnings before interest, taxes, depreciation, amortization and extraordinary non-operating or non-cash charges and expenses) plus the highest of (i) the bank’s prime rate, (ii) the federal funds rate plus
0.5 percent
, or (iii) one-month LIBOR plus
1.5 percent
. In general, LIBOR-based loans bear interest at LIBOR plus
1 percent
to
1.75 percent
, depending on the Company’s cash flow leverage ratio. In addition to paying interest on the outstanding loans, the Company is required to pay a fee on the unused amount of the loan commitments at an annual rate ranging from
0.125 percent
to
0.25 percent
, depending on the Company’s cash flow leverage ratio.
On
December 29, 2017
, the Company had
$545 million
in lines of credit, including the
$500 million
in committed credit facilities described above and
$45 million
with foreign banks. The unused portion of committed credit lines was
$512 million
as of
December 29, 2017
. In addition, the Company has unused, uncommitted lines of credit with foreign banks totaling
$26 million
. Borrowing rates under these credit lines vary with the prime rate, rates on domestic certificates of deposit and the London Interbank market. The Company pays facility fees at an annual rate of up to
0.15 percent
on certain of these lines. No compensating balances are required.
Various debt agreements require the Company to maintain certain financial ratios as to cash flow leverage and interest coverage. The Company is in compliance with all financial covenants of its debt agreements as of
December 29, 2017
.
Annual maturities of debt are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
Maturities of debt
|
$
|
6,578
|
|
|
$
|
—
|
|
|
$
|
75,000
|
|
|
$
|
1,035
|
|
|
$
|
—
|
|
|
$
|
150,000
|
|
Interest paid on debt was
$16.5 million
in
2017
,
$17.6 million
in
2016
and
$17.5 million
in
2015
.
G. Shareholders’ Equity
At
December 29, 2017
, the Company had
22,549
authorized, but not issued, cumulative preferred shares,
$100
par value. The Company also has authorized, but not issued, a separate class of
3 million
shares of preferred stock,
$1
par value.
All stock option, share and per share data reflect the
three-for-one
common stock split distributed on December 27, 2017.
Changes in components of accumulated other comprehensive income (loss), net of tax were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
Postretirement
Medical
|
|
Cumulative
Translation
Adjustment
|
|
Total
|
Balance, December 26, 2014
|
$
|
(76,584
|
)
|
|
$
|
(24,152
|
)
|
|
$
|
(100,736
|
)
|
Other comprehensive income (loss) before reclassifications
|
641
|
|
|
(10,423
|
)
|
|
(9,782
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
6,021
|
|
|
—
|
|
|
6,021
|
|
Balance, December 25, 2015
|
(69,922
|
)
|
|
(34,575
|
)
|
|
(104,497
|
)
|
Other comprehensive income (loss) before reclassifications
|
(12,169
|
)
|
|
(31,227
|
)
|
|
(43,396
|
)
|
Amounts reclassified from accumulated other comprehensive income
|
5,665
|
|
|
—
|
|
|
5,665
|
|
Balance, December 30, 2016
|
(76,426
|
)
|
|
(65,802
|
)
|
|
(142,228
|
)
|
Other comprehensive income (loss) before reclassifications
|
(14,791
|
)
|
|
16,443
|
|
|
1,652
|
|
Amounts reclassified from accumulated other comprehensive income
|
12,787
|
|
|
—
|
|
|
12,787
|
|
Balance, December 29, 2017
|
$
|
(78,430
|
)
|
|
$
|
(49,359
|
)
|
|
$
|
(127,789
|
)
|
Amounts related to pension and postretirement medical adjustments are reclassified to pension cost, which is allocated to cost of products sold and operating expenses generally based on salaries and wages. Included in the 2017 reclassification is
$12 million
related to a pension settlement loss that was charged to general and administrative expense (see Note J). Amounts allocated, including the pension settlement loss were approximately as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Cost of products sold
|
$
|
3,165
|
|
|
$
|
3,379
|
|
|
$
|
3,370
|
|
Product development
|
1,307
|
|
|
1,334
|
|
|
1,352
|
|
Selling, marketing and distribution
|
3,085
|
|
|
3,033
|
|
|
3,109
|
|
General and administrative
|
13,635
|
|
|
1,586
|
|
|
1,543
|
|
Total before tax
|
$
|
21,192
|
|
|
$
|
9,332
|
|
|
$
|
9,374
|
|
Income tax (benefit)
|
(8,405
|
)
|
|
(3,667
|
)
|
|
(3,353
|
)
|
Total after tax
|
$
|
12,787
|
|
|
$
|
5,665
|
|
|
$
|
6,021
|
|
H. Share-Based Awards, Purchase Plans and Compensation Cost
Stock Option and Award Plan.
