Graco Inc.

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8-K
GRACO INC filed this Form 8-K on 01/30/2017
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Page 3 GRACO


Total operating expenses for 2016 include the non-cash impairment charge of $192 million in the fourth quarter. Excluding this charge, operating expenses increased by $4 million (4 percent) for the quarter and $20 million (5 percent) for the year. Expenses of acquired operations totaled $2 million for the quarter and $9 million for the year. 

Operating earnings for the quarter, before non-cash impairment charges, increased 12 percent over the comparable period last year. For the year, operating earnings before non-cash impairment charges increased 1 percent, as the 5 percent increase in expenses exceeded the 3 percent increase in sales.

The effective tax rate for the quarter was 6 percent compared to a 27 percent effective rate for the fourth quarter last year. The impact of the impairment on the effective tax rate was a decrease of approximately 23 percentage points. The fourth quarter of 2016 included one quarter of the federal R&D credit while the fourth quarter of 2015 included a full year of the credit. The effective tax rate for the year was 58 percent, including approximately 28 percentage points related to the impairment charge, compared to 27 percent in 2015. Last year’s rate included favorable impacts of non-recurring tax benefits and post-tax dividend income, partially offset by the tax rate effects of the gain on the sale of Liquid Finishing business assets. The net increase in effective rate from those items was partially offset by additional 2016 benefit from foreign earnings being taxed at lower rates than the U.S.
 
Segment Results

Management assesses performance of segments by reference to operating earnings excluding unallocated corporate expenses and asset impairments. For a reconciliation of segment operating earnings to consolidated operating earnings, refer to the Segment Information table included in the financial statement section of this release. Certain measurements of segment operations are summarized below:
 
Quarter Ended
 
Year Ended
 
Industrial
 
Process
 
Contractor
 
Industrial
 
Process
 
Contractor
Net Sales (in millions)
$
174.6

 
$
70.6

 
$
103.9

 
$
629.6

 
$
266.6

 
$
433.1

Percentage change
from last year
 
 
 
 
 
 
 
 
 
 
 
Sales
4
%
 
2
%
 
17
%
 
2
%
 
(3
)%
 
9
%
Operating earnings
4
%
 
17
%
 
27
%
 
3
%
 
(18
)%
 
6
%
Operating earnings as a percentage of sales
 
 
 
 
 
 
 
 
 
 
 
2016
34
%
 
15
%
 
19
%
 
33
%
 
13
 %
 
21
%
2015
34
%
 
13
%
 
18
%
 
33
%
 
16
 %
 
22
%

Industrial segment sales for the quarter increased 4 percent (6 percent at consistent translation rates), including increases of 11 percent in EMEA (15 percent at consistent translation rates) and 5 percent in Asia Pacific. Sales were flat in the Americas. Sales for the year increased 2 percent (3 percent at consistent translation rates), including increases of 6 percent in both EMEA and Asia Pacific (8 percent at consistent translation rates), partially offset by a decrease of 3 percent in the Americas. Operating margin rates for the Industrial segment were consistent with prior year.


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