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Item 8. Financial Statements and Supplementary Data

2021-02-16 compared with 2020-02-18 · 248 added, 136 removed, 721 unchanged (35% of the section changed)

26 unchanged sentences

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that;

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

9 unchanged sentences

We have audited the accompanying consolidated balance sheets of Graco Inc.

and subsidiaries (the “ Company ” ) as of December 27, 2019 and December 28, 2018 , the related consolidated statements of earnings, comprehensive income, shareholders’ equity, and cash flows, for each of the three years in the period ended December 27, 2019 , and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the “ financial statements ” ).

and subsidiaries (the "Company") as of December 25, 2020 and December 27, 2019, the related consolidated statements of earnings, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 25, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 25, 2020 and December 27, 2019 and the results of its operations and its cash flows for each of the three years in the period ended December 25, 2020, in conformity with accounting principles generally accepted in the United States of America.

40 unchanged sentences

(In thousands, except per share amounts)

2020 December 27,

2019 December 28,

Net Sales $ 1,650,115 $ 1,646,045 $ 1,653,292

Cost of products sold 795,178 786,289 770,753

Gross Profit 854,937 859,756 882,539

Product development 72,194 67,557 63,124

1 unchanged sentence

General and administrative 135,525 133,418 137,515

Impairment 35,229 — —

Operating Earnings 391,718 424,456 436,427

2 unchanged sentences

Earnings Before Income Taxes 374,651 405,877 410,766

Income taxes 44,195 62,024 69,712

Net Earnings $ 330,456 $ 343,853 $ 341,054

Basic Net Earnings per Common Share $ 1.97 $ 2.06 $ 2.04

3 unchanged sentences

(In thousands)

2020 December 27,

2019 December 28,

Net Earnings $ 330,456 $ 343,853 $ 341,054

Components of other comprehensive income (loss)

8 unchanged sentences

(In thousands, except share and per share amounts)

2020 December 27,

Current Assets

1 unchanged sentence

Accounts receivable, less allowances of $ 4,400 and $ 5,300

314,946 267,345

Inventories 285,704 273,233

Other current assets 44,242 29,917

1 unchanged sentence

Property, Plant and Equipment, net 350,750 325,546

Goodwill 347,603 307,663

Other Intangible Assets, net 160,669 162,623

1 unchanged sentence

Deferred Income Taxes 25,828 39,327

Other Assets 41,670 35,692

Total Assets $ 1,988,128 $ 1,692,210

LIABILITIES AND SHAREHOLDERS’ EQUITY

16 unchanged sentences

168,567,919 and 167,286,836 shares outstanding in 2020 and 2019

168,568 167,287

Additional paid-in-capital 671,206 578,440

7 unchanged sentences

(In thousands)

2020 December 27,

2019 December 28,

Cash Flows From Operating Activities

Net Earnings $ 330,456 $ 343,853 $ 341,054

Adjustments to reconcile net earnings to net cash

3 unchanged sentences

Share-based compensation 25,153 26,669 25,565

Impairment 35,229 — —

Accounts receivable ( 43,122 ) 8,934 ( 12,402 )

Inventories ( 13,086 ) 12,435 ( 30,719 )

Trade accounts payable 6,820 ( 539 ) ( 1,976 )

2 unchanged sentences

Other accrued liabilities ( 3,772 ) ( 11,510 ) 7,517

Other ( 394 ) ( 2,803 ) 688

Net cash provided by operating activities 394,035 418,734 367,985

2 unchanged sentences

Acquisition of businesses, net of cash acquired ( 27,557 ) ( 26,577 ) ( 10,769 )

Net cash provided by (used in) investing activities

Other ( 143 ) ( 939 ) ( 1,624 )

Net cash used in investing activities ( 99,038 ) ( 155,469 ) ( 66,247 )

Cash Flows From Financing Activities

6 unchanged sentences

Cash dividends paid ( 116,983 ) ( 106,443 ) ( 88,845 )

Net cash provided by (used in) financing activities

Net cash used in financing activities ( 139,471 ) ( 174,052 ) ( 282,711 )

Effect of exchange rate changes on cash 2,410 ( 358 ) 187

Net increase (decrease) in cash and cash equivalents

Cash, Cash Equivalents and Restricted Cash

Beginning of year

Reconciliation to Consolidated Balance Sheets

Net increase in cash and cash equivalents 157,936 88,855 19,214

Cash and Cash Equivalents

Restricted cash included in other current assets

Cash, cash equivalents and restricted cash

Beginning of year 220,973 132,118 112,904

End of year $ 378,909 $ 220,973 $ 132,118

See notes to consolidated financial statements.

