What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-16 compared with 2020-02-18 · 144 added, 76 removed, 247 unchanged (47% of the section changed)

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Our primary distribution facilities are located in the U.S., Belgium, Switzerland, United Kingdom, P.R.C., Japan, Italy, Korea, Australia and Brazil.

Economic Uncertainty

The ongoing COVID-19 pandemic and related governmental and business responses continue to have an adverse effect on our operations, supply chains, distribution channels, and end-user customers.

While incoming order rates for our Industrial segment have recovered to pre-pandemic levels and our Contractor segment has seen growth in order rates, our Process segment incoming order rates have not recovered and uncertainty remains overall with respect to the near-term economic outlook.

We manufacture and provide essential products and services to a variety of critical infrastructure customers.

We have remained operational during the pandemic and we intend to continue providing our products and services to our customers.

Our commercial teams are focused on customer service, maintaining end-user customer contact and providing support to our distributors.

Our engineering teams continue to develop and launch new products.

As a result of the pandemic and various governmental orders, a significant number of our employees are working from home, and we altered our manufacturing operations to allow for appropriate social distancing, hygiene, cleaning and disinfecting.

In our supply chain, we have experienced isolated instances of suppliers temporarily closing their operations, delaying order fulfillment or limiting their production, and we are utilizing alternative supply arrangements as needed.

We have also experienced isolated instances of distributors reducing or closing their operations, impacting the ability of some of our end-user customers to procure our products through our traditional distribution channels.

Some of our end-user customers have deferred capital equipment purchases, and many have eliminated in-person sales meetings.

In addition, trade shows, industry events and product demonstrations have been cancelled or postponed.

As a result, our selling

activities and our ability to convert those activities into sales have been and we expect will continue to be adversely impacted.

We will continue to manage our working capital, such as receivables and inventory, to align with customer needs and changes in demand for our products and services.

The timing and extent of the economic recovery from the pandemic in our major geographies is still uncertain and we cannot predict the magnitude of the impact to the results of our operations or financial position.

We do not expect the pandemic to have a significant effect on our liquidity as operating cash flows and available liquidity are sufficient to support operations at current order rates (see Liquidity and Capital Resources below).

Results of Operations

A summary of financial results follows (in millions except per share amounts):

2020 2019 2018

Net Sales $ 1,650.1 $ 1,646.0 $ 1,653.3

Operating Earnings 391.7 424.5 436.4

Net Earnings 330.5 343.9 341.1

Diluted Net Earnings per Common Share $ 1.92 $ 2.00 $ 1.97

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Diluted Net Earnings per Common Share, adjusted $ 1.95 $ 1.90 $ 1.88

Excludes impacts of excess tax benefits from stock option exercises, non-recurring income tax adjustments and pension restructuring.

(1) Excludes impacts of impairment, excess tax benefits from stock option exercises and certain non-recurring income tax provision adjustments.

See adjusted financial results below for a reconciliation of the adjusted non-GAAP financial measures to GAAP.

Multiple events in the last three years caused significant fluctuations in financial results.

The restructuring of the Company ’ s funded U.S.

pension plan resulted in a $12 million settlement loss in 2017.

federal income tax reform legislation passed at the end of 2017 required a revaluation of net deferred tax assets and instituted a toll charge on unrepatriated foreign earnings that together increased income taxes by a total of $36 million in 2017.

Excess tax benefits related to stock option exercises reduced income taxes by $10 million in both 2019 and 2018, and $36 million in 2017.

Operating expenses for the year included $35 million of non-cash impairment charges related to the sale of the Company's U.K.-based valve business (Alco).

The impact of the impairment on net earnings for the year was $34 million or $0.20 per diluted share.

Excess tax benefits related to stock option exercises reduced income taxes by $21 million in 2020, and by $10 million in both 2019 and 2018.

Other benefits from tax planning activities further reduced income taxes in 2020, 2019 and 2018.