The Company has a stock incentive plan under which it grants stock options and share awards to directors, officers and other employees. Option price is the market price on the date of grant. Options become exercisable at such time, generally over
three
or
four years
, and in such installments as set by the Company, and expire
ten years
from the date of grant.
Restricted share awards have been made to certain key employees under the plan. The market value of restricted stock at the date of grant is charged to operations over the vesting period. Compensation cost related to restricted shares is not significant.
The Company has a stock appreciation plan that provides for payments of cash to eligible foreign employees based on the change in the market price of the Company’s common stock over a period of time. Compensation cost related to the stock appreciation plan was
$4.5 million
in 2017 and was not significant in 2016 and 2015.
Individual nonemployee directors of the Company may elect to receive, either currently or deferred, all or part of their retainer in the form of shares of the Company’s common stock instead of cash. Under this arrangement, the Company issued
5,975
shares in
2017
,
6,882
shares in
2016
and
5,963
shares in
2015
. The expense related to this arrangement is not significant.
Options on common shares granted and outstanding, as well as the weighted average exercise price, are shown below (in thousands, except exercise prices):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Shares
|
|
Weighted Average
Exercise Price
|
|
Options
Exercisable
|
|
Weighted Average
Exercise Price
|
Outstanding, December 26, 2014
|
14,925
|
|
|
$
|
14.91
|
|
|
9,954
|
|
|
$
|
11.62
|
|
Granted
|
1,629
|
|
|
24.73
|
|
|
|
|
|
Exercised
|
(984
|
)
|
|
12.43
|
|
|
|
|
|
Canceled
|
(75
|
)
|
|
24.00
|
|
|
|
|
|
Outstanding, December 25, 2015
|
15,495
|
|
|
16.05
|
|
|
10,749
|
|
|
12.83
|
|
Granted
|
3,483
|
|
|
25.53
|
|
|
|
|
|
Exercised
|
(2,286
|
)
|
|
13.00
|
|
|
|
|
|
Canceled
|
(87
|
)
|
|
23.36
|
|
|
|
|
|
Outstanding, December 30, 2016
|
16,605
|
|
|
18.42
|
|
|
11,016
|
|
|
15.13
|
|
Granted
|
1,725
|
|
|
30.71
|
|
|
|
|
|
Exercised
|
(4,903
|
)
|
|
12.86
|
|
|
|
|
|
Canceled
|
(137
|
)
|
|
26.63
|
|
|
|
|
|
Outstanding, December 29, 2017
|
13,290
|
|
|
$
|
21.99
|
|
|
7,729
|
|
|
$
|
18.33
|
|
The following table summarizes information for options outstanding and exercisable at
December 29, 2017
(in thousands, except exercise prices and contractual term amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Prices
|
|
Options
Outstanding
|
|
Weighted Average
Remaining
Contractual Term
in Years
|
|
Weighted Average
Exercise Price
|
|
Options
Exercisable
|
|
Weighted Average
Exercise Price
|
$5 - $15
|
|
2,200
|
|
|
2.2
|
|
$
|
10.52
|
|
|
2,200
|
|
|
$
|
10.52
|
|
$15 - $20
|
|
2,795
|
|
|
4.6
|
|
18.14
|
|
|
2,795
|
|
|
18.14
|
|
$20 - $25
|
|
4,676
|
|
|
7.3
|
|
24.43
|
|
|
2,222
|
|
|
24.62
|
|
$25 - $30
|
|
1,912
|
|
|
8.2
|
|
27.07
|
|
|
507
|
|
|
25.51
|
|
$30 - $38
|
|
1,707
|
|
|
9.2
|
|
30.71
|
|
|
5
|
|
|
31.44
|
|
$5 - $38
|
|
13,290
|
|
|
6.3
|
|
$
|
21.99
|
|
|
7,729
|
|
|
$
|
18.33
|
|
The aggregate intrinsic value of exercisable option shares was
$211.0 million
as of
December 29, 2017
, with a weighted average contractual term of
4.7 years
. There were approximately
13.3 million
vested share options and share options expected to vest as of
December 29, 2017
, with an aggregate intrinsic value of
$314.2 million
, a weighted average exercise price of
$21.99
and a weighted average contractual term of
6.3 years
.
Information related to options exercised follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Cash received
|
$
|
48,833
|
|
|
$
|
21,142
|
|
|
$
|
7,720
|
|
Aggregate intrinsic value
|
119,442
|
|
|
30,247
|
|
|
11,851
|
|
Tax benefit realized
|
42,000
|
|
|
9,900
|
|
|
3,600
|
|
Employee Stock Purchase Plan.