2 unchanged sentences

(In thousands)

Stock Additional

Capital Retained

Earnings Accumulated

Other Comprehensive

Income (Loss)

Income (Loss) Total

Balance December 29, 2017 $ 169,319 $ 499,934 $ 181,599 $ ( 127,789 ) $ 723,063

3 unchanged sentences

Restricted stock canceled (issued) — ( 772 ) — — ( 772 )

Net earnings — — 341,054 — 341,054

Dividends declared ($ 0.5575 per share)

— — ( 93,065 ) — ( 93,065 )

Reclassified to retained earnings from AOCI — — 15,453 ( 15,453 ) —

Other comprehensive income (loss) — — ( 1,615 ) ( 1,615 )

3 unchanged sentences

Stock compensation cost — 23,398 — — 23,398

Restricted stock canceled (issued)

Net earnings — — 343,853 — 343,853

Dividends declared $ 0.6550 per share)

Reclassified to retained earnings from AOCI

— — ( 109,199 ) — ( 109,199 )

Other comprehensive income (loss) — — — ( 24,930 ) ( 24,930 )

3 unchanged sentences

Stock compensation cost — 22,024 — — 22,024

Net earnings — — 330,456 — 330,456

Dividends declared ($ 0.7125 per share)

— — ( 119,384 ) — ( 119,384 )

Other comprehensive income (loss) — — — 45,622 45,622

29 unchanged sentences

Assets and liabilities measured at fair value on a recurring basis and fair value measurement level were as follows (in thousands):

Level 2020 2019

Cash surrender value of life insurance 2 $ 19,887 $ 17,702

16 unchanged sentences

Other receivables totaled $ 13 million in 2020 and $ 11 million in 2019.

Allowance for Credit Losses.

Adoption of New Accounting Standard

In June 2016, the Financial Accounting Standards Board (FASB) issued a final standard on accounting for credit losses.

The new standard is effective for the Company in fiscal 2020 and requires a change in credit loss calculations using the expected loss method.

There was no significant impact on earnings or financial condition from the adoption of the new standard.

Accounting Policy

Receivables reflected in the financial statements represent the net amount expected to be collected.

An allowance for credit losses is established based on expected losses.

Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history, current and forecast economic conditions and other relevant factors.

Following is a summary of activity in the allowance for credit losses (in thousands):

2020 2019 2018

Balance, beginning $ 4,828 $ 4,771 $ 3,980

Additions (reversals) charged to costs and expenses 647 836 1,423

Deductions from reserves (1)

( 2,732 ) ( 858 ) ( 899 )

Other additions (deductions) (2)

Balance, ending $ 3,745 $ 4,828 $ 4,771

(1) Represents amounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves.

(2) Includes amounts assumed or established in connection with acquisitions and effects of foreign currency translation.

Inventory Valuation .

6 unchanged sentences

Prepaid expenses and other 21,925 16,455

Total $ 44,242 $ 29,917

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.

In connection with negotiations to sell the Company's U.K.-based valve business in 2020, impairment charges of $35 million were recorded.

We completed our annual impairment review of all long-lived assets in the fourth quarter of 2020.

No impairment charges were recorded as a result of that review.

No further impairment charges were recorded as a result of that review.

There were no impairment charges in 2019 or 2018.

1 unchanged sentence

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

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.

