What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-21 compared with 2022-02-22 · 69 added, 72 removed, 888 unchanged (14% of the section changed)

92 unchanged sentences

Interest expense 9,897 10,215 11,280

Other expense, net 12,643 5,787 5,469

Other expense (income), net ( 2,921 ) 12,643 5,787

Earnings Before Income Taxes 565,724 508,465 374,651

13 unchanged sentences

Income taxes - pension and postretirement medical liability ( 5,257 ) ( 14,647 ) 237

Other comprehensive income (loss) 43,996 45,622 ( 24,930 )

Other comprehensive income 10,791 43,996 45,622

Comprehensive Income $ 471,436 $ 483,862 $ 376,078

73 unchanged sentences

Borrowings on long-term lines of credit — — 250,000

Payments on long-term debt and lines of credit ( 70 ) ( 250,000 ) ( 207,191 )

Payments on long-term debt ( 75,000 ) ( 70 ) ( 250,000 )

Payments of debt issuance costs — ( 1,422 ) —

5 unchanged sentences

Effect of exchange rate changes on cash ( 1,278 ) ( 1,062 ) 2,410

Net increase in cash and cash equivalents 245,393 157,936 88,855

Net increase (decrease) in cash and cash equivalents ( 285,106 ) 245,393 157,936

Cash and Cash Equivalents

20 unchanged sentences

Shares issued 1,740 51,560 — — 53,300

Shares repurchased ( 2,327 ) ( 8,047 ) ( 91,768 ) — ( 102,142 )

Stock compensation cost — 21,859 — — 21,859

Restricted stock canceled (issued) — ( 2,337 ) — — ( 2,337 )

Net earnings — — 439,866 — 439,866

4 unchanged sentences

Shares issued 946 33,454 — — 34,400

Shares repurchased ( 3,552 ) ( 15,481 ) ( 214,393 ) — ( 233,426 )

Stock compensation cost — 24,216 — — 24,216

Restricted stock canceled (issued) — ( 2,337 ) — — ( 2,337 )

Net earnings — — 460,645 — 460,645

34 unchanged sentences

Cash surrender value of life insurance 2 $ 19,192 $ 23,147

Forward exchange contracts 2 — 16

Total assets at fair value $ 23,147 $ 19,903

Contingent consideration 3 $ 14,914 $ 12,274

7 unchanged sentences

Contingent consideration liability represents the estimated value (using a probability-weighted expected return approach) of future payments to be made to previous owners of certain acquired businesses based on future revenues.

Disclosures related to other fair value measurements are included below in Impairment of Long-Lived Assets, in Note F

(Debt) and in Note J (Retirement Benefits).

Disclosures related to other fair value measurements are included below in Impairment of Long-Lived Assets, in Note F (Debt) and in Note J (Retirement Benefits).

Cash Equivalents .

14 unchanged sentences

Other additions (deductions) (2)

( 58 ) 212 1,002

Balance, ending $ 6,130 $ 3,254 $ 3,745

(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.

(2) Includes effects of foreign currency translation.

Inventory Valuation .

9 unchanged sentences

The Company evaluates long-lived assets (including property and equipment, goodwill and other intangible assets) for impairment annually in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

We completed our annual impairment review of all long-lived assets in the fourth quarter of 2021.

We completed our annual impairment test of all long-lived assets in the fourth quarter of 2022.

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

47 unchanged sentences

Equity method investment 8,767 7,541

Prepaid pension — 9,144

Deposits and other 2,970 3,607

4 unchanged sentences

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

The cash surrender value increased $ 3.3 million in 2021, $ 2.2 million in 2020 and $ 3.4 million in 2019.

The cash surrender value decreased $ 4.0 million in 2022, and increased $ 3.3 million in 2021 and $ 2.2 million in 2020.

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

7 unchanged sentences

Income taxes payable 15,987 5,200

Tax payable, other 9,614 8,295

Operating lease liabilities, current 9,555 9,096

6 unchanged sentences

Accrued self-insurance retentions are based on claims filed, estimates of claims incurred but not reported, and other actuarial assumptions.

Self-insured reserves totaled $ 9.3 million as of December 31, 2021 , and $ 8.0 million as of December 25, 2020.

Self-insured reserves totaled $ 9.3 million as of December 30, 2022 and December 31, 2021.

Product Warranties.

37 unchanged sentences

The balance in the deferred revenue and customer advances was $ 50.7 million as of December 30, 2022 and $ 60.6 million as of December 31, 2021.

Net sales for the year included $ 40.9 million that was in deferred revenue and customer advances as of December 25, 2020.

Net sales for 2022 included $ 60.4 million that was in deferred revenue and customer advances as of December 31, 2021.

Net sales for 2021 included $ 40.9 million that was in deferred revenue and customer advances as of December 25, 2020.