Under the Company’s Employee Stock Purchase Plan, the purchase price of the shares is the lesser of
85 percent
of the fair market value on the first day or the last day of the plan year. Under this plan, the Company issued
499,956
shares in
2017
,
510,432
shares in
2016
and
497,691
shares in
2015
.
Authorized Shares.
Shares authorized for issuance under the stock option and purchase plans are shown below (in thousands):
|
|
|
|
|
|
|
|
Total Shares
Authorized
|
|
Available for Future
Issuance as of December 29, 2017
|
Stock Incentive Plan (2015)
|
10,500
|
|
|
5,186
|
|
Employee Stock Purchase Plan (2006)
|
21,000
|
|
|
13,775
|
|
Total
|
31,500
|
|
|
18,961
|
|
Amounts available for future issuance exclude outstanding options. Options outstanding as of
December 29, 2017
, include options granted under
two
plans that were replaced by subsequent plans.
No
shares are available for future grants under those plans.
Share-based Compensation.
The Company recognized share-based compensation cost as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Share-based compensation
|
$
|
23,652
|
|
|
$
|
21,134
|
|
|
$
|
19,224
|
|
Tax benefit
|
5,100
|
|
|
6,100
|
|
|
5,400
|
|
Share-based compensation, net of tax
|
$
|
18,552
|
|
|
$
|
15,034
|
|
|
$
|
13,824
|
|
As of
December 29, 2017
, there was
$10.8 million
of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of approximately
2.1 years
.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Expected life in years
|
7.0
|
|
|
6.2
|
|
|
6.5
|
|
Interest rate
|
2.2
|
%
|
|
1.6
|
%
|
|
1.7
|
%
|
Volatility
|
26.7
|
%
|
|
27.5
|
%
|
|
35.0
|
%
|
Dividend yield
|
1.6
|
%
|
|
1.7
|
%
|
|
1.6
|
%
|
Weighted average fair value per share
|
$
|
8.08
|
|
|
$
|
5.96
|
|
|
$
|
7.73
|
|
Expected life is estimated based on vesting terms and exercise and termination history. Interest rate is based on the U.S. Treasury rate on zero-coupon issues with a remaining term equal to the expected life of the option. Expected volatility is based on historical volatility over a period commensurate with the expected life of options.
The fair value of employees’ purchase rights under the Employee Stock Purchase Plan was estimated on the date of grant. The benefit of the
15 percent
discount from the lesser of the fair market value per common share on the first day and the last day of the plan year was added to the fair value of the employees’ purchase rights determined using the Black-Scholes option-pricing model with the following assumptions and results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Expected life in years
|
1.0
|
|
|
1.0
|
|
|
1.0
|
|
Interest rate
|
0.9
|
%
|
|
0.7
|
%
|
|
0.2
|
%
|
Volatility
|
22.3
|
%
|
|
24.6
|
%
|
|
18.9
|
%
|
Dividend yield
|
1.5
|
%
|
|
1.7
|
%
|
|
1.6
|
%
|
Weighted average fair value per share
|
$
|
7.32
|
|
|
$
|
6.38
|
|
|
$
|
5.50
|
|
I. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Net earnings available to common shareholders
|
$
|
252,412
|
|
|
$
|
40,674
|
|
|
$
|
345,713
|
|
Weighted average shares outstanding for basic earnings per share
|
167,925
|
|
|
166,851
|
|
|
172,829
|
|
Dilutive effect of stock options computed based on the treasury stock method using the average market price
|
6,393
|
|
|
4,025
|
|
|
4,191
|
|
Weighted average shares outstanding for diluted earnings per share
|
174,318
|
|
|
170,876
|
|
|
177,020
|
|
Basic earnings per share
|
$
|
1.50
|
|
|
$
|
0.24
|
|
|
$
|
2.00
|
|
Diluted earnings per share
|
$
|
1.45
|
|
|
$
|
0.24
|
|
|
$
|
1.95
|
|
Stock options to purchase
2.9 million
and
4.1 million
shares were not included in the
2016
and
2015
computations of diluted earnings per share, respectively, because they would have been anti-dilutive. The number of anti-dilutive options excluded from the 2017 computation of diluted earnings per share was not significant.
