What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-16 · 58 added, 155 removed, 236 unchanged (47% of the section changed)

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• Critical Accounting Estimates

• Recent Accounting Pronouncements

Graco designs, manufactures and markets systems and equipment used to move, measure, control, dispense and spray fluid and powder materials.

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Graco’s key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channel and technologies.

Long-term financial growth targets accompany these strategies, including our expectation of 10 percent revenue growth and 12 percent consolidated net earnings growth.

Long-term financial growth targets accompany these strategies, including our expectation of 10 percent revenue growth and 12 percent consolidated net earnings growth per annum.

We continue to develop new products in each operating division that are expected to drive incremental sales growth, as well as continued refreshes and upgrades of existing product lines.

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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).

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

The timing, duration, and extent of the impact 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.

In 2021, the Company experienced logistical and production constraints associated with raw materials and purchased components.

These constraints were due to limited raw material and component availability, reduced freight capacity, shipping delays, and labor shortages as a result of responses to the COVID-19 pandemic and other supply chain disruptions.

We also experienced the effects of price inflation related to raw materials, purchased components, and freight and transportation costs.

The supply chain disruptions and associated effects of inflation have adversely impacted profitability in the near-term and limited our ability to satisfy strengthening customer demand, especially within our high-volume Contractor segment.

We expect these challenges to continue into at least the first half of 2022.

Results of Operations

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

2020 2019 2018

Net Sales $ 1,987.6 $ 1,650.1

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Diluted Net Earnings per Common Share, adjusted $ 2.44 $ 1.95

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

(1) Excludes impacts of pension settlement loss, prior year 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.

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.

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

Other expense for 2021 included a $12 million non-cash pension settlement loss.

In 2020, operating expenses included $35 million of non-cash impairment charges related to the sale of the Company's U.K.-based valve business (Alco).

Excess tax benefits related to stock option exercises reduced income taxes by $12 million in 2021 and $21 million in 2020.

Other benefits from tax planning activities further reduced income taxes in 2021 and 2020.

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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 $ 531.3 $ 391.7

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Impairment — 35.2

Pension settlement loss 12.0 —

Earnings before income taxes, adjusted $ 520.5 $ 409.9

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Impairment tax benefit — 1.2

Pension settlement tax effect 2.5 —

Excess tax benefit from option exercises 11.5 21.3

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Impairment, net — 34.0

Pension settlement loss, net 9.5 —

Excess tax benefit from option exercises (11.5) (21.3)

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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 %

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$ 1,150.2 $ 996.5

$ 996.5 $ 960.8 $ 926.4

371.8 406.5 393.1

Asia Pacific 373.3 281.8

Consolidated $ 1,987.6 $ 1,650.1

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

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

Sales in the U.S.

were $883 million in 2020, $841 million in 2019 and $806 million in 2018.

were $1,004 million in 2021 and $883 million in 2020.

(2) Europe, Middle East and Africa

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

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

Volume and Price Acquisitions/Divestitures Currency Total Volume and Price Acquisitions/Divestitures Currency Total

Americas 15% 0% 0% 15% 3% 1% 0% 4%

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Consolidated 19% 0% 1% 20% (1)% 1% 0% 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.

EMEA had strong sales growth in all areas of the region except the Middle East.

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.

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

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.

Improved global economic conditions drove a double-digit percentage increase in sales in 2021.

Sales growth was notably strong in the P.R.C.

and Western Europe.

There were 53 weeks in 2021, compared to 52 weeks in 2020.

Gross profit margin rate for 2021 increased slightly compared to 2020, as increased volume, realized pricing and favorable changes in currency translation rates were able to offset higher product costs due to supply chain disruptions and the effects of inflation.

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.

Reductions in volume and earnings-based expenses more than offset increases in product development expenses.

Total operating expenses for 2021 were $39 million higher than 2020, including the non-cash impairment charge of $35 million in 2020.

Excluding the impairment charge, total operating expenses for 2021 increased $75 million.