Shipping and handling activities that occur after control of the related good transfers are accounted for as fulfillment activities instead of assessing such activities as performance obligations.

31 unchanged sentences

Segment Information

The Company has six operating segments which are aggregated into three reportable segments:

Industrial, Process and Contractor.

The Industrial segment includes our Industrial Products and Applied Fluid Technologies divisions.

The Company has five operating segments which are aggregated into three reportable segments:

Contractor, Industrial and Process.

Beginning with the first quarter of 2022, our high performance coatings and foam product offerings previously included within the Applied Fluid Technologies division of the Industrial segment were realigned and are now managed under the Contractor segment.

This change aligns the types of products offered and markets served within the segments.

Prior year segment information has been restated to conform to the current organizational structure.

The Contractor segment markets sprayers and equipment that apply paint to walls and other structures, texture to walls and ceilings, insulation to building walls and other items, highly viscous coatings to roofs, and markings on roads, parking lots, athletic fields and floors.

The Industrial segment includes our Industrial and Powder divisions.

The Industrial segment markets equipment and solutions for moving and applying paints, coatings, sealants, adhesives and other fluids.

Markets served include automotive and vehicle assembly and components production, wood and metal products, rail, marine, aerospace, farm, construction, bus, recreational vehicles and various other industries.

The Process segment includes our Process, Oil and Natural Gas, and Lubrication divisions.

The Process segment markets pumps, valves, meters and accessories to move and dispense chemicals, oil and natural gas, water, wastewater, petroleum, food, lubricants and other fluids.

The Process segment includes our Process and Lubrication divisions.

The Process segment markets pumps, valves, meters and accessories to move and dispense chemicals, oil and natural gas, water, wastewater, petroleum, food,

lubricants and other fluids.

Markets served include food and beverage, dairy, oil and natural gas, pharmaceutical, cosmetics, electronics, 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.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

5 unchanged sentences

The segments share common purchasing, certain manufacturing, distribution and administration functions.

Subsequent Event.

Effective January 1, 2022, our high performance coatings and foam product offerings within the Applied Fluid Technologies division of the Industrial segment were realigned and are now managed under the Contractor segment.

This change aligns the types of products offered and markets served within the segments.

Segment operating results will be reported under the new organizational structure in the first quarter of 2022, in connection with the effective date of the realignment.

Historic segment information restated to conform to the new organizational structure.

Segment information follows (in thousands):

2022 2021 2020

Contractor $ 999,060 $ 987,606 $ 842,525

Industrial 649,347 602,376 481,485

Process 495,114 397,626 326,105

Contractor 749,726 646,330 553,719

Total $ 2,143,521 $ 1,987,608 $ 1,650,115

Operating Earnings

Contractor $ 249,833 $ 266,204 $ 243,185

Industrial 231,298 199,856 147,939

Process 122,344 91,037 64,498

Contractor 169,518 164,549 128,282

Unallocated corporate (expense) ( 30,775 ) ( 25,774 ) ( 28,675 )

1 unchanged sentence

Total $ 572,700 $ 531,323 $ 391,718

Contractor $ 752,729 $ 656,998

Industrial 578,302 544,585

Process 564,539 436,189

Contractor 487,916 438,067

Unallocated corporate 543,330 805,426

60 unchanged sentences

Stock compensation excess tax benefit ( 1 ) ( 2 ) ( 6 )

Global Intangible Low-taxed Income (GILTI)

Foreign Derived Intangible Income (FDII) ( 2 ) ( 5 ) ( 3 )

10 unchanged sentences

Postretirement medical benefit obligation 5,072 5,028

Acquisition costs — 389

Stock compensation 12,390 11,442

Deferred compensation 2,283 2,595

Net operating loss carryforward — 440

Deferred revenue 2,160 2,427

Research and Development 11,370 —

Prepayments from foreign subsidiaries 36,070 32,969

18 unchanged sentences

Private placement unsecured fixed-rate notes

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

Series B 5.01 % January 2022 — 75,000

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

Unsecured revolving credit facility N/A March 2026 — —

Unsecured revolving credit facility - CNH 3.52 % N/A 39,222 7,668

Unsecured revolving credit facility - offshore renminbi denominated 3.34 % N/A 14,327 39,222

Notes payable to banks 2.80 % 2023 6,647 4,267

12 unchanged sentences

dollars cannot exceed $ 200 million in the aggregate.

Loans denominated in U.S.

The amended and restated credit agreement contains customary provisions for the replacement of the LIBOR-based rate as that rate is expected to be phased out by July 1, 2023.

Currently, loans denominated in U.S.

dollars may bear interest, at the Company’s option, at either a base rate or a LIBOR-based rate.

4 unchanged sentences

In addition to paying interest on the outstanding loans, the Company is required to pay a facility fee on the unused amount of the loan commitments at a rate per annum ranging from 0.125 % to 0.25 %, depending on the Company’s cash flow leverage ratio.