Excluding the impacts of those items presents a more consistent basis for comparison of financial results.

A calculation of the non-GAAP measurements of adjusted earnings before income taxes, income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):

A calculation of the non-GAAP measurements of adjusted operating earnings, earnings before income taxes, income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):

2020 2019 2018

Operating earnings, as reported $ 391.7 $ 424.5 $ 436.4

Impairment 35.2 — —

Operating earnings, adjusted $ 426.9 $ 424.5 $ 436.4

Earnings before income taxes, as reported $ 374.7 $ 405.9 $ 410.8

Pension settlement loss

Impairment 35.2 — —

Earnings before income taxes, adjusted $ 409.9 $ 405.9 $ 410.8

Income taxes, as reported $ 44.2 $ 62.0 $ 69.7

Impairment tax benefit 1.2 — —

Excess tax benefit from option exercises 21.3 10.4 10.0

Income tax reform

Other non-recurring tax changes

Tax effects of adjustments

Other non-recurring tax benefit 8.0 8.1 5.0

Income taxes, adjusted $ 74.7 $ 80.5 $ 84.7

Effective income tax rate

As reported 11.8 % 15.3 % 17.0 %

Adjusted 18.2 % 19.8 % 20.6 %

Net Earnings, as reported $ 330.5 $ 343.9 $ 341.1

Pension settlement loss, net

Impairment, net 34.0 — —

Excess tax benefit from option exercises (21.3) (10.4) (10.0)

Income tax reform

Other non-recurring tax changes

Other non-recurring tax benefit (8.0) (8.1) (5.0)

Net Earnings, adjusted $ 335.2 $ 325.4 $ 326.1

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Diluted Net Earnings per Share

As reported $ 1.92 $ 2.00 $ 1.97

Adjusted $ 1.95 $ 1.90 $ 1.88

Components of Net Earnings as a Percentage of Sales:

The following table presents an overview of components of net earnings as a percentage of net sales:

2020 2019 2018

Net Sales 100.0 % 100.0 % 100.0 %

Cost of products sold 48.2 47.8 46.6

Gross profit 51.8 52.2 53.4

Product development 4.4 4.1 3.8

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General and administrative 8.2 8.1 8.3

Impairment 2.1 — —

Operating earnings 23.7 25.8 26.4

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Earnings before income taxes 22.7 24.7 24.8

Income taxes 2.7 3.8 4.2

Net Earnings 20.0 % 20.9 % 20.6 %

Net Earnings, adjusted (see non-GAAP measurements above) 20.3 % 19.8 % 19.7 %

The following table presents net sales by geographic region (in millions):

2020 2019 2018

$ 996.5 $ 960.8 $ 926.4

371.8 406.5 393.1

Asia Pacific 281.8 278.7 333.8

Consolidated $ 1,650.1 $ 1,646.0 $ 1,653.3

(1) North, South and Central America, including the U.S.

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The following table presents the components of net sales change by geographic region:

Volume and Price

Volume and Price Acquisitions Currency Total Volume and Price Acquisitions Currency Total

Americas 3% 1% 0% 4% 4% 0% 0% 4%

EMEA (11)% 1% 1% (9)% 7% 1% (5)% 3%

Asia Pacific (1)% 2% 0% 1% (15)% 1% (3)% (17)%

Consolidated (1)% 1% 0% 0% 1% 0% (1)% 0%

Government actions in response to the COVID-19 pandemic reduced economic activity in all major geographies in 2020.

Increased worldwide demand for contractor and residential painting equipment, especially in the Americas, helped offset the impact of limited activity within industrial manufacturing facilities.

Sales from acquired operations increased worldwide sales by $18 million for the year.

In 2019, sales growth in the Americas and EMEA was offset by weakness in Asia Pacific markets, particularly in automotive, in-plant manufacturing and China in general.

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Demand for our products was generally positive in EMEA, with notable strength in sales of systems and contractor painting equipment, while automotive industry demand softened.