1 unchanged sentence

Changes in the carrying amounts of goodwill for each reportable segment were (in thousands):

Industrial Process Contractor Total

Balance, December 28, 2018 $ 177,124 $ 97,168 $ 19,554 $ 293,846

6 unchanged sentences

Components of other intangible assets were (dollars in thousands):

Indefinite Life

Relationships

Finite Life Indefinite Life

Relationships Patents and

Technology Trademarks,

and Other Trade

As of December 25, 2020

$ 186,073 $ 25,187 $ 900 $ 61,920 $ 274,080

Accumulated amortization

( 93,832 ) ( 12,924 ) ( 301 ) — ( 107,057 )

Foreign currency translation ( 6,004 ) ( 538 ) — 188 ( 6,354 )

$ 86,237 $ 11,725 $ 599 $ 62,108 $ 160,669

Weighted average life in years

As of December 27, 2019

$ 186,310 $ 20,413 $ 1,020 $ 61,920 $ 269,663

Accumulated amortization

( 80,764 ) ( 10,526 ) ( 650 ) — ( 91,940 )

Foreign currency translation ( 10,412 ) ( 885 ) ( 73 ) ( 3,730 ) ( 15,100 )

$ 95,134 $ 9,002 $ 297 $ 58,190 $ 162,623

Weighted average life in years

1 unchanged sentence

Estimated future annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):

2021 2022 2023 2024 2025 Thereafter

Estimated Amortization Expense $ 17,286 $ 17,196 $ 16,187 $ 14,660 $ 14,078 $ 19,154

7 unchanged sentences

Deposits and other 2,292 4,471

Total $ 41,670 $ 35,692

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.

1 unchanged sentence

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.

The cash surrender value increased $ 3.4 million in 2019 , decreased $ 1.8 million in 2018 and increased $ 2.3 million in 2017 .

Changes in cash surrender value are recorded in other expense, net.

The cash surrender value increased $ 2.2 million in 2020, $ 3.4 million in 2019 and decreased $ 1.8 million in 2018.

Capitalized software is amortized over its estimated useful life (generally 2 to 5 years) beginning at date of implementation.

9 unchanged sentences

Right of return refund liability 16,303 13,791

Other 31,709 37,145

Total $ 157,260 $ 142,937

Self-Insurance.

8 unchanged sentences

Balance, beginning of year $ 12,785 $ 11,056

Assumed in business acquisition 155 —

Charged to expense 8,270 10,350

24 unchanged sentences

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.

Estimated costs are accrued at the time of sale and classified as selling, marketing and distribution expense.

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.

33 unchanged sentences

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 27, 2019 , totaled $ 33 million .

The notional amounts of contracts outstanding as of December 25, 2020 , totaled $ 38 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.

3 unchanged sentences

Foreign Currency Contracts

Assets $ 114 $ —

Liabilities ( 98 ) ( 87 )

Net Assets (Liabilities) $ 16 $ ( 87 )

Recent Accounting Pronouncements.

Credit Losses

In June 2016, the FASB issued a final standard on accounting for credit losses.

The new standard is effective for the Company in fiscal 2020 and requires a change in credit loss calculations using the expected loss method.

The Company has determined there will be no significant impact on earnings or financial condition from the adoption of the new standard.

Accounting policies and systems have been updated as needed and disclosures required by the new standard will be provided in the Company's first quarter 2020 reporting cycle.

Segment Information

6 unchanged sentences

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.

Markets served include food and beverage, dairy, oil and natural gas,

pharmaceutical, cosmetics, electronics, semiconductor fabrication, 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.

7 unchanged sentences

Segments information follows (in thousands):

2020 2019 2018

Industrial $ 677,680 $ 747,396 $ 781,029

Process 326,105 344,930 337,953

Contractor 646,330 553,719 534,310

Total $ 1,650,115 $ 1,646,045 $ 1,653,292

Operating Earnings

Industrial $ 226,575 $ 247,216 $ 271,307

Process 64,498 76,367 68,514

Contractor 164,549 128,282 120,905

Unallocated corporate (expense) ( 28,675 ) ( 27,409 ) ( 24,299 )

Impairment ( 35,229 ) — —

Total $ 391,718 $ 424,456 $ 436,427

Industrial $ 632,165 $ 615,486

Process 404,370 387,216

Contractor 438,067 368,832

Unallocated corporate 513,526 320,676

Total $ 1,988,128 $ 1,692,210

Management assesses performance of segments by reference to operating earnings excluding unallocated corporate expenses and asset impairments.

2 unchanged sentences

Geographic information follows (in thousands):

2020 2019 2018

Net Sales (based on customer location)

1 unchanged sentence

Other countries 766,664 805,386 847,165

Total $ 1,650,115 $ 1,646,045 $ 1,653,292

Long-lived Assets

1 unchanged sentence

Other countries 49,107 56,682

Total $ 350,750 $ 325,546

Sales to Major Customers.

