Graco Inc.

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SEC Filings

10-K
GRACO INC filed this Form 10-K on 02/21/2017
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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. Management also reviews gross domestic product for the regions and the level of the U.S. dollar versus the euro and other currencies.

Financial Condition and Cash Flow

Working Capital. The following table highlights several key measures of asset performance (dollars in millions):
 
2016
 
2015
Working capital
$
325.4

 
$
314.4

Current ratio
2.8

 
2.6

Days of sales in receivables outstanding
61

 
64

Inventory turnover (LIFO)
3.0

 
3.2


The impact on working capital of decreases in notes payable, accrued salaries and incentives and other payables was partially offset by a $7 million decrease in accounts receivable. Inventory levels were steady compared to year-end 2015.

Capital Structure. At December 30, 2016, the Company’s capital structure included current notes payable of $9 million, long-term debt of $306 million and shareholders’ equity of $574 million. At December 25, 2015, the Company’s capital structure included current notes payable of $16 million, long-term debt of $393 million and shareholders’ equity of $636 million.

Shareholders’ equity decreased by $62 million in 2016. Decreases from dividends of $75 million, and other comprehensive losses related to currency translation and pension liability adjustments totaling $38 million, more than offset the increase from current year earnings of $41 million. Increases related to shares issued and stock compensation totaling $61 million were mostly offset by a $50 million decrease from share repurchases. Shareholders’ equity increased by $40 million in 2015. The increase from 2015 earnings of $346 million offset decreases from share repurchases of $272 million and dividends of $70 million. Increases related to shares issued and stock compensation totaled $39 million.

Liquidity and Capital Resources. The Company had cash held in deposit accounts totaling $52 million at December 30, 2016, and December 25, 2015. As of December 30, 2016, cash balances of $9 million were restricted to funding of certain self-insured loss reserves, and included within other current assets on the Company’s Consolidated Balance Sheets. In 2015, the Company asserted that it will indefinitely reinvest earnings of foreign subsidiaries to support expansion of its international business. As of December 30, 2016, the amount of cash held outside the United States was not significant to the Company’s liquidity and was available 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.

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 December 30, 2016, the Company had $544 million in lines of credit, including the $500 million in committed credit facilities described above and $44 million with foreign banks. The unused portion of committed credit lines was $504 million as of December 30, 2016.

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 30, 2016.

Internally generated funds and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2017, including its capital expenditure plan of approximately $40 million, planned dividends estimated at $80 million, share

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