In the Americas, construction markets remained favorable while manufacturing customers became cautious regarding capital spending due to softening end-market demand and general economic uncertainty.

In the Americas, construction markets remained favorable while manufacturing customers became cautious regarding capital spending due to softening end-

market demand and general economic uncertainty.

Changes in currency translation rates decreased worldwide sales by approximately $29 million.

Sales in the Americas were up solidly in 2018, matching the 9 percent increase in 2017, as economic conditions in North America remained broadly favorable.

Sales growth in EMEA varied between products and countries in 2018, with Western Europe significantly outperforming the emerging countries.

Sales growth in Asia Pacific was more broadly based across products and countries.

Gross profit margin rate for 2020 decreased compared to 2019, driven by unfavorable product and channel mix (lower high-margin Industrial segment sales combined with growth in lower-margin Contractor segment sales).

Improved pricing softened the decrease in the gross profit margin rate.

Gross profit margin rates for 2019 decreased compared to 2018, driven by lower factory volume, unfavorable channel and product mix, and changes in currency translation rates.

Price changes implemented early in the year offset the adverse impact of higher material costs, including tariffs.

Gross profit margin rate for 2018 was slightly lower than the rate for 2017.

The unfavorable effects of lower margin rates of acquired operations and higher factory spending and material costs more than offset the favorable effects of currency translation and realized pricing.

Operating Expenses

Total operating expenses for 2020 were $28 million higher than 2019, including the non-cash impairment charge of $35 million.

Excluding the impairment charge, total operating expenses decreased $7 million as reductions in selling expenses offset increases in product development spending.

Investment in new product development was $72 million in 2020, up 7 percent over 2019.

Operating expenses in 2019 decreased $11 million (2 percent) compared to 2018.

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Investment in new product development was $68 million in 2019, up 7 percent over 2018.

Operating expenses for 2018 increased $30 million (7 percent) compared to 2017.

The increase includes $8 million from acquired operations, approximately $3 million related to currency translation, $5 million of increases directly based on volume and earnings, and $2 million of incremental share-based compensation.

Investment in new product development was $63 million in 2018, up 7 percent over 2017.

Operating Earnings

Operating earnings as a percentage of sales in 2020 before the non-cash impairment charge were flat to the prior year, as expense reductions offset the effect of lower margin rates.

Operating earnings in 2019 decreased 3 percent compared to 2018 as expense reductions did not fully offset the effects of lower sales and margin rates.

Strong sales increases and expense leverage in 2018 led to a 15 percent increase in operating earnings and improved return as a percentage of sales.

Other Expense

Other expense included market-based pension cost of $5 million in 2019, $8 million in 2018 and $18 million in 2017, including a $12 million loss related to the restructuring of the Company’s funded U.S.

pension plan.

Other expense also included exchange losses on net assets of foreign operations of $2 million in 2019 and $3 million in 2018, and gains of $2 million in 2017.

Other expense included market-based pension cost of $5 million in 2020 and 2019, and $8 million in 2018.

Other expense also included exchange losses on net assets of foreign operations of $2 million in 2020 and 2019, and $3 million in 2018.

The effective income tax rate for 2020 was 12 percent, down 3 percentage points from 2019.

Additional foreign tax benefits and excess tax benefits related to stock option exercises were partially offset by non-deductible impairment charges.

The effective income tax rate was 15 percent for 2019, down approximately 2 percentage points from 2018.

Revaluation of deferred taxes pursuant to a tax rate change in a foreign jurisdiction and an increase in non-recurring benefits from other tax planning activities drove the decrease.

The effective income tax rate was 17 percent for 2018, down 10 percentage points from 2017.

Adjusted to exclude the impacts of excess tax benefits related to stock option exercises, the 2017 provisions totaling $36 million related to tax reform legislation, the benefit from a $40 million contribution to a pension plan in 2018, and the benefits from other tax planning activities (see reconciliation of non-GAAP measurements above), the effective income tax rate was 21 percent for 2018 compared to 31 percent for 2017.