4 unchanged sentences

Raw materials and purchased components 129,319 117,026

Subtotal 346,232 336,111

Reduction to LIFO cost ( 60,528 ) ( 62,878 )

Total $ 285,704 $ 273,233

Inventories valued under the LIFO method were $ 150.1 million in 2020 and $ 140.3 million in 2019.

All other inventory was valued on the FIFO method.

In 2019 , certain inventory quantities were reduced, resulting in liquidation of LIFO inventory quantities carried at lower costs from prior years, although increases in material costs, including tariffs, offset the impact of the decrement and drove the LIFO reserve requirement higher.

In 2020, decreases in material costs, including tariffs, offset the impact of increases in certain inventory quantities and drove the LIFO reserve requirement lower.

The effect of the LIFO reserve change on net earnings was not significant.

11 unchanged sentences

Earnings before income tax expense consist of (in thousands):

2020 2019 2018

Domestic $ 289,708 $ 294,402 $ 310,999

Foreign 84,943 111,475 99,767

Total $ 374,651 $ 405,877 $ 410,766

Income tax expense consists of (in thousands):

2020 2019 2018

Federal $ 11,509 $ 39,015 $ 27,760

State and local 3,217 3,347 3,398

Foreign 18,722 26,270 23,118

Current income tax expense 33,448 68,632 54,276

Domestic 12,856 ( 151 ) 17,058

Foreign ( 2,109 ) ( 6,457 ) ( 1,622 )

Deferred income tax expense (benefit) 10,747 ( 6,608 ) 15,436

Total $ 44,195 $ 62,024 $ 69,712

Income taxes paid were $ 44.0 million in 2020, $ 67.1 million in 2019 and $ 58.1 million in 2018.

1 unchanged sentence

federal statutory tax rate and the effective tax rate follows:

2020 2019 2018

Statutory tax rate 21 % 21 % 21 %

2 unchanged sentences

general business tax credits ( 1 ) ( 1 ) ( 1 )

Domestic production deduction

Loss on sale of business 2 — —

Stock compensation excess tax benefit ( 6 ) ( 3 ) ( 2 )

Impact of 2017 Tax Cuts and Jobs Act

Global Intangible Low-taxed Income (GILTI)

5 unchanged sentences

Inventory valuations $ 586 $ 966

Self-insurance retention accruals

Warranty reserves

Accrued self-insurance retentions 1,164 1,280

Accrued warranty and service liabilities 2,062 2,095

Vacation accruals 3,249 2,335

Bad debt reserves

Customer allowances 3,650 3,142

Excess of tax over book depreciation and amortization ( 49,377 ) ( 38,735 )

Pension liability

Postretirement medical

Pension benefit obligation 30,942 32,079

Postretirement medical benefit obligation 4,808 4,625

Acquisition costs 389 407

3 unchanged sentences

Deferred revenue 1,792 1,638

Other 2,041 1,851

Net deferred tax assets $ 15,564 $ 28,551

Total deferred tax assets were $ 68.9 million and $ 56.1 million , and total deferred tax liabilities were $ 40.4 million and $ 40.6 million on December 27, 2019 and December 28, 2018 .

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.

Total deferred tax assets were $ 67.0 million and $ 68.9 million, and total deferred tax liabilities were $ 51.4 million and $ 40.4 million on December 25, 2020 and December 27, 2019, respectively.

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, acquisition purchase accounting and the sale of the Company's U.K.-based valve business.

The Company files income tax returns in the U.S.

11 unchanged sentences

Average Interest Rate

December 27, 2019

December 25, 2020 Maturity 2020 2019

Private placement unsecured fixed-rate notes

Unsecured revolving credit facility

December 2021

Unsecured revolving credit facility - CNH

Series B 5.01 % March 2023 75,000 75,000

Series D 5.35 % July 2026 75,000 75,000

Unsecured revolving credit facility N/A December 2021 — —

Unsecured revolving credit facility - CNH 3.77 % N/A 7,668 14,298

Notes payable to banks 1.11 % 2021 14,515 7,732

Total debt $ 172,183 $ 172,030

The estimated fair value of the fixed interest rate private placement debt was $ 170 million on December 25, 2020 and $ 165 million on December 27, 2019.