J. Retirement Benefits
The Company has a defined contribution plan, under Section 401(k) of the Internal Revenue Code, which provides retirement benefits to most U.S. employees. For all employees who choose to participate, the Company matches employee contributions at a
100 percent
rate, up to
3 percent
of the employee’s compensation. For employees not covered by a defined benefit plan, the Company contributes an amount equal to
1.5 percent
of the employee’s compensation. Employer contributions totaled
$7.8 million
in
2017
,
$6.7 million
in
2016
and
$6.3 million
in
2015
.
The Company’s postretirement medical plan provides certain medical benefits for retired U.S. employees. Employees hired before January 1, 2005, are eligible for these benefits upon retirement and fulfillment of other eligibility requirements as specified by the plan.
The Company has both funded and unfunded noncontributory defined benefit pension plans that together cover most U.S. employees hired before January 1, 2006, certain directors and some of the employees of the Company’s non-U.S. subsidiaries. The Company restructured its U.S. qualified defined benefit plan in 2017. Under the restructuring, the plan transferred
$42 million
of liabilities and assets associated with certain plan participants to an insurance company via the purchase of a group annuity contract, and the Company recognized a
$12 million
settlement loss in 2017 general and administrative expense. Remaining pension plan participants and related liabilities and assets were transferred into one of two newly established, legally separate qualified defined benefit plans, and the former plan was terminated. The benefits offered to the plans’ participants were unchanged.
For U.S. plans, benefits are based on years of service and the highest
5
consecutive years’ earnings in the
10
years preceding retirement. The Company funds annually in amounts consistent with minimum funding levels and maximum tax deduction limits.
Investment policies and strategies of the U.S. funded pension plans are based on participant demographics of each plan. For the larger of the two plans (the “Blue plan”) covering active participants and retirees with higher benefit amounts, investments are based on a long-term view of economic growth and weighted toward equity securities. The primary goal of the plan’s investments is to ensure that the plan’s liabilities are met over time. In developing strategic asset allocation guidelines, an emphasis is placed on the long-term characteristics of individual asset classes, and the benefits of diversification among multiple asset classes. The plan invests primarily in domestic and international equities, fixed income securities, which include treasuries, highly-rated corporate bonds and high-yield bonds and real estate. Strategic target allocations for Blue plan assets are
54 percent
equity securities,
36 percent
fixed income securities and
10 percent
real estate and alternative investments. For the smaller of the two plans (the “Gray plan”) covering retirees with lower benefit amounts, investments are based on a shorter-term, more conservative outlook. The midpoints of the ranges of strategic target allocations for the Gray plan assets are
38 percent
equity securities,
53 percent
fixed income securities and
9 percent
real estate and alternative investments.
Plan assets are held in trusts for the benefit of plan participants and are invested in various commingled funds, most of which are sponsored by the trustee. The fair values for commingled equity, fixed-income and real estate investments are measured using net asset values, which take into consideration the value of underlying fund investments, as well as the other accrued assets and liabilities of a fund, in order to determine a per share market value. Certain trustee-sponsored funds allow redemptions monthly or quarterly, with 10 or 60 days advance notice, while most of the funds allow redemptions daily. The plans had unfunded commitments to make additional investments in certain funds totaling
$3 million
as of
December 29, 2017
and
$4 million
as of
December 30, 2016
.
The Company maintains a defined contribution plan covering employees of a Swiss subsidiary, funded by Company and employee contributions. Responsibility for pension coverage under Swiss law has been transferred to a Swiss insurance company. Plan assets are invested in an insurance contract that guarantees a federally mandated annual rate of return. The value of the plan assets is effectively the value of the insurance contract. The performance of the underlying assets held by the insurance company has no direct impact on the surrender value of the insurance contract. The insurance backed assets have no active market and are classified as level 3 in the fair value hierarchy.