The adjusted rate was lower in 2018 due to the net effects of U.S.

federal income tax reform legislation passed at the end of 2017.

Segment Results

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The following table presents net sales and operating earnings by reporting segment (in millions):

2020 2019 2018

Industrial $ 677.7 $ 747.4 $ 781.0

Process 326.1 344.9 338.0

Contractor 646.3 553.7 534.3

Total $ 1,650.1 $ 1,646.0 $ 1,653.3

Operating Earnings

Industrial $ 226.6 $ 247.2 $ 271.3

Process 64.5 76.4 68.5

Contractor 164.5 128.3 120.9

Unallocated corporate (expense) (1)

(28.7) (27.4) (24.3)

Impairment $ (35.2) $ — $ —

Total $ 391.7 $ 424.5 $ 436.4

(1) Unallocated corporate (expense) includes such items as stock compensation, certain acquisition transaction items, bad debt expense, charitable contributions, and certain facility expenses.

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The following table presents net sales and operating earnings as a percentage of sales for the Industrial segment (dollars in millions):

2020 2019 2018

Americas $ 294.4 $ 324.3 $ 314.9

EMEA 207.1 240.1 234.3

Asia Pacific 176.2 183.0 231.8

Total $ 677.7 $ 747.4 $ 781.0

Operating Earnings as a Percentage of Sales 33 % 33 % 35 %

The following table presents the components of net sales change by geographic region for the Industrial segment:

Volume and Price

Volume and Price Acquisitions Currency Total Volume and Price Acquisitions Currency Total

Americas (9)% 0% 0% (9)% 3% 0% 0% 3%

EMEA (15)% 0% 1% (14)% 7% 0% (5)% 2%

Asia Pacific (4)% 0% 0% (4)% (19)% 0% (2)% (21)%

Segment Total (10)% 0% 1% (9)% (2)% 0% (2)% (4)%

In 2020, sales in the Industrial segment declined as most geographies were impacted by government actions in response to the COVID-19 pandemic that reduced economic activity and access to industrial facilities.

Operating margin rate in this segment was comparable to 2019 as the favorable effects of pricing and lower product costs offset decreases in sales volume.

Industrial segment sales declined in 2019 as weakness in worldwide manufacturing markets more than offset the impact of strong finishing system sales in EMEA.

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Operating margin rate in this segment decreased compared to 2018 as the favorable effects of pricing were more than offset by the adverse impacts of higher material costs, lower sales and factory volume, product and channel mix, and currency translation.

Industrial segment sales growth in 2018 included $35 million from acquired operations.

Generally favorable economic activity across many end markets, including construction, general industry, automotive, aerospace and alternate energy, drove demand in all regions.

New product solutions that provide improved process automation, control and material savings contributed to sales growth.

Operating margin rate in this segment improved slightly compared to 2017 as the favorable effects of currency translation and volume more than offset the effects of purchase accounting and lower operating margins in acquired operations.

In this segment, sales in each geographic region are significant and management looks at economic and financial indicators in each region, including gross domestic product, industrial production, capital investment rates, automobile production, building construction and the level of the U.S.

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The following table presents net sales and operating earnings as a percentage of sales for the Process segment (dollars in millions):

2020 2019 2018

Americas $ 206.4 $ 222.2 $ 215.9

EMEA 53.1 61.5 58.5

Asia Pacific 66.6 61.2 63.6

Total $ 326.1 $ 344.9 $ 338.0

Operating Earnings as a Percentage of Sales 20 % 22 % 20 %

The following table presents the components of net sales change by geographic region for the Process segment:

Volume and Price

Volume and Price Acquisitions Currency Total Volume and Price Acquisitions Currency Total

Americas (10)% 3% 0% (7)% 3% 0% 0% 3%

EMEA (19)% 5% 0% (14)% 3% 5% (3)% 5%

Asia Pacific (2)% 11% 0% 9% (5)% 4% (3)% (4)%

Segment Total (10)% 5% 0% (5)% 1% 2% (1)% 2%

Process segment sales decreased in 2020, as sales from acquired operations of $18 million were unable to offset weakness in most markets and geographies, particularly in vehicle services, industrial lubrication and oil and natural gas markets.