This increase includes $29 million of increases in sales and earnings-based expenses, $5 million related to foreign currency translation, and other volume and rate-related increases as pandemic-related restrictions eased in 2021 compared to 2020.

Investment in new product development was $80 million in 2021, up 10 percent over 2020.

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.

Operating earnings as a percentage of sales were 3 percentage points higher than 2020.

Excluding the prior year non-cash impairment charge, operating earnings as a percentage of sales increased 1 percentage point primarily due to the effects of higher gross margin.

Other Expense

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.

Other expense for 2021 included a non-cash pension settlement loss of $12 million in connection with the transfer of certain pension obligations to an insurance company.

Other expense increased $7 million for 2021 as favorable market valuation changes on investments held to fund certain retirement benefits liabilities partially offset the pension settlement loss.

The effective income tax rate for 2021 was 13 percent, up 1 percentage point from 2020.

The increase was primarily due to a decrease in excess tax benefits from stock option exercises partially offset by increased foreign-related tax benefits.

Segment Results

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

2020 2019 2018

Industrial $ 840.3 $ 677.7

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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 $ 354.5 $ 294.4

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Segment Total 21% 1% 2% 24% (10)% 0% 1% (9)%

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.

Automotive project demand was down substantially, particularly in Asia Pacific, and uncertainty around trade wars caused many manufacturers to postpone factory investments.

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.

Improved worldwide economic activity drove Industrial segment sales higher for 2021, particularly in general industry, construction, automotive, electrical equipment and alternative energy end markets.

For 2021, the operating margin rate increased as higher production volume, favorable product and channel mix and realized pricing were able to offset the adverse impacts of higher product costs.

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 $ 242.7 $ 206.4

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

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

Volume and Price Acquisitions/Divestitures Currency Total Volume and Price Acquisitions/Divestitures Currency Total

Americas 17% 0% 1% 18% (10)% 3% 0% (7)%

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Segment Total 23% (3)% 2% 22% (10)% 5% 0% (5)%

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.

Weakness in Asia Pacific also adversely affected Process segment sales, nearly offsetting increases in the Americas and EMEA.

Sales from acquired operations contributed approximately $7 million of growth in the Process segment.

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

The Process segment had organic sales growth in all product applications in 2021, reflecting favorable conditions in many end markets, such as vehicle services, industrial pumps, industrial lubrication, semi-conductors and mining.

Operating margin rates for this segment improved by 3 percentage points for 2021, as increased production volume and expense leverage more than offset the adverse effects of higher product costs and increased sales and earnings-based expenses.

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 $ 553.0 $ 495.7

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Segment Total 15% 0% 1% 16% 17% 0% 0% 17%

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.

Contractor segment sales increased for the quarter and year due to continued strength in North American construction markets and improved demand in the EMEA and Asia Pacific regions.

Higher product costs due to supply chain and inflationary challenges led to a 2 percentage point decrease in operating margin for 2021.

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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Inventory turnover (LIFO) 2.8 2.8

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

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

Higher cash and cash equivalent balances primarily drove the increases in working capital in 2021.

The current ratio decreased primarily due to a change in classification of a debt obligation from long-term to current.

The debt obligation was repaid subsequent to December 31, 2021 (See Note F , Debt).

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

Capital Structure.

At December 25, 2020, the Company’s capital structure included current notes payable of $22 million, long-term debt of $150 million and shareholders’ equity of $1,284 million.

At December 31, 2021, the Company’s capital structure included current notes payable of $43 million, long-term debt, including current portion, of $150 million and shareholders’ equity of $1,709 million.

At December 25, 2020, the Company’s capital structure included current notes payable of $22 million, long-term debt of $150 million and shareholders’ equity of $1,284 million.

Shareholders’ equity increased by $425 million in 2021.

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

The increase from current year earnings of $440 million was offset by dividends of $131 million and restricted stock issuances of $2 million.

Increases related to shares issued, stock compensation and other comprehensive income totaled $119 million.

Liquidity and Capital Resources .

The Company had cash held in deposit accounts totaling $379 million at December 25, 2020, and $221 million as of December 27, 2019.

The Company asserted that it will indefinitely reinvest earnings of foreign subsidiaries to support expansion of its international business.

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

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.

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.

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.

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 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.

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

dollars or Chinese renminbi (offshore).

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

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.

The unused portion of committed credit lines was $548 million as of December 25, 2020.

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 25, 2020.

The Company evaluates liquidity as its ability to generate cash to fund its operating, investing and financing activities.

Historically the Company has funded cash requirements for working capital, capital expenditures, businesses acquisitions, repayment of debt obligations, retirement plans, dividends, and common stock repurchases, all as applicable, through cash provided by its operations.

The Company's other primary source of liquidity includes funds available through various debt financing arrangements.

As of December 31, 2021, the Company had available liquidity of $1,149 million, including cash held in deposit accounts of $624 million, of which $120 million was held outside of the U.S., and available credit under existing committed credit facilities of $525 million.

Internally generated funds and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2022, including its capital expenditure plan of approximately $190 million, including $140 million for building projects to expand production capacity, planned dividends estimated at $143 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.

The Company has no significant off-balance sheet debt or other unrecorded obligations.

In December 2021, the Board of Directors increased the Company’s regular quarterly dividend to $0.21 from $0.1875 per share, an increase of 12 percent.

A summary of cash flow follows (in millions):

2020 2019 2018

Operating activities $ 456.9 $ 394.0

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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 $457 million in 2021, up $63 million compared to 2020.

A $40 million voluntary contribution in 2018 to one of the Company’s U.S.

qualified defined benefit retirement plans was not repeated in 2019.

The impact of the increase in net earnings in 2021 was partially offset by increases in working capital that reflect growth in business activity.

Cash Flows Used in Investing Activities.

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Cash flows used in investing activities totaled $99 million in 2020 including $71 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 $57 million in 2021 and included dividends of $127 million and net proceeds from share issuances totaling $51 million.

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.

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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As of December 31, 2021, approximately 18.5 million shares remain available for purchase under the authorizations.

The Company repurchased and retired 2.3 million shares in 2020, compared to 0.2 million shares in 2019 and 5.8 million shares in 2018.

The Company may continue to make opportunistic share repurchases in 2021 via open market transactions or short-dated accelerated share repurchase (“ASR”) programs.

Off-Balance Sheet Arrangements and Contractual Obligations .

The Company has no significant off-balance sheet debt or other unrecorded obligations other than the items noted in the following table.

In addition, the Company could be obligated to perform under standby letters of credit totaling $3 million at December 25, 2020.

The Company has also guaranteed the debt of its subsidiaries for up to $4 million.

All debt of subsidiaries is reflected in the consolidated balance sheets.

As of December 25, 2020, the Company is obligated to make cash payments in connection with obligations as follows (in millions):

Payments due by period

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

Service contracts 19.6 7.5 8.5 3.2 0.4

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.

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.

(2) The amounts and timing of future Company contributions to the funded qualified defined benefit pension plans are unknown because they are dependent on pension fund asset performance and pension obligation valuation assumptions.

The Company did not repurchase and retire shares in 2021, compared to 2.3 million shares that were repurchased and retired in 2020.

The Company has made and may continue to make opportunistic share repurchases in 2022 via open market transactions or short-dated accelerated share repurchase (“ASR”) programs.

Critical Accounting Estimates

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In setting this number, the Company considers the input of actuaries and investment advisers, its long-term historical returns, the allocation of plan assets and projected returns on plan assets.

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

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

For 2022, the Company will use an investment return assumption of 6.25 percent for the funded U.S.

plan, down 0.05 percentage points from the rate assumed for 2021.

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

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Valuations related to amounts owed and tax rates could be impacted by changes to tax codes and the Company’s interpretation thereof, changes in statutory rates, the Company’s future taxable income levels and the results of tax audits.

Recent Accounting Pronouncements

Refer to Note A (Summary of Significant Accounting Policies) to the Consolidated Financial Statements of this Form 10-K for disclosures related to recent accounting pronouncements.

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