The amended and restated credit agreement contains customary provisions for the replacement of the LIBOR-based rate as that rate is phased out in the lending market.

The amended and restated credit agreement contains customary representations, warranties, covenants and events of default, including but not limited to covenants restricting the Company’s and its subsidiaries’ ability to (i) merge or consolidate with another entity, (ii) sell, transfer, lease or convey their assets, (iii) make any material change in the nature of the core business of the Company, (iv) make certain investments, or (v) incur secured indebtedness.

consolidate with another entity, (ii) sell, transfer, lease or convey their assets, (iii) make any material change in the nature of the core business of the Company, (iv) make certain investments, or (v) incur secured indebtedness.

The amended and restated credit agreement also requires the Company to maintain a cash flow leverage ratio of not more than 3.50 to 1.00 (unless a significant acquisition has been consummated, in which case, not more than 4.00 to 1.00 during the four fiscal quarter period beginning with the quarter in which such acquisition occurs) and an interest coverage ratio of not less than 3.00 to 1.00 (unless a significant acquisition has been consummated, in which case, not less than 2.50 to 1.00 during the four fiscal quarter period beginning with the quarter in which such acquisition occurs).

5 unchanged sentences

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.

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 amended and restated credit agreement that expires in March 2026.

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 16, 2022, the Company entered into an amendment to its master note agreement that extends the period in which the Company may issue, and affiliates of the lender may purchase, the Company’s senior notes from January 29, 2023 to December 16, 2027 .

The amendment also increases the maximum aggregate principal amount of senior notes the Company may issue under the master note agreement from $200 million to $ 250 million, although the maximum aggregate amount of senior notes bearing interest at a floating rate that may be outstanding at any one time will continue to be $ 100 million.

The amendment also extends the maturity and average life of each senior note bearing interest at a fixed rate that may be issued under the master note agreement from no more than 12 years after the date of issuance to no more than 15 years after the date of issuance, and includes customary provisions for the replacement of LIBOR with SOFR and customary benchmark replacement provisions with respect to senior notes bearing interest at a floating rate.

All other material items of the master note agreement remain unchanged.

Under the terms of the master 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 30, 2022 , the Company had $ 591 million in lines of credit, including the $ 550 million in committed credit facilities described above and $ 41 million with foreign banks.

10 unchanged sentences

Interest paid on debt was $ 10.0 million in 2022, $ 9.8 million in 2021 and $ 11.3 million in 2020.

Subsequent Event.

In January 2022, we repaid $ 75 million of our Series B private placement note in addition to a $ 3.5 million prepayment fee, which will be recognized as interest expense in the first quarter of 2022.

In January 2022, we repaid $ 75 million of our Series B private placement note in addition to a $ 3.5 million prepayment fee, which was recognized as interest expense.

Shareholders’ Equity

16 unchanged sentences

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.

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

Included in the 2021 reclassification is $ 12 million related to a pension settlement loss.

9 unchanged sentences

The Company has a stock appreciation plan that provides for payments of cash to eligible foreign employees based on the change in the market price of the Company’s common stock over a period of time.

Compensation cost related to the stock appreciation plan was $ 3.1 million in 2021, $ 2.4 million in 2020 and $ 3.3 million in 2019.

Compensation cost related to the stock appreciation plan was a benefit of $ 0.2 million in 2022, and expense of $ 3.1 million in 2021 and $ 2.4 million in 2020.

Individual nonemployee directors of the Company may elect to receive, either currently or deferred, all or part of their retainer in the form of shares of the Company’s common stock instead of cash.

53 unchanged sentences

Amounts available for future issuance exclude outstanding options.

Options outstanding as of December 31, 2021 , include options granted under three plans that were replaced by subsequent plans.

Options outstanding as of December 30, 2022 , include options granted under two plans that were replaced by subsequent plans.

No shares are available for future grants under those plans.

34 unchanged sentences

Diluted earnings per share $ 2.66 $ 2.52 $ 1.92

Anti-dilutive stock options excluded from computations of diluted earnings per share totaled 0.4 million shares in 2021 and 0.3 million shares in both 2020 and 2019.

Anti-dilutive stock options excluded from computations of diluted earnings per share totaled 2.2 million shares in 2022, 0.4 million shares in 2021 and 0.3 million 2020.

Retirement Benefits

8 unchanged sentences

subsidiaries.

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

The Company funds annually in amounts consistent with minimum funding levels and maximum tax deduction limits.

In October of 2021, the Company entered into an agreement under which approximately $ 63 million of pension obligations of its two U.S.

funded defined benefit pension plans were transferred to an insurance company.

Under the agreement, the Company purchased a group annuity contract for approximately 417 plan participants that provides for an irrevocable commitment to make annuity payments to the affected participants.