Operating margin rate declined 2 percentage points for the year driven by lower volume and unfavorable product and channel mix, partially offset by the impact of divested operations.

Process segment sales performance in 2019 varied by end market, with solid growth in semiconductor and environmental markets, and weakness in industrial, vehicle services and energy markets.

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Operating margin rate for this segment improved by 2 percentage points, driven by lower volume and earnings-based costs.

The Process segment had strong sales growth in all product applications in 2018, reflecting favorable conditions in many end markets, such as vehicle services, industrial lubrication, environmental, semi-conductors, mining and some recovery in oil and natural gas.

New product introductions also contributed to sales growth.

Operating margin rate for this segment improved by 2 percentage points, driven by higher sales volume and expense leverage.

Although the Americas represent the substantial majority of sales for the Process segment, and indicators in that region are the most significant, management monitors indicators such as levels of gross domestic product, capital investment, industrial production, oil and natural gas markets and mining activity worldwide.

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The following table presents net sales and operating earnings as a percentage of sales for the Contractor segment (dollars in millions):

2020 2019 2018

Americas $ 495.7 $ 414.3 $ 395.6

EMEA 111.6 104.9 100.4

Asia Pacific 39.0 34.5 38.3

Total $ 646.3 $ 553.7 $ 534.3

Operating Earnings as a Percentage of Sales 25 % 23 % 23 %

The following table presents the components of net sales change by geographic region for the Contractor segment:

Volume and Price

Volume and Price Acquisitions Currency Total Volume and Price Acquisitions Currency Total

Americas 20% 0% 0% 20% 5% 0% 0% 5%

EMEA 5% 0% 1% 6% 9% 0% (5)% 4%

Asia Pacific 14% 0% (1)% 13% (6)% 0% (4)% (10)%

Segment Total 17% 0% 0% 17% 5% 0% (1)% 4%

In 2020, continued strength in construction markets and increased demand from home improvement markets drove sales growth in all regions.

Operating margin rate increased compared to the 2019 rate due to increased sales volume and expense leverage.

Contractor segment sales growth continued in 2019, with favorable response to new product offerings and the on-going favorable construction environment in the Americas and EMEA.

Operating margin rate was consistent with the 2018 rate.

In 2018, growth in Contractor segment sales continued in all channels and regions, with new product introductions and strong underlying construction activity in North America and Western Europe.

Contractor segment operating margin rate for 2018 was flat compared to 2017.

Favorable effects of currency translation offset the effects of lower gross margin rate and increases in product development costs.

Operating margins in the second half of the year faced pressure from higher factory spending, tariffs and material costs.

In this segment, sales in all regions are significant and management reviews economic and financial indicators in each region, including levels of residential, commercial and institutional construction, remodeling rates and interest rates.

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Higher cash and cash equivalent balances drove the increases in working capital and current ratio.

Decreases in accounts receivable and inventories were consistent with sales levels, and sales and earnings based accruals also decreased.

Increases in accounts receivable were consistent with higher sales levels in the Contractor segment, and inventories increased to meet higher demand and service levels.

Capital Structure.

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Shareholders’ equity increased by $259 million in 2020.

The increase from current year earnings of $344 million was offset by dividends of $109 million , other comprehensive loss of $25 million and share repurchases of $7 million .

Increases related to shares issued and stock compensation totaled $70 million .

The increase from current year earnings of $330 million was offset by dividends of $119 million and share repurchases of $102 million.