Assets of all plans by category and fair value measurement level were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Level
|
|
2017
|
|
2016
|
Cash and cash equivalents
|
1
|
|
$
|
3,254
|
|
|
$
|
698
|
|
Insurance contract
|
3
|
|
26,411
|
|
|
24,287
|
|
Investments categorized in fair value hierarchy
|
|
|
29,665
|
|
|
24,985
|
|
Equity
|
|
|
|
|
|
U.S. Large Cap
|
N/A
|
|
55,488
|
|
|
58,236
|
|
U.S. Small/Mid Cap
|
N/A
|
|
12,077
|
|
|
10,009
|
|
International
|
N/A
|
|
45,958
|
|
|
40,404
|
|
Total Equity
|
|
|
113,523
|
|
|
108,649
|
|
Fixed income
|
N/A
|
|
81,358
|
|
|
78,209
|
|
Real estate and other
|
N/A
|
|
29,640
|
|
|
44,062
|
|
Investments measured at net asset value
|
|
|
224,521
|
|
|
230,920
|
|
Total
|
|
|
$
|
254,186
|
|
|
$
|
255,905
|
|
The following table is a reconciliation of pension assets measured at fair value using level 3 inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Balance, beginning of year
|
$
|
24,287
|
|
|
$
|
28,080
|
|
Purchases
|
1,934
|
|
|
1,928
|
|
Redemptions
|
(2,150
|
)
|
|
(5,267
|
)
|
Unrealized gains (losses)
|
2,340
|
|
|
(454
|
)
|
Balance, end of year
|
$
|
26,411
|
|
|
$
|
24,287
|
|
The following provides a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over the periods ending
December 29, 2017
, and
December 30, 2016
, and a statement of the funded status as of the same dates (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Medical Benefits
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in benefit obligation
|
|
|
|
|
|
|
|
Obligation, beginning of year
|
$
|
386,373
|
|
|
$
|
380,672
|
|
|
$
|
26,576
|
|
|
$
|
23,211
|
|
Service cost
|
7,675
|
|
|
7,834
|
|
|
601
|
|
|
543
|
|
Interest cost
|
15,044
|
|
|
15,684
|
|
|
1,093
|
|
|
1,084
|
|
Actuarial loss (gain)
|
37,994
|
|
|
11,012
|
|
|
577
|
|
|
2,840
|
|
Benefit payments
|
(13,299
|
)
|
|
(20,147
|
)
|
|
(1,076
|
)
|
|
(1,102
|
)
|
Settlements
|
(43,539
|
)
|
|
(6,817
|
)
|
|
—
|
|
|
—
|
|
Exchange rate changes
|
3,311
|
|
|
(1,865
|
)
|
|
—
|
|
|
—
|
|
Obligation, end of year
|
$
|
393,559
|
|
|
$
|
386,373
|
|
|
$
|
27,771
|
|
|
$
|
26,576
|
|
Change in plan assets
|
|
|
|
|
|
|
|
Fair value, beginning of year
|
$
|
255,905
|
|
|
$
|
268,258
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on assets
|
32,132
|
|
|
11,397
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
21,885
|
|
|
4,117
|
|
|
1,076
|
|
|
1,102
|
|
Benefit payments
|
(13,299
|
)
|
|
(20,147
|
)
|
|
(1,076
|
)
|
|
(1,102
|
)
|
Settlements
|
(43,539
|
)
|
|
(6,817
|
)
|
|
—
|
|
|
—
|
|
Exchange rate changes
|
1,102
|
|
|
(903
|
)
|
|
—
|
|
|
—
|
|
Fair value, end of year
|
$
|
254,186
|
|
|
$
|
255,905
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status
|
$
|
(139,373
|
)
|
|
$
|
(130,468
|
)
|
|
$
|
(27,771
|
)
|
|
$
|
(26,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in consolidated balance sheets
|
|
|
|
|
|
|
|
Non-current assets
|
$
|
2,538
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
1,416
|
|
|
1,030
|
|
|
1,330
|
|
|
1,387
|
|
Non-current liabilities
|
140,495
|
|
|
129,438
|
|
|
26,441
|
|
|
25,189
|
|
Net
|
$
|
139,373
|
|
|
$
|
130,468
|
|
|
$
|
27,771
|
|
|
$
|
26,576
|
|
The accumulated benefit obligation as of year-end for all defined benefit pension plans was
$361 million
for
2017
and
$360 million
for
2016
. Information for plans with an accumulated benefit obligation in excess of plan assets follows (in thousands):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Projected benefit obligation
|
$
|
344,733
|
|
|
$
|
386,373
|
|
Accumulated benefit obligation
|
311,876
|
|
|
359,854
|
|
Fair value of plan assets
|
202,822
|
|
|
255,905
|
|
The components of net periodic benefit cost for the plans for
2017
,
2016
and
2015
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Medical Benefits
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Service cost-benefits earned during the period
|
$
|
7,675
|
|
|
$
|
7,834
|
|
|
$
|
8,406
|
|
|
$
|
601
|
|
|
$
|
543
|
|
|
$
|
542
|
|
Interest cost on projected benefit obligation
|
15,044
|
|
|
15,684
|
|
|
14,790
|
|
|
1,093
|
|
|
1,084
|
|
|
954
|
|
Expected return on assets
|
(17,186
|
)
|
|
(18,009
|
)
|
|
(19,442
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (credit)
|
255
|
|
|
269
|
|
|
268
|
|
|
(344
|
)
|
|
(766
|
)
|
|
(676
|
)
|
Amortization of net loss (gain)
|
8,634
|
|
|
7,980
|
|
|
9,036
|
|
|
334
|
|
|
285
|
|
|
323
|
|
Settlement loss (gain)
|
12,313
|
|
|
1,565
|
|
|
423
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cost of pension plans which are not significant and have not adopted ASC 715
|
122
|
|
|
85
|
|
|
79
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Net periodic benefit cost
|
$
|
26,857
|
|
|
$
|
15,408
|
|
|
$
|
13,560
|
|
|
$
|
1,684
|
|
|
$
|
1,146
|
|
|
$
|
1,143
|
|
Amounts recognized in other comprehensive (income) loss in
2017
and
2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Medical Benefits
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net loss (gain) arising during the period
|
$
|
23,936
|
|
|
$
|
17,208
|
|
|
$
|
577
|
|
|
$
|
2,840
|
|
Amortization of net gain (loss)
|
(8,634
|
)
|
|
(7,980
|
)
|
|
(334
|
)
|
|
(285
|
)
|
Settlement gain (loss)
|
(12,313
|
)
|
|
(1,565
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service credit (cost)
|
(255
|
)
|
|
(269
|
)
|
|
344
|
|
|
766
|
|
Total
|
$
|
2,734
|
|
|
$
|
7,394
|
|
|
$
|
587
|
|
|
$
|
3,321
|
|
Amounts included in accumulated other comprehensive (income) loss as of
December 29, 2017
and
December 30, 2016
, that had not yet been recognized as components of net periodic benefit cost, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Medical Benefits
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Prior service cost (credit)
|
$
|
1,746
|
|
|
$
|
1,920
|
|
|
$
|
—
|
|
|
$
|
(344
|
)
|
Net loss
|
111,598
|
|
|
108,689
|
|
|
6,836
|
|
|
6,593
|
|
Net before income taxes
|
113,344
|
|
|
110,609
|
|
|
6,836
|
|
|
6,249
|
|
Income taxes
|
(39,289
|
)
|
|
(38,182
|
)
|
|
(2,461
|
)
|
|
(2,250
|
)
|
Net
|
$
|
74,055
|
|
|
$
|
72,427
|
|
|
$
|
4,375
|
|
|
$
|
3,999
|
|
Amounts included in accumulated other comprehensive (income) loss that are expected to be recognized as components of net periodic benefit cost in
2018
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Postretirement
Medical Benefits
|
Prior service cost (credit)
|
$
|
277
|
|
|
$
|
—
|
|
Net loss (gain)
|
7,797
|
|
|
543
|
|
Net before income taxes
|
8,074
|
|
|
543
|
|
Income taxes
|
(1,776
|
)
|
|
(119
|
)
|
Net
|
$
|
6,298
|
|
|
$
|
424
|
|
Assumptions used to determine the Company’s benefit obligations are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Medical Benefits
|
Weighted average assumptions
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
U.S. Plans
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.9
|
%
|
|
4.5
|
%
|
|
3.9
|
%
|
|
4.5
|
%
|
Rate of compensation increase
|
|
2.8
|
%
|
|
2.8
|
%
|
|
N/A
|
|
|
N/A
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
Discount rate
|
|
1.0
|
%
|
|
0.9
|
%
|
|
N/A
|
|
|
N/A
|
|
Rate of compensation increase
|
|
0.9
|
%
|
|
1.0
|
%
|
|
N/A
|
|
|
N/A
|
|
Assumptions used to determine the Company’s net periodic benefit cost are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Medical Benefits
|
Weighted average assumptions
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
4.5
|
%
|
|
4.7
|
%
|
|
4.2
|
%
|
|
4.5
|
%
|
|
4.7
|
%
|
|
4.2
|
%
|
Rate of compensation increase
|
|
2.8
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Expected return on assets
|
|
7.0
|
%
|
|
7.5
|
%
|
|
7.8
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
0.9
|
%
|
|
1.1
|
%
|
|
1.4
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Rate of compensation increase
|
|
1.0
|
%
|
|
1.3
|
%
|
|
1.3
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Expected return on assets
|
|
2.0
|
%
|
|
2.0
|
%
|
|
2.0
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Several sources of information are considered in determining the expected rate of return assumption, including the allocation of plan assets, the input of actuaries and professional investment advisors, and historical long-term returns. In setting the return assumption, the Company recognizes that historical returns are not always indicative of future returns and also considers the long-term nature of its pension obligations.
The Company’s U.S. retirement medical plan limits the annual cost increase that will be paid by the Company to
3 percent
. In measuring the accumulated postretirement benefit obligation (APBO), the annual trend rate for health care costs was assumed to be
6.5 percent
for
2018
, decreasing each year to a constant rate of
4.5 percent
for
2038
and thereafter, subject to the plan’s annual increase limitation.
At
December 29, 2017
, a one percent change in assumed health care cost trend rates would
no
t have a significant impact on the service and interest cost components of net periodic postretirement health care benefit cost or the APBO for health care benefits.
The Company expects to contribute
$1.4 million
to its unfunded pension plans and
$1.3 million
to the postretirement medical plan in
2018
. The Company will not be required to make contributions to the funded pension plans under minimum funding requirements for
2018
. Estimated future benefit payments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Postretirement
Medical Benefits
|
2018
|
$
|
13,385
|
|
|
$
|
1,330
|
|
2019
|
13,977
|
|
|
1,434
|
|
2020
|
15,584
|
|
|
1,561
|
|
2021
|
16,576
|
|
|
1,635
|
|
2022
|
17,881
|
|
|
1,712
|
|
Years 2023-2027
|
101,558
|
|
|
8,971
|
|
K. Commitments and Contingencies
Lease Commitments
.
Aggregate annual rental commitments under operating leases with noncancelable terms of more than
one
year were as follows at
December 29, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
Vehicles &
Equipment
|
|
Total
|
2018
|
$
|
4,911
|
|
|
$
|
3,368
|
|
|
$
|
8,279
|
|
2019
|
3,659
|
|
|
2,078
|
|
|
5,737
|
|
2020
|
3,113
|
|
|
1,364
|
|
|
4,477
|
|
2021
|
1,923
|
|
|
828
|
|
|
2,751
|
|
2022
|
1,524
|
|
|
646
|
|
|
2,170
|
|
Thereafter
|
4,170
|
|
|
609
|
|
|
4,779
|
|
Total
|
$
|
19,300
|
|
|
$
|
8,893
|
|
|
$
|
28,193
|
|
Total rental expense was
$7.6 million
in
2017
,
$7.8 million
in
2016
and
$6.9 million
in
2015
.
Other Commitments.
The Company is committed to pay suppliers under the terms of open purchase orders issued in the normal course of business totaling approximately
$97 million
at
December 29, 2017
. The Company also has commitments with certain suppliers to purchase minimum quantities, and under the terms of certain agreements, the Company is committed for certain portions of the supplier’s inventory. The Company does not purchase, or commit to purchase, quantities in excess of normal usage or amounts that cannot be used within
one
year. The Company estimates that the maximum commitment amount under such agreements does not exceed
$33 million
.
The Company enters into contracts with vendors to receive services. Commitments under these service contracts with noncancelable terms of more than one year include
$3 million
in
2018
and
$3 million
in
2019
.
In addition, the Company could be obligated to perform under standby letters of credit totaling
$2 million
at
December 29, 2017
. The Company has also guaranteed the debt of its subsidiaries for up to
$10 million
. All debt of subsidiaries is reflected in the consolidated balance sheets.
Contingencies.
The Company is party to various legal proceedings arising in the normal course of business. The Company is actively pursuing and defending these matters and has recorded an estimate of the probable costs where appropriate. Management does not expect that resolution of these matters will have a material adverse effect on the Company, although the ultimate outcome cannot be determined based on available information.
L. Acquisitions
In January 2016, the Company paid
$48 million
cash to acquire two related companies that manufacture and sell portable and fixed gas analyzers for landfill, biogas and medical applications and landfill gas wellhead equipment. The acquisitions enhance and complement the Company’s position in environmental monitoring and remediation markets served by its Process segment. The purchase price was allocated based on estimated fair values, including
$28 million
of goodwill,
$24 million
of other identifiable intangible assets and
$4 million
of other net liabilities.
On January 20, 2015, the Company completed the acquisition of High Pressure Equipment Holdings, LLC (“HiP”) for
$161 million
cash. HiP designs and manufactures valves, fittings and other flow control equipment engineered to perform in ultra-high pressure environments. HiP’s products and business relationships enhance Graco’s position in the oil and natural gas industry and complement Graco’s core competencies of designing and manufacturing advanced flow control technologies. HiP had sales of
$38 million
in 2014. Results of HiP operations have been included in the Company’s Process segment from the date of acquisition, including sales of
$22 million
in 2017,
$22 million
in 2016 and
$29 million
in 2015.
Purchase consideration was allocated to assets acquired and liabilities assumed based on estimated fair values as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,904
|
|
Accounts receivable
|
4,714
|
|
Inventories
|
7,605
|
|
Other current assets
|
69
|
|
Property, plant and equipment
|
1,962
|
|
Deferred income taxes
|
1,840
|
|
Identifiable intangible assets
|
60,100
|
|
Goodwill
|
86,149
|
|
Total assets acquired
|
164,343
|
|
Liabilities assumed
|
(3,414
|
)
|
Net assets acquired
|
$
|
160,929
|
|
Acquired identifiable intangible assets and estimated useful life were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Estimated
Life (years)
|
Customer relationships
|
$
|
47,100
|
|
|
12
|
Trade names
|
13,000
|
|
|
Indefinite
|
Total identifiable intangible assets
|
$
|
60,100
|
|
|
|
Approximately two-thirds of the goodwill acquired with HiP is deductible for tax purposes.
On January 2, 2015, the Company acquired White Knight Fluid Handling (“White Knight”) for
$16 million
cash and a commitment for additional consideration if future revenues exceed certain thresholds, initially valued at
$8 million
. The maximum payout is not limited. White Knight designs and manufactures high purity, metal-free pumps used in the production process of manufacturing semiconductors, solar panels, LED flat panel displays and various other electronics. The products, brands and distribution channels of White Knight expand and complement the offerings of the Company’s Process segment. The purchase price was allocated based on estimated fair values, including
$12 million
of goodwill,
$9 million
of other identifiable intangible assets and
$3 million
of net tangible assets.
The Company completed other business acquisitions in
2017
,
2016
and
2015
that were not material to the consolidated financial statements.
M. Divestiture
In 2012, the Company purchased the finishing businesses of Illinois Tool Works Inc. The acquisition included finishing equipment operations, technologies and brands of the Powder Finishing and Liquid Finishing businesses. Under terms of a hold separate order from the Federal Trade Commission, the Company did not have the power to direct the activities of the Liquid Finishing businesses that most significantly impacted the economic performance of those businesses. Consequently, we reflected our investment in the Liquid Finishing businesses as a cost-method investment on our balance sheet, and their results of operations were not consolidated with those of the Company.
In 2015, the Company sold the Liquid Finishing business assets for a price of
$610 million
cash. Held separate investment income included the pre-tax gain on sale of
$150 million
, net of transaction and other related expenses, including a
$7 million
contribution to the Company’s charitable foundation. Held separate investment income also included dividends of
$42 million
. Net earnings included after-tax gain and dividends totaling
$141 million
.
N. Quarterly Financial Information (Unaudited)
Unaudited quarterly financial data is summarized below (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
2017
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
340,590
|
|
|
$
|
379,483
|
|
|
$
|
379,812
|
|
|
$
|
374,859
|
|
|
Gross Profit
|
185,273
|
|
|
203,941
|
|
|
203,465
|
|
|
200,370
|
|
|
Net Earnings
|
60,732
|
|
|
79,828
|
|
|
75,460
|
|
|
36,392
|
|
(1)
|
Basic Net Earnings per Common Share
|
$
|
0.36
|
|
|
$
|
0.48
|
|
|
$
|
0.45
|
|
|
$
|
0.22
|
|
(1)
|
Diluted Net Earnings per Common Share
|
0.35
|
|
|
0.46
|
|
|
0.43
|
|
|
0.21
|
|
(1)
|
Cash Dividends Declared per Common Share
|
0.12
|
|
|
0.12
|
|
|
0.12
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net Sales
|
$
|
304,912
|
|
|
$
|
348,126
|
|
|
$
|
327,192
|
|
|
$
|
349,063
|
|
|
Gross Profit
|
161,796
|
|
|
185,141
|
|
|
176,598
|
|
|
184,704
|
|
|
Net Earnings (Loss)
|
39,552
|
|
|
50,947
|
|
|
54,388
|
|
|
(104,213
|
)
|
(2)
|
Basic Net Earnings (Loss) per Common Share
|
$
|
0.24
|
|
|
$
|
0.31
|
|
|
$
|
0.33
|
|
|
$
|
(0.62
|
)
|
(2)
|
Diluted Net Earnings (Loss) per Common Share
|
0.23
|
|
|
0.30
|
|
|
0.32
|
|
|
(0.61
|
)
|
(2)
|
Cash Dividends Declared per Common Share
|
0.11
|
|
|
0.11
|
|
|
0.11
|
|
|
0.12
|
|
|
|
|
(1)
|
Net earnings in the fourth quarter of 2017 included income tax charges totaling
$36 million
to recognize the effects of U.S. federal income tax reform.
|
|
|
(2)
|
Net earnings (loss) in the fourth quarter of 2016 included
$161 million
of after tax loss from non-cash impairment charges in the Company’s ONG reporting unit within the Process Segment.
|