The payment obligation and administration thereof for the affected participants was transferred from the pension plans to the insurance company.

The transfer did not change the amount of the monthly pension benefits received by the affected participants.

The Company restructured one of its U.S.

qualified defined benefit plans in 2021.

Under the restructuring, the plan transferred $ 63 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 2021 other expense, net.

This charge represents the acceleration of deferred charges previously accrued in accumulated other comprehensive income.

Subsequent to the transfer of pension obligations, the smaller of the two pension plans was merged into the larger plan in December of 2021, with the larger plan being the surviving funded pension plan.

This arrangement is part of the Company’s effort to reduce the overall size and volatility of its pension plan obligations.

The purchase of the group annuity contract was funded through existing plan assets.

The Company recognized a non-cash pension settlement loss of approximately $ 12 million as a result of the transaction.

This charge represents the acceleration of deferred charges currently accrued in accumulated other comprehensive income.

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.

Plans are funded annually in amounts consistent with minimum funding levels and maximum tax deduction limits, although the Company may make additional voluntary contributions from time to time to improve the funded status of its plans.

Investment policies and strategies of the U.S.

7 unchanged sentences

The fair values for commingled equity, fixed-income and real estate investments are measured using net asset values, which take into consideration the value of underlying fund investments, as well as the other accrued assets and liabilities of a fund, in order to determine a per share market value.

Certain trustee-sponsored funds allow redemptions monthly or quarterly, with 10 days or 60 days advance notice, while most of the funds allow redemptions daily .

The plan had unfunded commitments to make additional investments in certain funds totaling $ 2.4 million as of December 31, 2021 and December 25, 2020.

Certain trustee-sponsored

funds allow redemptions monthly or quarterly, with 10 days or 60 days advance notice, while most of the funds allow redemptions daily .

The plan had unfunded commitments to make additional investments in certain funds totaling $ 2.3 million as of December 30, 2022 and $ 2.4 million as of December 31, 2021.

The Company maintains a defined contribution plan covering employees of a Swiss subsidiary, funded by Company and employee contributions.

21 unchanged sentences

Redemptions ( 669 ) ( 2,556 )

Unrealized gains ( 825 ) 3,372

Unrealized losses ( 525 ) ( 825 )

Balance, end of year $ 32,163 $ 30,926

20 unchanged sentences

Fair value, end of year $ 281,175 $ 347,900 $ — $ —

Funded status $ ( 70,151 ) $ ( 137,087 ) $ ( 32,122 ) $ ( 34,458 )

Unfunded status $ ( 34,632 ) $ ( 70,151 ) $ ( 22,930 ) $ ( 32,122 )

Amounts recognized in consolidated balance sheets

3 unchanged sentences

Net $ 34,632 $ 70,151 $ 22,930 $ 32,122

Changes in discount rates used to value pension obligations were the main drivers of actuarial gains in 2021 and actuarial losses in 2020.

Changes in discount rates used to value pension obligations were the main drivers of actuarial gains in 2022 and 2021.

In 2022 and 2021, the Company made a $ 20 million voluntary contribution each year to one of its U.S.

31 unchanged sentences

Prior service cost $ 1,668 $ 1,293 $ — $ —

Net loss ( 70,995 ) ( 134,469 ) ( 7,498 ) ( 10,891 )

Net before income taxes ( 69,702 ) ( 134,908 ) ( 7,498 ) ( 10,891 )

Net gain (loss) ( 55,084 ) ( 70,995 ) 1,891 ( 7,498 )

Net gain (loss) before income taxes ( 53,416 ) ( 69,702 ) 1,891 ( 7,498 )

Income taxes 12,207 15,443 ( 416 ) 1,650

43 unchanged sentences

The Company generally uses its incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments.

As of December 31, 2021, the weighted average remaining lease term was 5 years and the weighted average discount rate used to determine the operating lease liability was 2.2 percent.

For the twelve months ended December 31, 2021, expense related to operating leases was $ 11.6 million, operating lease payments included in operating cash flows totaled $ 11.6 million, and non-cash additions to operating lease assets totaled $ 1.6 million.

Variable lease costs and short term lease costs were not significant for the twelve months ended December 31, 2021.

Supplemental information related to the Company's lease activities is as follows (in thousands):

Operating lease expense $ 12,307 $ 11,641

Operating lease payments 11,886 11,564

Non-cash additions to operating lease assets 8,859 1,631

Additional information related to operating leases is as follows:

Weighted average remaining lease term (years) 3.0 5.0

Weighted average discount rate 3.00 % 2.24 %

Variable lease costs and short term lease costs were not significant for the twelve months ended December 30, 2022 and December 31, 2021.

As of December 30, 2022, future maturities of operating lease liabilities were as follows (in thousands):

19 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