Increases related to shares issued, stock compensation and other comprehensive income totaled $150 million.

Liquidity and Capital Resources .

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As of December 25, 2020, the amount of cash held outside the U.S.

was not significant to the Company’s liquidity and was available to fund investments abroad.

totaled $173 million and is sufficient to fund investments abroad.

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.

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The Company may borrow up to $50 million under the swingline portion of the facility for daily working capital needs.

We expect to renew our amended revolving credit agreement prior to its expiration in December 2021.

Under terms of the amended revolving credit agreement, borrowings may be denominated in U.S.

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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 .

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.

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On September 24, 2018, the Company entered into a revolving credit agreement with a sole lender that was scheduled to expire in September 2020.

This revolver was amended effective January 29, 2020 to remove the expiration date, eliminate commitment fees, reduce interest rate margins and delete negative covenants regarding cash flow leverage and interest coverage ratios.

This credit agreement provides up to $50 million of committed credit, available for general corporate purposes, working capital needs, share repurchases and acquisitions.

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Loans denominated in Chinese renminbi (offshore) bear interest at a LIBOR-based rate based on the Chinese offshore rate.

Other terms of the new revolving credit agreement are substantially similar to those of the Company’s other revolving credit agreement that expires in December 2021.

Other terms of the revolving credit agreement are substantially similar to those of the Company’s other revolving credit agreement that expires in December 2021.

On January 29, 2020, the Company entered into a master note agreement with a sole lender that expires on January 29, 2023.

The note agreement sets forth certain terms on which the Company may issue, and affiliates of the lender may purchase, up to $200 million of the Company’s senior notes.

Interest on the senior notes will be determined at the time of issuance, at a fixed or LIBOR-based floating rate at the option of the Company, provided that the maximum aggregate principal amount of notes bearing interest at a floating rate may not exceed $100 million.

Fixed rate notes issued under the agreement will mature no longer than 12 years from date of issuance and variable rate notes will mature no longer than 10 years from issuance.

Under terms of the note agreement, the Company is required to maintain certain financial ratios as to cash flow leverage and interest coverage similar to the requirements of its other debt agreements.

On December 25, 2020, the Company had $598 million in lines of credit, including the $550 million in committed credit facilities described above and $48 million with foreign banks.

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The Company is in compliance with all financial covenants of its debt agreements as of December 25, 2020.

Internally generated funds and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2020 , including its capital expenditure plan of approximately $80 million, including $40 million for building projects to expand production and distribution capacity, planned dividends estimated at $117 million , share repurchases and acquisitions.

Internally generated funds and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2021, including its capital expenditure plan of approximately $115 million, including $80 million for building projects to expand production capacity, planned dividends estimated at $126 million, share repurchases and acquisitions.

If acquisition opportunities increase, the Company believes that reasonable financing alternatives are available for the Company to execute on those opportunities.

In December 2020, the Company’s Board of Directors increased the Company’s regular quarterly dividend to $0.1875 from $0.175 per share, an increase of 7 percent.

Subsequent event:

On January 29, 2020, the Company entered into a master note agreement with a sole lender that expires on January 29, 2023.

The note agreement sets forth certain terms on which the Company may issue, and affiliates of the lender may purchase, up to $200 million of the Company’s senior notes.

Fixed rate notes issued under the agreement will mature no longer than 12 years from date of issuance and variable rate notes will mature no longer than 10 years from issuance.

A summary of cash flow follows (in millions):

2020 2019 2018

Operating activities $ 394.0 $ 418.7 $ 368.0

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Cash Flows From Operating Activities .

Net cash provided by operating activities was $394 million in 2020, down $25 million compared to 2019.

Increases in working capital and a $20 million voluntary contribution in 2020 to one of the Company’s U.S.

qualified defined benefit retirement plans drove the decrease.

Net cash provided by operating activities was $419 million in 2019, up $51 million compared to 2018.