12 unchanged sentences

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.

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 to 0.25 , depending on the Company’s cash flow leverage ratio.

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.

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

4 unchanged sentences

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

Other terms of this revolving credit agreement are substantially similar to those of the Company’s revolving credit

agreement that expires in December 2021.

Other terms of this revolving credit agreement are substantially similar to those of the Company’s 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.

2 unchanged sentences

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.

The Company pays facility fees at an annual rate of up to 0.15 on certain of these lines.

No compensating balances are required.

2 unchanged sentences

Annual maturities of debt are as follows (in thousands):

2021 2022 2023 2024 2025 Thereafter

Maturities of debt $ 22,183 $ — $ 75,000 $ — $ — $ 75,000

Interest paid on debt was $ 11.3 million in 2020, $ 13.5 million in 2019 and $ 14.0 million in 2018.

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.

Shareholders’ Equity

3 unchanged sentences

Postretirement

Medical Cumulative

Adjustment Total

Balance, December 29, 2017 $ ( 78,430 ) $ ( 49,359 ) $ ( 127,789 )

1 unchanged sentence

Amounts reclassified from accumulated other comprehensive income 7,190 — 7,190

Reclassified to retained earnings ( 15,453 ) — ( 15,453 )

Balance, December 28, 2018 ( 86,889 ) ( 57,968 ) ( 144,857 )

1 unchanged sentence

Amounts reclassified from accumulated other comprehensive income 7,106 — 7,106

Reclassified to retained earnings

Balance, December 27, 2019 ( 113,721 ) ( 56,066 ) ( 169,787 )

2 unchanged sentences

Balance, December 25, 2020 $ ( 114,129 ) $ ( 10,036 ) $ ( 124,165 )

In connection with the Company's sale of its U.K.-based valve business in 2020, $ 24 million of unrealized foreign currency translation losses recorded in accumulated other comprehensive income were reclassified to net earnings.

Amounts related to pension and postretirement medical adjustments are reclassified to non-service components of pension cost that are included within other non-operating expenses.

Included in the 2017 reclassification is $ 12 million related to a pension settlement loss ( Note J ).

In February 2018, FASB issued a new standard related to reclassification of certain tax effects from accumulated other comprehensive income (AOCI).

2 unchanged sentences

federal tax rate and the consequent revaluation of deferred tax assets related to pension and postretirement medical expense.

On April 30, 2018, the Company repurchased 0.7 million shares of its common stock for $ 28.2 million from the President and Chief Executive Officer of the Company.

The $ 43.33 per share purchase price represented a discount of 3 percent from the closing price of the Company’s stock immediately prior to the date of the transaction.

The Company used available cash balances and borrowings under its revolving line of credit to fund the repurchase.

Share-Based Awards, Purchase Plans and Compensation Cost

2 unchanged sentences

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.

Options become exercisable at such time, generally over 3 years or 4 years, and in such installments as set by the Company, and expire 10 years from the date of grant.

Restricted share awards have been made to certain key employees under the plan.

7 unchanged sentences

Options on common shares granted and outstanding, as well as the weighted average exercise price, are shown below (in thousands, except exercise prices):

Weighted Average

Exercise Price

Weighted Average

Shares Weighted Average

Exercise Price Options

Exercisable Weighted Average

Exercise Price

Outstanding, December 29, 2017 13,290 $ 21.99 7,729 $ 18.33

Granted 1,163 44.05

Exercised ( 2,081 ) 18.17

Canceled ( 102 ) 28.59

Outstanding, December 28, 2018 12,270 24.67 7,312 20.17

Granted 1,781 46.36

Exercised ( 1,886 ) 17.64

Canceled ( 53 ) 33.13

Outstanding, December 27, 2019 12,112 28.91 8,231 23.75

Granted 1,400 55.26

Exercised ( 3,238 ) 20.81

Canceled ( 66 ) 41.24

Outstanding, December 25, 2020 10,208 $ 35.02 6,553 $ 28.02

The following table summarizes information for options outstanding and exercisable at December 25, 2020 (in thousands, except exercise prices and contractual term amounts):

Options Outstanding

Options Exercisable

Weighted Average

Options Outstanding Options Exercisable

Prices Options

Outstanding Weighted Average

Contractual Term

Weighted Average

Exercise Price

Weighted Average

in Years Weighted Average

Exercise Price Options

Exercisable Weighted Average

Exercise Price

$10 - $25 3,628 3.6 $ 22.76 3,628 $ 22.76

$25 - $35 2,240 5.7 29.03 1,850 28.75

$35 - $45 1,258 7.3 43.30 631 42.86

$45 - $57 3,082 8.7 50.43 444 46.89

$10 - $57 10,208 6.0 $ 35.02 6,553 $ 28.02

The aggregate intrinsic value of exercisable option shares was $ 293.7 million as of December 25, 2020 , with a weighted average contractual term of 4.8 years.

1 unchanged sentence

Information related to options exercised follows (in thousands):

2020 2019 2018

Cash received $ 66,625 $ 32,749 $ 11,158

9 unchanged sentences

Shares authorized for issuance under the stock option and purchase plans are shown below (in thousands):

Available for Future

Issuance as of December 27, 2019

Authorized Available for Future Issuance as of December 25, 2020

Stock Incentive Plan (2019) 10,000 8,026

Employee Stock Purchase Plan (2006) 21,000 12,896

Total 31,000 20,922

Amounts available for future issuance exclude outstanding options.

3 unchanged sentences

The Company recognized share-based compensation cost as follows (in thousands):

2020 2019 2018

Share-based compensation $ 25,153 $ 26,669 $ 25,565

Tax benefit 1,700 2,100 3,500

Share-based compensation, net of tax $ 23,453 $ 24,569 $ 22,065

1 unchanged sentence

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:

2020 2019 2018

Expected life in years 7.5 6.8 7.5

Interest rate 1.4 % 2.3 % 2.8 %

Volatility 22.0 % 24.0 % 25.5 %

Dividend yield 1.3 % 1.4 % 1.2 %

6 unchanged sentences

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:

2020 2019 2018

Expected life in years 1.0 1.0 1.0

Interest rate 1.5 % 2.6 % 2.1 %

Volatility 21.9 % 22.7 % 21.3 %

Dividend yield 1.4 % 1.4 % 1.2 %

2 unchanged sentences

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):

2020 2019 2018

Net earnings available to common shareholders $ 330,456 $ 343,853 $ 341,054

4 unchanged sentences

Diluted earnings per share $ 1.92 $ 2.00 $ 1.97

Anti-dilutive stock options excluded from computations of diluted earnings per share totaled 1.1 million shares in 2019 and 1.1 million shares in 2018 .

The number of anti-dilutive options excluded from the 2017 computation of diluted earnings per share was not significant.

Anti-dilutive stock options excluded from computations of diluted earnings per share totaled 0.3 million shares in 2020 and 1.1 million shares in 2019 and 2018.

Retirement Benefits

1 unchanged sentence

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 contributed an amount equal to 1.5 percent of the employee’s compensation through 2019 and increased the contribution to 2.0 percent effective January 1, 2020.

For employees not covered by a defined benefit plan, the Company contributed an amount equal to 2.0 percent of the employee’s compensation.

Employer contributions totaled $ 8.7 million in 2020, $ 8.4 million in 2019 and $ 8.0 million in 2018.

4 unchanged sentences

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, included in 2017 other non-operating expense.

Remaining pension plan participants and related liabilities and assets were transferred into one of two new, legally separate qualified defined benefit plans, and the former plan was terminated.

The benefits offered to the plans’ participants were unchanged.

plans, benefits are based on years of service and the highest 5 consecutive years’ earnings in the 10 years preceding retirement.

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Assets of all plans by category and fair value measurement level were as follows (in thousands):

Level 2020 2019

Cash and cash equivalents (1)

1 $ 1,234 $ ( 156 )

Insurance contract 3 31,877 27,675

Investments categorized in fair value hierarchy 33,111 27,519

Small/Mid Cap

International

Real estate and other

Large Cap N/A 89,003 84,330

Small/Mid Cap N/A 20,313 9,202

International N/A 56,761 39,240

Total equity 166,077 132,772

Fixed income N/A 161,706 107,832

Real estate and other N/A 12,671 35,821

Investments measured at net asset value 340,454 276,425

Total $ 373,565 $ 303,944

(1) Negative cash for 2019 represents unsettled pending trades within an investment that are classified in cash and cash equivalents until settled.

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Balance, beginning of year $ 27,675 $ 26,364

Unrealized gains (losses)

Purchases 2,255 2,151

Redemptions ( 1,425 ) ( 1,326 )

Unrealized gains 3,372 486

Balance, end of year $ 31,877 $ 27,675

The following provides a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over the periods ending December 25, 2020 , and December 27, 2019, and a statement of the funded status as of the same dates (in thousands):

Pension Benefits

Postretirement Medical Benefits

Pension Benefits Postretirement Medical Benefits

2020 2019 2020 2019

Change in benefit obligation

Obligation, beginning of year $ 449,419 $ 371,282 $ 30,646 $ 27,778

Service cost 9,361 7,735 609 545

Interest cost 13,313 15,103 1,016 1,162

Actuarial loss (gain)

Actuarial loss 46,545 67,756 3,572 2,532

Benefit payments ( 13,602 ) ( 12,594 ) ( 1,385 ) ( 1,371 )

Plan changes ( 529 ) — — —

Exchange rate changes 6,145 137 — —

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Non-current liabilities 144,481 146,582 32,744 28,990

Changes in discount rates used to value pension obligations were the main drivers of large actuarial losses (gains) in 2019 and 2018.

In the third quarter of 2018, the Company made a $ 40 million voluntary contribution to one of its U.S.

Net $ 137,087 $ 145,475 $ 34,458 $ 30,646

Changes in discount rates used to value pension obligations were the main drivers of large actuarial losses in 2020 and 2019.

In the fourth quarter of 2020, the Company made a $ 20 million voluntary contribution to one of its U.S.

qualified defined benefit plans.

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The components of net periodic benefit cost for the plans for 2020, 2019 and 2018 were as follows (in thousands):

Pension Benefits

Postretirement Medical Benefits

Pension Benefits Postretirement Medical Benefits

2020 2019 2018 2020 2019 2018

Service cost-benefits earned during the period $ 9,361 $ 7,735 $ 8,487 $ 609 $ 545 $ 636

4 unchanged sentences

Settlement loss (gain) — — 184 — — —

Cost of pension plans which are not significant and have not adopted ASC 715

Cost of pension plans which are not significant and have not adopted ASC 715 168 110 106 N/A N/A N/A

Net periodic benefit cost $ 14,565 $ 14,467 $ 12,964 $ 2,358 $ 1,980 $ 2,366

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Amounts recognized in other comprehensive (income) loss in 2020 and 2019 were as follows (in thousands):

Pension Benefits

Postretirement Medical Benefits

Pension Benefits Postretirement Medical Benefits

2020 2019 2020 2019

Net loss (gain) arising during the period $ 8,872 $ 40,184 $ 3,572 $ 2,532

Amortization of net gain (loss) ( 10,243 ) ( 8,392 ) ( 733 ) ( 273 )

Settlement gain (loss)

Prior service cost (credit) arising during the period ( 529 ) — — —

Amortization of prior service credit (cost) ( 294 ) ( 279 ) — —

Total $ ( 2,194 ) $ 31,513 $ 2,839 $ 2,259

Amounts included in accumulated other comprehensive (income) loss as of December 25, 2020 and December 27, 2019, that had not yet been recognized as components of net periodic benefit cost, were as follows (in thousands):

Pension Benefits

Postretirement Medical Benefits

Prior service cost (credit)

Net before income taxes

Amounts included in accumulated other comprehensive (income) loss that are expected to be recognized as components of net periodic benefit cost in 2020 were as follows (in thousands):

Postretirement

Medical Benefits

Prior service cost (credit)

Net loss (gain)

Pension Benefits Postretirement Medical Benefits

2020 2019 2020 2019

Prior service cost $ 439 $ 1,197 $ — $ —

Net loss 134,469 135,910 10,891 8,052

Net before income taxes 134,908 137,107 10,891 8,052

Income taxes ( 29,274 ) ( 29,666 ) ( 2,396 ) ( 1,772 )

Net $ 105,634 $ 107,441 $ 8,495 $ 6,280

Assumptions used to determine the Company’s benefit obligations are shown below:

Pension Benefits

Postretirement Medical Benefits

Pension Benefits Postretirement Medical Benefits

Weighted average assumptions 2020 2019 2020 2019

Discount rate 2.6 % 3.5 % 2.6 % 3.4 %

Rate of compensation increase

Discount rate

Rate of compensation increase

Rate of compensation increase 2.7 % 2.8 % N/A N/A

Discount rate 0.4 % 0.4 % N/A N/A

Rate of compensation increase 1.3 % 1.3 % N/A N/A

Assumptions used to determine the Company’s net periodic benefit cost are shown below:

Pension Benefits

Postretirement Medical Benefits

Pension Benefits Postretirement Medical Benefits

Weighted average assumptions 2020 2019 2018 2020 2019 2018

Discount rate 3.5 % 4.5 % 3.9 % 3.4 % 4.5 % 3.9 %

Rate of compensation increase

Expected return on assets

Discount rate

Rate of compensation increase

Expected return on assets

Rate of compensation increase 2.8 % 2.8 % 2.8 % N/A N/A N/A

Expected return on assets 6.8 % 7.0 % 7.1 % N/A N/A N/A

Discount rate 0.4 % 1.3 % 1.0 % N/A N/A N/A

Rate of compensation increase 1.3 % 1.4 % 0.9 % N/A N/A N/A

Expected return on assets 1.5 % 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 advisers, and historical long-term returns.

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In measuring the accumulated postretirement benefit obligation (APBO), the annual trend rate for health care costs was assumed to be 8.0 percent for 2021, 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 27, 2019 , 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 $ 1.8 million to its unfunded pension plans and $ 1.7 million to the postretirement medical plan in 2021.

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Estimated future benefit payments are as follows (in thousands):

Postretirement

Benefits Postretirement

Medical Benefits

2021 $ 17,370 $ 1,714

2022 18,669 1,759

2023 19,877 1,761

2024 21,866 1,745

2025 21,102 1,742

Years 2026-2030 121,486 8,417

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Operating Lease Liabilities and Assets

The Company adopted ASU No.

2016-02— Leases (Topic 842) as of December 29, 2018, the beginning of its fiscal year 2019.

Using the modified retrospective approach with transition relief, the Company recorded operating lease assets and liabilities of $ 35 million as of December 29, 2018, and made no adjustments to retained earnings.

Adoption of the new standard did not materially impact consolidated net earnings and cash flows.

Electing the package of practical expedients permitted under transition guidance, the Company did not reassess previous conclusions about whether existing contracts contained a lease, historical lease classification, or initial direct costs.

Electing the hindsight practical expedient to determine the lease term for existing leases did not result in any changes to existing lease terms.

The Company elected not to apply recognition requirements to short term leases with terms of twelve months or less across all asset classes.

The Company elected to analyze vehicle assets using the portfolio approach.

Lastly, the Company elected as an accounting policy not to separate the lease and non-lease components in the lease payments across all asset classes.

The Company owns most of the assets used in its operations, but leases certain buildings and land, vehicles, office equipment and other rental assets.

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As of December 25, 2020, future maturities of operating lease liabilities were as follows (in thousands):

Thereafter 12,388

Total lease payments $ 44,727

1 unchanged sentence

Operating lease liabilities $ 40,402

Aggregate annual rental commitments under operating leases with noncancelable terms of more than one year at December 28, 2018 were reported under previous lease accounting standards as follows (in thousands):

Other Commitments.

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Unaudited quarterly financial data is summarized below (in thousands, except per share amounts):

Quarter Second

Quarter Third

Quarter Fourth

Net Sales $ 373,567 $ 366,892 $ 439,316 $ 470,340

Gross Profit 198,631 182,529 228,953 244,824

Net Earnings 72,818 28,832 114,115 114,691

Basic Net Earnings per Common Share $ 0.43 $ 0.17 $ 0.68 $ 0.68

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Cash Dividends Declared per Common Share 0.18 0.18 0.18 0.19

Net Sales $ 404,870 $ 428,328 $ 400,555 $ 412,292

Gross Profit 216,042 226,954 207,379 209,381

Net Earnings 86,749 88,137 84,132 84,835

Basic Net Earnings per Common Share $ 0.52 $ 0.53 $ 0.50 $ 0.51

3 unchanged sentences

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 8. Financial Statements and Supplementary Data