1 unchanged sentence

qualified defined benefit retirement plans was not repeated in 2019.

Net cash provided by operating activities was $368 million in 2018 , up $30 million compared to 2017 .

The impact of the increase in net earnings was partially offset by the $40 million pension contribution.

Cash Flows Used in Investing Activities.

Cash flows used in investing activities totaled $99 million in 2020, including $71 million for capital additions and $28 million for business acquisitions.

Capital additions in 2019 included $97 million related to building expansion projects to increase production and distribution capacity.

Cash flows used in investing activities totaled $155 million in 2019 including $128 million for capital additions and $27 million for business acquisitions.

Cash outflows from investing activities totaled $68 million in 2017 including $40 million for capital additions and $28 million for business acquisitions.

Cash flows used in investing activities totaled $66 million in 2018 including $54 million for capital additions and $11 million for business acquisitions.

Cash Flows Used in Financing Activities .

Cash flows used in financing activities totaled $139 million in 2020 and included dividends of $117 million and net payments from share repurchases and issuances totaling $21 million.

Cash flows used in financing activities totaled $174 million in 2019 and included dividends of $106 million and net payments on long-term debt and outstanding lines of credit of $105 million (including a $75 million prepayment of private placement debt that was due in 2020), partially offset by net proceeds from share issuances and repurchases totaling $37 million.

Cash flows used in financing activities totaled $283 million in 2018 and included dividends of $89 million, share repurchases of $245 million (partially offset by net proceeds from share issuances of $25 million) and taxes paid related to net share settlement of equity awards of $16 million.

Inflows from net borrowings totaled $42 million.

Cash flows used in financing activities totaled $217 million in 2017 and included dividends of $80 million , net payments of $83 million on long-term debt and outstanding lines of credit (including a $75 million prepayment of private placement debt that was due in 2018) and share repurchases of $90 million (partially offset by proceeds from share issuances of $61 million ).

On April 24, 2015, the Board of Directors authorized the purchase of up to 18 million shares of common stock, primarily through open market transactions.

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Payments due by period

Long-term debt

Interest on long-term debt

Total Less than

years More than

Debt obligations $ 172.2 $ 22.2 $ 75.0 $ — $ 75.0

Interest on debt obligations 41.0 8.2 12.7 17.1 3.0

Operating leases 44.7 9.4 14.1 8.8 12.4

1 unchanged sentence

Purchase obligations (1)

198.0 198.0 — — —

Unfunded pension and postretirement medical benefits (2)

41.8 3.5 7.7 8.3 22.3

Total $ 517.3 $ 248.8 $ 118.0 $ 37.4 $ 113.1

(1) The Company is committed to pay suppliers under the terms of open purchase orders issued in the normal course of business.

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Retirement Benefits.

The measurements of the Company’s pension and postretirement medical obligations are dependent on a number of assumptions including estimates of the present value of projected future payments, taking into consideration future events such as salary increase and demographic experience.

These assumptions may have an impact on the expense and timing of future contributions.

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For 2021, the Company will use investment return assumptions of 6.3 percent for the larger of its two funded U.S.

plans and 6.0 percent for the smaller plan, down 0.25 percentage point from the rates assumed for 2019 .

plans and 5.2 percent for the smaller plan, down 0.7 and 0.8 percentage point from the rates assumed for 2020, respectively.

Mortality rates are based on current common group mortality tables for males and females.

At December 25, 2020, a one-half percentage point decrease in the indicated assumptions would have the following effects (in millions):

Funded Status

Assumption Funded Status Expense

Discount rate $ (38.6) $ 3.0

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A considerable amount of management judgment and assumptions are required in performing the impairment tests.

Management makes several assumptions, including earnings and cash flow projections, discount rate, product offerings and market strategies, customer attrition, and royalty rates, each of which have a significant impact on the estimated fair values.

Though management considers its judgments and assumptions to be reasonable, changes in these assumptions could impact the estimated fair value.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis