UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September 24, 2021~~April 1, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-09249


GRACO INC.
(Exact name of registrant as specified in its charter)


Minnesota						41-0285640
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)


88 - 11th Avenue N.E.
Minneapolis,	Minnesota	55413
(Address of principal executive offices)		(Zip Code)


(612)			623-6000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	GGG	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

~~169,965,576~~169,226,847 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of ~~October 13, 2021.~~April 14, 2022.

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Earnings

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders' Equity

Notes to Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1615

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2221

Item 4.

Controls and Procedures

2221

PART II - OTHER INFORMATION

Item 1A.

Risk Factors

2221

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

EXHIBITS

PART I Item 1.

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited) (In thousands except per share amounts)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020				April 1, 2022		March 26, 2021
Net Sales	Net Sales	$	486,696	$	439,316	$	1,447,989	$	1,179,775	Net Sales		$	494,285	$	454,129
Cost of products sold	Cost of products sold	238,462		210,363		688,597		569,662		Cost of products sold		239,810		206,795
Gross Profit	Gross Profit	248,234		228,953		759,392		610,113		Gross Profit		254,475		247,334
Product development	Product development	19,762		17,715		60,739		52,744		Product development		19,078		19,571
Selling, marketing and distribution	Selling, marketing and distribution	66,078		54,009		197,432		160,228		Selling, marketing and distribution		62,995		62,228
General and administrative	General and administrative	37,795		31,957		114,493		102,322		General and administrative		44,039		37,249
Impairment		—		267		—		35,229

Operating Earnings	Operating Earnings	124,599		125,005		386,728		259,590		Operating Earnings		128,363		128,286

Interest expense	Interest expense	2,500		2,964		7,456		8,708		Interest expense		5,287		2,428

Other expense, net	Other expense, net	344		1,025		31		5,738		Other expense, net		153		121
Earnings Before Income Taxes	Earnings Before Income Taxes	121,755		121,016		379,241		245,144		Earnings Before Income Taxes		122,923		125,737
Income taxes	Income taxes	17,926		6,901		59,607		29,379		Income taxes		22,080		20,050
Net Earnings	Net Earnings	$	103,829	$	114,115	$	319,634	$	215,765	Net Earnings		$	100,843	$	105,687
Net Earnings per Common Share	Net Earnings per Common Share									Net Earnings per Common Share
Basic	Basic	$	0.61	$	0.68	$	1.89	$	1.29	Basic		$	0.59	$	0.63
Diluted	Diluted	$	0.59	$	0.66	$	1.83	$	1.26	Diluted		$	0.58	$	0.61

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020				April 1, 2022		March 26, 2021
Net Earnings	Net Earnings	$	103,829	$	114,115	$	319,634	$	215,765	Net Earnings		$	100,843	$	105,687
Components of other comprehensive income (loss)	Components of other comprehensive income (loss)									Components of other comprehensive income (loss)
Cumulative translation adjustment	Cumulative translation adjustment	(3,537)		30,966		(8,314)		33,045		Cumulative translation adjustment		(2,960)		(10,470)
Pension and postretirement medical liability adjustment	Pension and postretirement medical liability adjustment	2,559		2,313		8,240		7,508		Pension and postretirement medical liability adjustment		894		3,308
Income taxes - pension and postretirement medical liability adjustment	Income taxes - pension and postretirement medical liability adjustment	(564)		(512)		(1,771)		(1,681)		Income taxes - pension and postretirement medical liability adjustment		(194)		(672)
Other comprehensive income (loss)	Other comprehensive income (loss)	(1,542)		32,767		(1,845)		38,872		Other comprehensive income (loss)		(2,260)		(7,834)
Comprehensive Income	Comprehensive Income	$	102,287	$	146,882	$	317,789	$	254,637	Comprehensive Income		$	98,583	$	97,853

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands)


		September 24, 2021		December 25, 2020			April 1, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	603,828	$	378,909	Cash and cash equivalents	$	380,487	$	624,302
Accounts receivable, less allowances of $4,200 and $4,400		324,284		314,946
Accounts receivable, less allowances of $7,200 and $3,900						Accounts receivable, less allowances of $7,200 and $3,900	339,407		325,132
Inventories	Inventories	362,932		285,704		Inventories	436,741		382,301
Other current assets	Other current assets	42,027		44,242		Other current assets	40,585		31,886
Total current assets	Total current assets	1,333,071		1,023,801		Total current assets	1,197,220		1,363,621

Property, Plant and Equipment, net	Property, Plant and Equipment, net	416,518		350,750		Property, Plant and Equipment, net	487,805		451,061
Goodwill	Goodwill	357,014		347,603		Goodwill	371,401		356,255
Other Intangible Assets, net	Other Intangible Assets, net	154,364		160,669		Other Intangible Assets, net	154,006		149,740
Operating Lease Assets	Operating Lease Assets	37,336		37,807		Operating Lease Assets	31,228		30,046
Deferred Income Taxes	Deferred Income Taxes	32,842		25,828		Deferred Income Taxes	42,195		55,786
Other Assets	Other Assets	46,183		41,670		Other Assets	35,590		36,689
Total Assets	Total Assets	$	2,377,328	$	1,988,128	Total Assets	$	2,319,445	$	2,443,198
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Notes payable to banks	Notes payable to banks	$	50,323	$	22,183	Notes payable to banks	$	40,160	$	43,489

Current portion of long term debt						Current portion of long term debt	—		75,000
Trade accounts payable	Trade accounts payable	86,858		58,305		Trade accounts payable	88,108		78,432
Salaries and incentives	Salaries and incentives	76,265		52,005		Salaries and incentives	47,809		82,941
Dividends payable	Dividends payable	31,937		31,636		Dividends payable	35,678		35,771
Other current liabilities	Other current liabilities	181,831		157,260		Other current liabilities	190,558		191,159
Total current liabilities	Total current liabilities	427,214		321,389		Total current liabilities	402,313		506,792
Long-term Debt	Long-term Debt	150,000		150,000		Long-term Debt	75,000		75,000
Retirement Benefits and Deferred Compensation	Retirement Benefits and Deferred Compensation	183,254		184,747		Retirement Benefits and Deferred Compensation	105,129		106,897
Operating Lease Liabilities	Operating Lease Liabilities	30,389		29,224		Operating Lease Liabilities	24,209		23,527
Deferred Income Taxes	Deferred Income Taxes	11,099		10,264		Deferred Income Taxes	10,193		10,661
Other Non-current Liabilities	Other Non-current Liabilities	11,023		8,600		Other Non-current Liabilities	12,345		10,978

Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Common stock	Common stock	169,954		168,568		Common stock	169,223		170,308
Additional paid-in-capital	Additional paid-in-capital	728,015		671,206		Additional paid-in-capital	761,959		742,288
Retained earnings	Retained earnings	792,390		568,295		Retained earnings	841,503		876,916
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(126,010)		(124,165)		Accumulated other comprehensive income (loss)	(82,429)		(80,169)
Total shareholders’ equity	Total shareholders’ equity	1,564,349		1,283,904		Total shareholders’ equity	1,690,256		1,709,343
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	2,377,328	$	1,988,128	Total Liabilities and Shareholders’ Equity	$	2,319,445	$	2,443,198

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)


		Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020			April 1, 2022		March 26, 2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net Earnings	Net Earnings	$	319,634	$	215,765	Net Earnings	$	100,843	$	105,687
Adjustments to reconcile net earnings to net cash provided by operating activities	Adjustments to reconcile net earnings to net cash provided by operating activities					Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	Depreciation and amortization	44,846		40,714		Depreciation and amortization	15,570		14,515
Deferred income taxes	Deferred income taxes	(10,219)		(653)		Deferred income taxes	10,973		1,842
Share-based compensation	Share-based compensation	19,882		21,434		Share-based compensation	7,088		6,618
Impairment		—		35,229

Change in	Change in					Change in
Accounts receivable	Accounts receivable	(10,793)		(48,733)		Accounts receivable	(14,296)		(10,611)
Inventories	Inventories	(77,531)		(13,506)		Inventories	(52,979)		(27,541)
Trade accounts payable	Trade accounts payable	14,033		6,547		Trade accounts payable	9,216		9,323
Salaries and incentives	Salaries and incentives	22,770		(10,493)		Salaries and incentives	(35,341)		(6,949)
Retirement benefits and deferred compensation	Retirement benefits and deferred compensation	6,676		9,734		Retirement benefits and deferred compensation	(136)		2,867
Other accrued liabilities	Other accrued liabilities	27,307		4,868		Other accrued liabilities	(8,690)		4,493
Other	Other	626		1,813		Other	(923)		1,425
Net cash provided by operating activities	Net cash provided by operating activities	357,231		262,719		Net cash provided by operating activities	31,325		101,669
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Property, plant and equipment additions	Property, plant and equipment additions	(82,628)		(45,756)		Property, plant and equipment additions	(47,093)		(21,415)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(19,386)		(27,557)		Acquisition of businesses, net of cash acquired	(25,016)		—
Other	Other	(102)		(70)		Other	(134)		(34)
Net cash used in investing activities	Net cash used in investing activities	(102,116)		(73,383)		Net cash used in investing activities	(72,243)		(21,449)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Borrowings on short-term lines of credit, net	Borrowings on short-term lines of credit, net	27,880		21,506		Borrowings on short-term lines of credit, net	(3,420)		9,667
Borrowings on long-term lines of credit		—		250,000
Payments on long-term debt and lines of credit		(69)		(125,000)

Payments on long-term debt						Payments on long-term debt	(75,000)		—
Payments of debt issuance costs	Payments of debt issuance costs	(1,422)		—		Payments of debt issuance costs	—		(1,404)
Common stock issued	Common stock issued	40,445		57,949		Common stock issued	21,294		26,460
Common stock repurchased	Common stock repurchased	—		(102,143)		Common stock repurchased	(108,706)		—
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	—		(1,797)		Taxes paid related to net share settlement of equity awards	(1,219)		—
Cash dividends paid	Cash dividends paid	(95,238)		(87,665)		Cash dividends paid	(35,801)		(31,642)
Net cash provided by financing activities		(28,404)		12,850
Net cash used in financing activities						Net cash used in financing activities	(202,852)		3,081
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(1,792)		1,515		Effect of exchange rate changes on cash	(45)		(1,594)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	224,919		203,701		Net increase in cash and cash equivalents	(243,815)		81,707
Cash and Cash Equivalents	Cash and Cash Equivalents					Cash and Cash Equivalents
Beginning of year	Beginning of year	378,909		220,973		Beginning of year	624,302		378,909
End of period	End of period	$	603,828	$	424,674	End of period	$	380,487	$	460,616

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited) (In thousands)

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total


Three Months Ended September 24, 2021
Balance, June 25, 2021		$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263
Three Months Ended April 1, 2022												Three Months Ended April 1, 2022
Balance, December 31, 2021												Balance, December 31, 2021	$	170,308	$	742,288	$	876,916	$	(80,169)	$	1,709,343

Shares issued	Shares issued	287		6,942		—		—		7,229		Shares issued	437		19,638		0		0		20,075

Shares repurchased												Shares repurchased	(1,522)		(6,636)		(100,548)		0		(108,706)
Stock compensation cost	Stock compensation cost	—		5,438		—		—		5,438		Stock compensation cost	0		6,670		0		0		6,670

Restricted stock canceled (issued)												Restricted stock canceled (issued)	0		(1)		0		0		(1)
Net earnings	Net earnings	—		—		103,829		—		103,829		Net earnings	0		0		100,843		0		100,843
Dividends declared ($0.188 per share)		—		—		(31,868)		—		(31,868)
Dividends declared ($0.210 per share)												Dividends declared ($0.210 per share)	0		0		(35,708)		0		(35,708)

Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		(1,542)		(1,542)		Other comprehensive income (loss)	0		0		0		(2,260)		(2,260)
Balance, September 24, 2021		$	169,954	$	728,015	$	792,390	$	(126,010)	$	1,564,349
Balance, April 1, 2022												Balance, April 1, 2022	$	169,223	$	761,959	$	841,503	$	(82,429)	$	1,690,256

Nine Months Ended September 24, 2021
Balance, December 25, 2020 $ 168,568 $ 671,206 $ 568,295 $ (124,165) $ 1,283,904
Shares issued 1,386 41,395 — — 42,781
Stock compensation cost — 17,750 — — 17,750
Restricted stock canceled (issued) — (2,336) — — (2,336)
Net earnings — — 319,634 — 319,634
Dividends declared ($0.563 per share) — — (95,539) — (95,539)
Other comprehensive income (loss) — — — (1,845) (1,845)
Balance, September 24, 2021 $ 169,954 $ 728,015 $ 792,390 $ (126,010) $ 1,564,349



Three Months Ended March 26, 2021
Balance, December 25, 2020	$	168,568	$	671,206	$	568,295	$	(124,165)	$	1,283,904

Shares issued	845		25,615		—		—		26,460

Stock compensation cost	—		6,008		—		—		6,008


Net earnings	—		—		105,687		—		105,687
Dividends declared ($0.188 per share)	—		—		(31,723)		—		(31,723)

Other comprehensive income (loss)	—		—		—		(7,834)		(7,834)
Balance, March 26, 2021	$	169,413	$	702,829	$	642,259	$	(131,999)	$	1,382,502

Three Months Ended September 25, 2020
Balance, June 26, 2020 $ 166,693 $ 623,803 $ 400,154 $ (163,682) $ 1,026,968
Shares issued 751 14,981 — — 15,732
Stock compensation cost — 5,415 — — 5,415
Net earnings — — 114,115 — 114,115
Dividends declared ($0.175 per share) — — (29,060) — (29,060)
Other comprehensive income (loss) — — — 32,767 32,767
Balance, September 25, 2020 $ 167,444 $ 644,199 $ 485,209 $ (130,915) $ 1,165,937

Nine Months Ended September 25, 2020
Balance, December 27, 2019 $ 167,287 $ 578,440 $ 448,991 $ (169,787) $ 1,024,931
Shares issued 2,484 54,399 — — 56,883
Shares repurchased (2,327) (8,047) (91,769) — (102,143)
Stock compensation cost — 19,407 — — 19,407
Net earnings — — 215,765 — 215,765
Dividends declared ($0.525 per share) — — (87,778) — (87,778)
Other comprehensive income (loss) — — — 38,872 38,872
Balance, September 25, 2020 $ 167,444 $ 644,199 $ 485,209 $ (130,915) $ 1,165,937

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

The consolidated balance sheet of Graco Inc. and subsidiaries (the “Company”) as of ~~September 24, 2021~~April 1, 2022 and the related statements of earnings, comprehensive income and shareholders' equity for the three ~~and nine~~ months ended ~~September 24,~~April 1, 2022 and March 26, 2021, ~~and September 25, 2020,~~ and cash flows for the ~~nine~~three months ended ~~September 24,~~April 1, 2022 and March 26, 2021 ~~and September 25, 2020~~ have been prepared by the Company and have not been audited.

In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of ~~September 24, 2021,~~April 1, 2022, and the results of operations and cash flows for all periods presented.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these statements should be read in conjunction with the financial statements and notes thereto included in the Company’s ~~2020~~2021 Annual Report on Form 10-K.

The results of operations for interim periods are not necessarily indicative of results that will be realized for the full fiscal year.

2.Segment Information

Effective January 1, 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 Company has 3 reportable segments: Industrial, Process and Contractor. Sales and operating earnings by segment were as follows (in thousands):

Three Months Ended Nine Months Ended
September 24,
2021 September 25,
2020 September 24,
2021 September 25,
2020
Net Sales
Industrial $ 211,030 $ 172,805 $ 600,339 $ 464,776
Process 96,184 78,773 284,790 242,610
Contractor 179,482 187,738 562,860 472,389
Total $ 486,696 $ 439,316 $ 1,447,989 $ 1,179,775
Operating Earnings
Industrial $ 73,294 $ 60,776 $ 207,905 $ 148,010
Process 21,514 16,187 64,923 45,970
Contractor 36,177 54,841 134,340 124,580
Unallocated corporate (expense) (6,386) (6,532) (20,440) (23,741)
Impairment — (267) — (35,229)
Total $ 124,599 $ 125,005 $ 386,728 $ 259,590

~~Assets by segment were as follows (in thousands):~~


		September 24, 2021		December 25, 2020			Three Months Ended
								April 1, 2022		March 26, 2021
Net Sales						Net Sales
Industrial	Industrial	$	694,616	$	632,165	Industrial		$	144,669	$	129,864
Process	Process	427,020		404,370		Process		115,024		91,373
Contractor	Contractor	484,933		438,067		Contractor		234,592		232,892
Unallocated corporate		770,759		513,526
Total	Total	$	2,377,328	$	1,988,128	Total		$	494,285	$	454,129
Operating Earnings						Operating Earnings
Industrial						Industrial		$	52,630	$	42,358
Process						Process		27,488		21,733
Contractor						Contractor		58,947		71,051
Unallocated corporate (expense)						Unallocated corporate (expense)		(10,702)		(6,856)

Total						Total		$	128,363	$	128,286

Table of Contents

Assets by segment were as follows (in thousands):


	April 1, 2022		December 31, 2021
Industrial	$	601,377	$	601,843
Process	497,363		436,203
Contractor	614,150		599,726
Unallocated corporate	606,555		805,426
Total	$	2,319,445	$	2,443,198

Geographic information follows (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020				April 1, 2022		March 26, 2021
Net Sales (based on customer location)	Net Sales (based on customer location)									Net Sales (based on customer location)
United States	United States	$	244,086	$	247,197	$	739,309	$	651,229	United States		$	255,082	$	231,501
Other countries	Other countries	242,610		192,119		708,680		528,546		Other countries		239,203		222,628
Total	Total	$	486,696	$	439,316	$	1,447,989	$	1,179,775	Total		$	494,285	$	454,129

September 24,
2021 December 25,
2020
Long-lived Assets
United States $ 354,837 $ 301,643
Other countries 61,681 49,107
Total $ 416,518 $ 350,750


	April 1, 2022		December 31, 2021
Long-lived Assets
United States	$	425,657	$	388,835
Other countries	62,148		62,226
Total	$	487,805	$	451,061

3.Earnings per Share

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020				April 1, 2022		March 26, 2021
Net earnings available to common shareholders	Net earnings available to common shareholders	$	103,829	$	114,115	$	319,634	$	215,765	Net earnings available to common shareholders		$	100,843	$	105,687
Weighted average shares outstanding for basic earnings per share	Weighted average shares outstanding for basic earnings per share	169,834		167,102		169,459		167,248		Weighted average shares outstanding for basic earnings per share		169,809		168,948
Dilutive effect of stock options computed using the treasury stock method and the average market price	Dilutive effect of stock options computed using the treasury stock method and the average market price	4,940		4,551		4,939		4,367		Dilutive effect of stock options computed using the treasury stock method and the average market price		4,869		4,900
Weighted average shares outstanding for diluted earnings per share	Weighted average shares outstanding for diluted earnings per share	174,774		171,653		174,398		171,615		Weighted average shares outstanding for diluted earnings per share		174,678		173,848
Basic earnings per share	Basic earnings per share	$	0.61	$	0.68	$	1.89	$	1.29	Basic earnings per share		$	0.59	$	0.63
Diluted earnings per share	Diluted earnings per share	$	0.59	$	0.66	$	1.83	$	1.26	Diluted earnings per share		$	0.58	$	0.61

Stock options to purchase ~~428,000~~1,250,000 and ~~1,281,000~~700,000 shares were not included in the ~~September 24,~~April 1, 2022 and March 26, 2021 ~~and September 25, 2020~~ computations of diluted earnings per share, respectively, because they would have been anti-dilutive.

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4.Share-Based Awards

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


		Option Shares	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price			Option Shares	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
Outstanding, December 25, 2020		10,208	$	35.02	6,553	$	28.02
Outstanding, December 31, 2021								Outstanding, December 31, 2021	9,575	$	39.31	7,296	$	33.75
Granted	Granted	841	72.21					Granted	831	71.73
Exercised	Exercised	(958)	23.28					Exercised	(162)	22.90
Canceled	Canceled	(131)	54.75					Canceled	(19)	43.06
Outstanding, September 24, 2021		9,960	$	39.03	7,627	$	33.49
Outstanding, April 1, 2022								Outstanding, April 1, 2022	10,225	$	42.20	7,751	$	35.67

The Company recognized year-to-date share-based compensation of ~~$19.9~~$7.1 million in ~~2021~~2022 and ~~$21.4~~$6.6 million in ~~2020.~~2021. As of ~~September 24, 2021,~~April 1, 2022, there was ~~$12.6~~$18.4 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of ~~2.7~~3.3 years.

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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:


		Nine Months Ended							Three Months Ended
		September 24, 2021			September 25, 2020				April 1, 2022			March 26, 2021
Expected life in years	Expected life in years	7.5			7.5			Expected life in years	7.3			7.5
Interest rate	Interest rate	1.2		%	1.5		%	Interest rate	1.9		%	0.9		%
Volatility	Volatility	25.3		%	22.0		%	Volatility	25.5		%	25.2		%
Dividend yield	Dividend yield	1.0		%	1.3		%	Dividend yield	1.2		%	1.0		%
Weighted average fair value per share	Weighted average fair value per share	$	18.91		$	12.18		Weighted average fair value per share	$	19.06		$	17.66

Under the Company’s Employee Stock Purchase Plan, the Company issued 298,000 shares in 2022 and 416,000 shares in ~~2021 and 400,000 shares in 2020.~~2021. The fair value of the employees’ purchase rights under this Plan was estimated on the date of grant. 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:


		Nine Months Ended							Three Months Ended
		September 24, 2021			September 25, 2020				April 1, 2022			March 26, 2021
Expected life in years	Expected life in years	1.0			1.0			Expected life in years	1.0			1.0
Interest rate	Interest rate	0.1		%	1.5		%	Interest rate	0.9		%	0.1		%
Volatility	Volatility	40.1		%	21.9		%	Volatility	20.5		%	40.1		%
Dividend yield	Dividend yield	1.1		%	1.4		%	Dividend yield	1.2		%	1.1		%
Weighted average fair value per share	Weighted average fair value per share	$	21.50		$	11.55		Weighted average fair value per share	$	16.01		$	21.50

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5.Retirement Benefits

The components of net periodic benefit cost for retirement benefit plans were as follows (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020				April 1, 2022		March 26, 2021
Pension Benefits	Pension Benefits									Pension Benefits
Service cost	Service cost	$	1,674	$	2,392	$	7,119	$	7,007	Service cost		$	2,170	$	2,721
Interest cost	Interest cost	2,519		3,351		8,476		9,985		Interest cost		2,738		2,981
Expected return on assets	Expected return on assets	(5,412)		(4,706)		(15,673)		(14,107)		Expected return on assets		(4,802)		(5,130)
Amortization and other	Amortization and other	2,148		2,777		7,254		8,015		Amortization and other		1,076		2,551
Net periodic benefit cost	Net periodic benefit cost	$	929	$	3,814	$	7,176	$	10,900	Net periodic benefit cost		$	1,182	$	3,123
Postretirement Medical	Postretirement Medical									Postretirement Medical
Service cost	Service cost	$	153	$	152	$	503	$	457	Service cost		$	175	$	175
Interest cost	Interest cost	124		254		624		762		Interest cost		225		250
Amortization	Amortization	252		183		752		550		Amortization		175		250
Net periodic benefit cost	Net periodic benefit cost	$	529	$	589	$	1,879	$	1,769	Net periodic benefit cost		$	575	$	675

~~Subsequent Event~~

Subsequent to the end of the third quarter, the Company entered into an agreement under which approximately $63 million of $414 million in pension obligations in its two U.S. funded defined benefit pension plans were transferred to an insurance company.

Under the agreement, the Company will purchase a group annuity contract for approximately 421 plan participants that will provide for an irrevocable commitment to make annuity payments to the affected participants. The payment obligation and administration thereof for the affected participants will be transferred from the pension plans to the insurance company. The transfer will not change the amount of the monthly pension benefits received by the affected participants. The smaller of the two pension plans will be merged into the larger plan in the fourth quarter of 2021, with the larger plan being the surviving 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 will be funded through existing plan assets. The Company expects to recognize a non-cash pension settlement loss of approximately $12 million before tax in the fourth quarter of 2021. This charge represents the acceleration of deferred charges currently accrued in accumulated other comprehensive income. The actual amount of the settlement loss will depend on the value of plan assets and the discount rate as of the measurement date.

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6.Shareholders’ Equity

Changes in components of accumulated other comprehensive income (loss), net of tax were as follows (in thousands):

Pension and
Postretirement
Medical Cumulative
Translation
Adjustment Total
Three Months Ended September 24, 2021
Balance, June 25, 2021 $ (109,655) $ (14,813) $ (124,468)
Other comprehensive income (loss) before reclassifications — (3,537) (3,537)
Reclassified to pension cost and deferred tax 1,995 — 1,995
Balance, September 24, 2021 $ (107,660) $ (18,350) $ (126,010)


	Pension and Postretirement Medical		Cumulative Translation Adjustment		Total
Three Months Ended April 1, 2022
Balance, December 31, 2021	$	(60,107)	$	(20,062)	$	(80,169)
Other comprehensive income (loss) before reclassifications	—		(2,960)		(2,960)
Reclassified to pension cost and deferred tax	700		—		700

Balance, April 1, 2022	$	(59,407)	$	(23,022)	$	(82,429)

Nine Months Ended September 24, 2021
Balance, December 25, 2020 $ (114,129) $ (10,036) $ (124,165)
Other comprehensive income (loss) before reclassifications — (8,314) (8,314)
Reclassified to pension cost and deferred tax 6,469 — 6,469
Balance, September 24, 2021 $ (107,660) $ (18,350) $ (126,010)

Three Months Ended September 25, 2020
Balance, June 26, 2020 $ (109,695) $ (53,987) $ (163,682)
Other comprehensive income (loss) before reclassifications — 30,966 30,966
Reclassified to pension cost and deferred tax 1,801 — 1,801
Balance, September 25, 2020 $ (107,894) $ (23,021) $ (130,915)

Nine Months Ended September 25, 2020
Balance, December 27, 2019 $ (113,721) $ (56,066) $ (169,787)
Other comprehensive income (loss) before reclassifications — 33,045 33,045
Reclassified to pension cost and deferred tax 5,827 — 5,827
Balance, September 25, 2020 $ (107,894) $ (23,021) $ (130,915)



Three Months Ended March 26, 2021
Balance, December 25, 2020	$	(114,129)	$	(10,036)	$	(124,165)
Other comprehensive income (loss) before reclassifications	—		(10,470)		(10,470)
Reclassified to pension cost and deferred tax	2,636		—		2,636

Balance, March 26, 2021	$	(111,493)	$	(20,506)	$	(131,999)

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.

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7.Receivables and Credit Losses

Accounts receivable includes trade receivables of ~~$316~~$330 million and other receivables of $9 million as of ~~September 24, 2021~~April 1, 2022 and ~~$302~~$315 million and ~~$13~~$10 million, respectively, as of December ~~25, 2020.~~31, 2021.

Allowance for Credit Losses

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


		September 24, 2021		September 25, 2020			April 1, 2022		March 26, 2021
Balance, beginning	Balance, beginning	$	3,745	$	4,828	Balance, beginning	$	3,254	$	3,745
Additions (reversals) charged to costs and expenses	Additions (reversals) charged to costs and expenses	164		338		Additions (reversals) charged to costs and expenses	3,220		158
Deductions from reserves (1)	Deductions from reserves (1)	(425)		(1,247)		Deductions from reserves (1)	(33)		(104)
Other additions (deductions) (2)	Other additions (deductions) (2)	68		106		Other additions (deductions) (2)	33		(75)
Balance, ending	Balance, ending	$	3,552	$	4,025	Balance, ending	$	6,474	$	3,724

(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.

8.Inventories

Major components of inventories were as follows (in thousands):


		September 24, 2021		December 25, 2020			April 1, 2022		December 31, 2021
Finished products and components	Finished products and components	$	165,771	$	133,122	Finished products and components	$	194,563	$	166,922
Products and components in various stages of completion	Products and components in various stages of completion	110,284		83,791		Products and components in various stages of completion	126,214		117,063
Raw materials and purchased components	Raw materials and purchased components	166,633		129,319		Raw materials and purchased components	205,893		185,291
Subtotal	Subtotal	442,688		346,232		Subtotal	526,670		469,276
Reduction to LIFO cost	Reduction to LIFO cost	(79,756)		(60,528)		Reduction to LIFO cost	(89,929)		(86,975)
Total	Total	$	362,932	$	285,704	Total	$	436,741	$	382,301

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9.Intangible Assets

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


		Finite Life						Indefinite Life					Finite Life						Indefinite Life
		Customer Relationships		Patents and Proprietary Technology		Trademarks, Trade Names and Other		Trade Names		Total			Customer Relationships		Patents and Proprietary Technology		Trademarks, Trade Names and Other		Trade Names		Total
As of September 24, 2021
As of April 1, 2022												As of April 1, 2022
Cost	Cost	$	194,505	$	26,074	$	900	$	62,633	$	284,112	Cost	$	202,903	$	26,974	$	1,700	$	62,633	$	294,210
Accumulated amortization	Accumulated amortization	(104,892)		(15,023)		(414)		—		(120,329)		Accumulated amortization	(112,499)		(16,454)		(503)		—		(129,456)
Foreign currency translation	Foreign currency translation	(7,414)		(655)		—		(1,350)		(9,419)		Foreign currency translation	(8,410)		(761)		—		(1,577)		(10,748)
Book value	Book value	$	82,199	$	10,396	$	486	$	61,283	$	154,364	Book value	$	81,994	$	9,759	$	1,197	$	61,056	$	154,006
Weighted average life in years	Weighted average life in years	13		10		5		N/A				Weighted average life in years	13		10		5		N/A


As of December 25, 2020
As of December 31, 2021												As of December 31, 2021
Cost	Cost	$	186,073	$	25,187	$	900	$	61,920	$	274,080	Cost	$	194,505	$	26,074	$	900	$	62,633	$	284,112
Accumulated amortization	Accumulated amortization	(93,832)		(12,924)		(301)		—		(107,057)		Accumulated amortization	(108,657)		(15,734)		(452)		—		(124,843)
Foreign currency translation	Foreign currency translation	(6,004)		(538)		—		188		(6,354)		Foreign currency translation	(7,710)		(707)		—		(1,112)		(9,529)
Book value	Book value	$	86,237	$	11,725	$	599	$	62,108	$	160,669	Book value	$	78,138	$	9,633	$	448	$	61,521	$	149,740
Weighted average life in years	Weighted average life in years	13		10		5		N/A				Weighted average life in years	13		10		5		N/A

Amortization of intangibles for the quarter was $4.6 million in ~~2021~~2022 and ~~$4.2~~$4.3 million in ~~2020 and for the year to date was $13.4 million in 2021 and $12.5 million in 2020.~~2021. Estimated annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):

2021 (Remainder) 2022 2023 2024 2025 Thereafter
Estimated Amortization Expense $ 4,646 $ 17,757 $ 16,980 $ 15,425 $ 14,853 $ 23,420


	2022 (Remainder)		2023		2024		2025		2026		Thereafter
Estimated Amortization Expense	$	14,503	$	17,776	$	16,533	$	15,967	$	9,155	$	19,016

Changes in the carrying amount of goodwill for each reportable segment were as follows (in thousands):


		Industrial		Process		Contractor		Total			Industrial		Process		Contractor		Total
Balance, December 25, 2020		$	186,536	$	141,513	$	19,554	$	347,603
Balance, December 31, 2021										Balance, December 31, 2021	$	185,733	$	141,304	$	29,218	$	356,255
Additions, adjustments from business acquisitions	Additions, adjustments from business acquisitions	13,321		—		—		13,321		Additions, adjustments from business acquisitions	—		16,862		—		16,862
Foreign currency translation	Foreign currency translation	(4,003)		93		—		(3,910)		Foreign currency translation	(1,246)		(470)		—		(1,716)
Balance, September 24, 2021		$	195,854	$	141,606	$	19,554	$	357,014
Balance, April 1, 2022										Balance, April 1, 2022	$	184,487	$	157,696	$	29,218	$	371,401

In the first quarter the Company completed the acquisition of a business that is not material to the consolidated financial statements.

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10.Other Current Liabilities

Components of other current liabilities were as follows (in thousands):


		September 24, 2021		December 25, 2020			April 1, 2022		December 31, 2021
Accrued self-insurance retentions	Accrued self-insurance retentions	$	8,111	$	8,041	Accrued self-insurance retentions	$	11,576	$	9,303
Accrued warranty and service liabilities	Accrued warranty and service liabilities	14,139		13,082		Accrued warranty and service liabilities	14,560		14,463
Accrued trade promotions	Accrued trade promotions	14,035		12,140		Accrued trade promotions	10,141		15,872
Payable for employee stock purchases	Payable for employee stock purchases	11,522		14,554		Payable for employee stock purchases	3,921		15,746
Customer advances and deferred revenue	Customer advances and deferred revenue	56,000		41,689		Customer advances and deferred revenue	66,668		60,554
Income taxes payable	Income taxes payable	9,126		8,564		Income taxes payable	12,481		5,200
Right of return refund liability	Right of return refund liability	19,001		16,303		Right of return refund liability	18,713		18,614
Operating lease liabilities, current	Operating lease liabilities, current	9,409		11,178		Operating lease liabilities, current	9,449		9,096

Other	Other	40,488		31,709		Other	43,049		42,311
Total	Total	$	181,831	$	157,260	Total	$	190,558	$	191,159

A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors including evaluating specific product warranty issues. Following is a summary of activity in accrued warranty and service liabilities (in thousands):


Balance, December ~~25, 2020~~31, 2021	$	~~13,082~~14,463
Assumed in business acquisition	2438
Charged to expense	~~8,074~~2,043
Margin on parts sales reversed	~~2,609~~791
Reductions for claims settled	~~(9,650)~~(2,775)
Balance, ~~September 24, 2021~~April 1, 2022	$	~~14,139~~14,560

Deferred Revenue

Revenue is deferred when cash payments are received or due in advance of performance, including amounts which are refundable. This is also the case for services associated with certain product sales. The balance in the deferred revenue and customer advances was ~~$56.0~~$66.7 million as of ~~September 24, 2021~~April 1, 2022 and ~~$41.7~~$60.6 million as of December ~~25, 2020.~~31, 2021. Net sales for the year to date included ~~$40.4~~$22.5 million in ~~2021~~2022 and ~~$25.9~~$40.9 million in ~~2020~~2021 that related to deferred revenue as of the beginning of each period.

11.~~Debt~~

On March 25, 2021, the Company entered into an Amended and Restated Credit Agreement that amends, supersedes and restates in its entirety the Company's prior Credit Agreement with U.S. Bank National Association, as administrative agent (the “Agent”) and a lender, and the other lenders that are parties thereto. The Amended and Restated Credit Agreement extends the maturity of the Company’s $500 million unsecured revolving credit facility from December 15, 2021 to March 25, 2026; includes a $250 million accordion feature; and provides mechanisms for two further one-year extensions of the maturity, subject to the consent of the extending banks.

Borrowings under the Amended and Restated Credit Agreement may be denominated in U.S. Dollars or certain other currencies. Outstanding loans in currencies other than U.S. Dollars cannot exceed $200 million in the aggregate. Loans denominated in U.S. Dollars may 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 will bear interest at a LIBOR-based rate. The base rate is an annual rate equal to a margin ranging from 0.00% to 0.75%, depending on the Company’s cash flow leverage ratio, plus the highest of (i) the rate of interest from time to time announced by the Agent as its prime rate, (ii) the federal funds effective rate plus 0.50%, or (iii) one-month LIBOR plus 1.50%. In general, LIBOR-based loans bear interest at a rate per annum equal to LIBOR, plus a margin ranging from 1.00% to 1.75%, depending on the Company’s cash flow leverage ratio.

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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. The 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). A change in control of the Company will constitute an event of default under the Credit Agreement.

~~12.~~Fair Value

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


		Level	September 24, 2021		December 25, 2020			Level	April 1, 2022		December 31, 2021
Assets	Assets						Assets
Cash surrender value of life insurance	Cash surrender value of life insurance	2	$	22,523	$	19,887	Cash surrender value of life insurance	2	$	22,052	$	23,147
Forward exchange contracts		2	34		16
Total assets at fair value			$	22,557	$	19,903

Liabilities	Liabilities						Liabilities
Contingent consideration	Contingent consideration	3	$	11,765	$	9,454	Contingent consideration	3	$	15,924	$	12,274
Deferred compensation	Deferred compensation	2	5,918		5,099		Deferred compensation	2	5,795		5,962

Forward exchange contracts							Forward exchange contracts	2	173		111
Total liabilities at fair value	Total liabilities at fair value		$	17,683	$	14,553	Total liabilities at fair value		$	21,892	$	18,347

Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred

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compensation plans. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.

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.

Long-term notes payable with fixed interest rates had a carrying amount of $75 million and estimated fair value of $80 million as of April 1, 2022. As of December 31, 2021, the long- term notes had a carrying amount of $150 million and estimated fair value of $165 ~~million as of September 24, 2021 and estimated fair value of $170 million as of December 25, 2020.~~million. The fair value of variable rate borrowings approximates carrying value. The Company uses significant other observable inputs to estimate fair value (level 2 of the fair value hierarchy) based on the present value of future cash flows and rates that would be available for issuance of debt with similar terms and remaining maturities.

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Item 2. GRACO INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Industrial, Process and Contractor. 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.

The ongoing global COVID-19 pandemic and related governmental, business and ~~business~~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 ~~financial~~ 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.

The Company ~~has experienced~~continues to experience 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 ~~logistical challenges~~related to raw materials, purchased components, and ~~certain component shortages.~~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 ~~the higher volume~~our high-volume Contractor segment. We expect these challenges to continue into at least the first half of 2022.

The Company also has historically sold products to customers located in or associated with Russia and Belarus. In response to Russia's invasion of Ukraine, the United States, the United Kingdom, the European Union, Switzerland and others have initiated sanctions and export controls targeting Russia and Belarus and entities associated with those countries, which significantly limits our ability to sell certain products, serve certain customers and collect on our outstanding receivables. As a result, we have decided to suspend sales into Russian and Belarus for the time being. Sales to Russia and Belarus accounted for approximately 1.5% of our 2021 net sales and were not material for the first quarter of 2022.

The duration and extent to which the pandemic and trade sanctions against Russia and Belarus affect the Company's business will depend on future developments which still remain uncertain.

The following Management’s Discussion and Analysis reviews significant factors affecting the Company’s results of operations and financial condition. This discussion should be read in conjunction with the financial statements and the accompanying notes to the financial statements.

Consolidated Results

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


		Three Months Ended						Nine Months Ended							Three Months Ended
		Sep 24, 2021		Sep 25, 2020		% Change		Sep 24, 2021		Sep 25, 2020		% Change				Apr 1, 2022		Mar 26, 2021		% Change
Net Sales	Net Sales	$	486.7	$	439.3	11	%	$	1,448.0	$	1,179.8	23	%	Net Sales		$	494.3	$	454.1	9	%
Operating Earnings	Operating Earnings	124.6		125.0		—	%	386.7		259.6		49	%	Operating Earnings		128.4		128.3		—	%
Operating Earnings, adjusted (1)		124.6		125.3		(1)	%	386.7		294.8		31	%

Net Earnings	Net Earnings	103.8		114.1		(9)	%	319.6		215.8		48	%	Net Earnings		100.8		105.7		(5)	%
Net Earnings, adjusted (1)	Net Earnings, adjusted (1)	100.3		101.8		(1)	%	309.9		229.2		35	%	Net Earnings, adjusted (1)		99.3		101.6		(2)	%
Diluted Net Earnings per Common Share	Diluted Net Earnings per Common Share	$	0.59	$	0.66	(11)	%	$	1.83	$	1.26	45	%	Diluted Net Earnings per Common Share		$	0.58	$	0.61	(5)	%
Diluted Net Earnings per Common Share, adjusted (1)	Diluted Net Earnings per Common Share, adjusted (1)	$	0.57	$	0.59	(3)	%	$	1.78	$	1.34	33	%	Diluted Net Earnings per Common Share, adjusted (1)		$	0.57	$	0.58	(2)	%

(1) See below for a reconciliation of adjusted non-GAAP financial measures to GAAP.

~~Sales increased in all regions for the quarter and year to date. Changes in currency translation rates increased worldwide sales by $6 million for the quarter and $29 million for the year to date.~~

Gross profit margin rate for the quarter weakened as realized pricing, increased production volume and favorable changes in currency translation rates were unable to offset higher product costs caused by supply chain and inflationary challenges. Total operating expenses for the quarter increased as a percentage of sales due to increases in sales and earnings-based expenses.

2020 results for the year to date included non-cash impairment charges of $35 million ($34 million, $0.20 per diluted share, after tax effects) related to the divestiture of a U.K.-based valve business.

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Sales increased 9 percent compared to last year led by double-digit growth in the Industrial and Process segments. Changes in currency translation rates reduced worldwide sales by $7 million (2 percentage points). Sales from acquired operations contributed approximately $2 million (1 percentage point).

Gross profit margin rate for the quarter weakened mainly due to higher product costs.Total operating expenses for the quarter increased $7 million (6 percent) compared to prior year. Operating expenses as a percentage of sales decreased approximately one percentage point compared to prior year.

Excluding the impact of ~~the prior year impairment,~~ excess tax benefits related to stock option exercises ~~and certain tax provision adjustments~~ presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP measurements of adjusted income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 24, 2021			September 25, 2020			September 24, 2021			September 25, 2020					April 1, 2022			March 26, 2021
Operating earnings, as reported		$	124.6		$	125.0		$	386.7		$	259.6
Impairment		—			0.3			—			35.2
Operating earnings, adjusted		$	124.6		$	125.3		$	386.7		$	294.8

Earnings before income taxes	Earnings before income taxes	$	121.8		$	121.0		$	379.2		$	245.1		Earnings before income taxes		$	122.9		$	125.7
Impairment		—			0.3			—			35.2
Earnings before income taxes, adjusted		$	121.8		$	121.3		$	379.2		$	280.3

Income taxes, as reported	Income taxes, as reported	$	17.9		$	6.9		$	59.6		$	29.4		Income taxes, as reported		$	22.1		$	20.0
Impairment tax benefit		—			—			—			1.2

Excess tax benefit from option exercises	Excess tax benefit from option exercises	2.6			4.6			8.8			12.6			Excess tax benefit from option exercises		1.5			4.1
Other non-recurring tax benefit		0.9			8.0			0.9			8.0

Income taxes, adjusted	Income taxes, adjusted	$	21.4		$	19.5		$	69.3		$	51.2		Income taxes, adjusted		$	23.6		$	24.1

Effective income tax rate	Effective income tax rate													Effective income tax rate
As reported	As reported	14.7		%	5.7		%	15.7		%	12.0		%	As reported		18.0		%	15.9		%
Adjusted	Adjusted	17.6		%	16.1		%	18.3		%	18.3		%	Adjusted		19.2		%	19.2		%

Net Earnings, as reported	Net Earnings, as reported	$	103.8		$	114.1		$	319.6		$	215.8		Net Earnings, as reported		$	100.8		$	105.7
Impairment, net		—			0.3			—			34.0

Excess tax benefit from option exercises	Excess tax benefit from option exercises	(2.6)			(4.6)			(8.8)			(12.6)			Excess tax benefit from option exercises		(1.5)			(4.1)
Other non-recurring tax benefit		(0.9)			(8.0)			(0.9)			(8.0)

Net Earnings, adjusted	Net Earnings, adjusted	$	100.3		$	101.8		$	309.9		$	229.2		Net Earnings, adjusted		$	99.3		$	101.6

Weighted Average Diluted Shares	Weighted Average Diluted Shares	174.8			171.7			174.4			171.6			Weighted Average Diluted Shares		174.7			173.8
Diluted Earnings per Share	Diluted Earnings per Share													Diluted Earnings per Share
As reported	As reported	$	0.59		$	0.66		$	1.83		$	1.26		As reported		$	0.58		$	0.61
Adjusted	Adjusted	$	0.57		$	0.59		$	1.78		$	1.34		Adjusted		$	0.57		$	0.58

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The following table presents an overview of components of net earnings as a percentage of net sales:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020				April 1, 2022		March 26, 2021
Net Sales	Net Sales	100.0	%	100.0	%	100.0	%	100.0	%	Net Sales		100.0	%	100.0	%
Cost of products sold	Cost of products sold	49.0		47.9		47.6		48.3		Cost of products sold		48.5		45.5
Gross Profit	Gross Profit	51.0		52.1		52.4		51.7		Gross Profit		51.5		54.5
Product development	Product development	4.1		4.0		4.2		4.5		Product development		3.9		4.3
Selling, marketing and distribution	Selling, marketing and distribution	13.6		12.3		13.6		13.7		Selling, marketing and distribution		12.7		13.7
General and administrative	General and administrative	7.8		7.3		7.9		8.7		General and administrative		8.9		8.2
Impairment		—		0.1		—		3.0

Operating Earnings	Operating Earnings	25.6		28.5		26.7		22.0		Operating Earnings		26.0		28.2
Interest expense	Interest expense	0.5		0.7		0.5		0.7		Interest expense		1.1		0.5

Other expense, net	Other expense, net	0.1		0.2		—		0.5		Other expense, net		—		—
Earnings Before Income Taxes	Earnings Before Income Taxes	25.0		27.5		26.2		20.8		Earnings Before Income Taxes		24.9		27.7
Income taxes	Income taxes	3.7		1.6		4.1		2.6		Income taxes		4.5		4.4
Net Earnings	Net Earnings	21.3	%	26.0	%	22.1	%	18.3	%	Net Earnings		20.4	%	23.3	%

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Net Sales

The following table presents net sales by geographic region (in millions):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020				April 1, 2022		March 26, 2021
Americas(1)	Americas(1)	$	280.4	$	277.1	$	847.3	$	729.6	Americas(1)		$	293.2	$	264.9
EMEA(2)	EMEA(2)	115.0		93.0		339.0		251.9		EMEA(2)		106.2		110.2
Asia Pacific	Asia Pacific	91.3		69.2		261.7		198.3		Asia Pacific		94.9		79.0
Consolidated	Consolidated	$	486.7	$	439.3	$	1,448.0	$	1,179.8	Consolidated		$	494.3	$	454.1

(1) North, South and Central America, including the United States

(2) Europe, Middle East and Africa

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


		Three Months				Nine Months					Three Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions and Divestitures	Currency	Total			Volume and Price	Acquisitions	Currency	Total
Americas	Americas	1%	0%	0%	1%	16%	0%	0%	16%	Americas		11%	0%	0%	11%
EMEA	EMEA	20%	2%	2%	24%	27%	0%	8%	35%	EMEA		0%	2%	(6)%	(4)%
Asia Pacific	Asia Pacific	27%	0%	5%	32%	28%	(3)%	7%	32%	Asia Pacific		22%	0%	(2)%	20%
Consolidated	Consolidated	9%	0%	2%	11%	20%	0%	3%	23%	Consolidated		10%	1%	(2)%	9%

Gross Profit

~~The third quarter gross~~Gross profit margin rate decreased 13 percentage ~~point from the comparable period~~points compared to last ~~year as realized~~year. Realized pricing ~~increased production volume and favorable changes in currency translation rates were~~was unable to offset higher product costs caused by ongoing supply chain and inflationary ~~challenges. For~~challenges and the ~~year to date, the gross profit margin rate increased approximately 1 percentage point as realized pricing, increased production volume and favorable~~adverse impacts of changes in currency translation ~~rates offset higher product costs.~~rates. The full impact of price changes implemented in the first quarter will be realized as the year progresses.

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Operating Expenses

Total operating expenses for the quarter increased ~~$20~~$7 million ~~(19~~(6 percent) compared to the third quarter last year, including approximately $9 million (9 percentage points) of increases in sales and earnings-based expenses. Year-to-date operating expenses increased $57 million (18 percent) compared to the comparable period last year. The increase includes ~~$28~~$3 million (9(3 percentage points) of ~~increases~~allowances for credit losses on customer receivables in Russia and Belarus. Operating expenses expressed as a percentage of sales ~~and earnings-based expenses and $5 million (2~~decreased approximately one percentage ~~points) related~~point compared to ~~foreign currency translation.~~last year.

Other Expense

Other non-operating expenses ~~were comparable~~increased $3 million for the quarter ~~and decreased $6 million for the year to date mostly~~ due to ~~favorable market valuation changes on investments held~~interest expense which included a $3.5 million fee related to ~~fund certain retirement benefits liabilities.~~the prepayment of private placement debt.

Income Taxes

The effective income tax rate for the quarter was 1518 percent, up 92 percentage points from the prior year quarter. The increase in the effective ~~income~~ tax rate ~~for the year to date~~ was ~~16 percent, up 4 percentage points from the comparable period last year. The increases in effective tax rates were~~ primarily due to ~~changes~~decreases in excess tax benefits for stock option exercises and the effect of non-recurring tax benefits from other tax planning activities completed in 2020. These increases were partially offset by non-deductible impairment charges in the prior year.exercises.

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Segment Results

Certain measurements of segment operations compared to last year are summarized below:

Industrial Segment

The following table presents net sales and operating earnings as a percentage of sales for the Industrial segment

(dollars in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 24, 2021			September 25, 2020			September 24, 2021			September 25, 2020					April 1, 2022			March 26, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	87.2		$	76.1		$	254.3		$	209.0		Americas		$	54.3		$	46.3
EMEA	EMEA	68.3			52.7			185.0			133.7			EMEA		47.9			45.1
Asia Pacific	Asia Pacific	55.5			44.0			161.0			122.1			Asia Pacific		42.5			38.5
Total	Total	$	211.0		$	172.8		$	600.3		$	464.8		Total		$	144.7		$	129.9
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	35		%	35		%	35		%	32		%	Operating earnings as a percentage of net sales		36		%	33		%

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


		Three Months				Nine Months					Three Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total			Volume and Price	Acquisitions	Currency	Total
Americas	Americas	14%	0%	0%	14%	21%	0%	1%	22%	Americas		17%	0%	0%	17%
EMEA	EMEA	24%	3%	3%	30%	29%	2%	7%	38%	EMEA		13%	0%	(7)%	6%
Asia Pacific	Asia Pacific	21%	0%	6%	27%	25%	0%	7%	32%	Asia Pacific		11%	0%	0%	11%
Segment Total	Segment Total	19%	1%	2%	22%	24%	1%	4%	29%	Segment Total		14%	0%	(3)%	11%

~~Sales~~Continued economic strength in the Americas, project activity in EMEA and increased economic activity in ~~all~~Asia Pacific contributed to the increase in Industrial segment ~~regions and major end markets for the quarter and year to date.~~sales. The operating margin rate ~~for the quarter was flat compared to the prior year~~increased 3 percentage points as ~~higher production volume,~~ realized pricing and ~~favorable product and channel mix~~expense leverage more than offset ~~the impacts of~~ higher product costs and ~~increased sales and earnings-based expenses. For~~ the ~~year to date, the operating margin rate increased mostly due to higher production volume, realized pricing and expense leverage.~~

~~Table~~adverse impacts of ~~Contents~~

currency translation.

Process Segment

The following table presents net sales and operating earnings as a percentage of sales for the Process segment

(dollars in millions):


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 24, 2021			September 25, 2020			September 24, 2021			September 25, 2020					April 1, 2022			March 26, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	58.5		$	52.2		$	175.0		$	153.2		Americas		$	68.4		$	56.8
EMEA	EMEA	13.8			11.5			44.4			40.5			EMEA		17.1			14.8
Asia Pacific	Asia Pacific	23.9			15.1			65.4			48.9			Asia Pacific		29.5			19.8
Total	Total	$	96.2		$	78.8		$	284.8		$	242.6		Total		$	115.0		$	91.4
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	22		%	21		%	23		%	19		%	Operating earnings as a percentage of net sales		24		%	24		%

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


		Three Months				Nine Months					Three Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions and Divestitures	Currency	Total			Volume and Price	Acquisitions	Currency	Total
Americas	Americas	11%	0%	1%	12%	14%	0%	0%	14%	Americas		20%	0%	0%	20%
EMEA	EMEA	17%	0%	3%	20%	11%	(6)%	4%	9%	EMEA		19%	0%	(3)%	16%
Asia Pacific	Asia Pacific	54%	0%	4%	58%	40%	(13)%	7%	34%	Asia Pacific		51%	0%	(2)%	49%
Segment Total	Segment Total	21%	0%	1%	22%	18%	(3)%	2%	17%	Segment Total		26%	0%	0%	26%

The Process segment had ~~organic~~ sales growth in all ~~divisions for the quarter and year to date. Expense leverage improved the~~product applications. The operating margin rate for this segment was flat compared to last year. Expense leverage offset higher product costs, unfavorable product and channel mix and the ~~quarter. Higher production volume, the impact~~adverse impacts of ~~divested operations and expense leverage drove the operating margin rate higher for the year to date.~~currency translation.

Contractor Segment

The following table presents net sales and operating earnings as a percentage of sales for the Contractor segment

(dollars in millions):

Three Months Ended Nine Months Ended
September 24,
2021 September 25,
2020 September 24,
2021 September 25,
2020
Net Sales
Americas $ 134.5 $ 148.7 $ 417.8 $ 367.4
EMEA 32.9 28.9 109.6 77.7
Asia Pacific 12.1 10.1 35.5 27.3
Total $ 179.5 $ 187.7 $ 562.9 $ 472.4
Operating earnings as a percentage of net sales 20 % 29 % 24 % 26 %

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	Three Months Ended
		April 1, 2022			March 26, 2021
Net Sales
Americas		$	170.5		$	161.9
EMEA		41.2			50.2
Asia Pacific		22.9			20.7
Total		$	234.6		$	232.8
Operating earnings as a percentage of net sales		25		%	31		%

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


		Three Months				Nine Months					Three Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total			Volume and Price	Acquisitions	Currency	Total
Americas	Americas	(10)%	0%	1%	(9)%	13%	0%	1%	14%	Americas		5%	0%	0%	5%
EMEA	EMEA	12%	0%	2%	14%	33%	0%	8%	41%	EMEA		(17)%	4%	(5)%	(18)%
Asia Pacific	Asia Pacific	14%	0%	4%	18%	21%	0%	9%	30%	Asia Pacific		14%	0%	(3)%	11%
Segment Total	Segment Total	(5)%	0%	1%	(4)%	17%	0%	2%	19%	Segment Total		1%	1%	(1)%	1%

Contractor segment sales ~~declined~~increased modestly as continued stability in North American construction markets and improved demand in Asia Pacific offset weakness in EMEA due to product availability. Higher product costs, unfavorable product and channel mix and the adverse impacts of currency translation drove a 6 percentage point decrease in the ~~quarter due to the effects of a successful new product offering in the prior year that did not repeat. The~~ operating margin ~~rate decreased 9 percentage points for the quarter and 2 percentage points for the year to date primarily due to higher product costs caused by supply chain and inflationary challenges.~~rate.

Liquidity and Capital Resources

Net cash provided by operating activities of ~~$357~~$31 million ~~increased $95~~decreased $70 million from the comparable period last year, mostly driven by increased salary and incentive payments and inventory purchases to meet demand levels. Significant uses of cash in 2022 included share repurchases of $109 million, long-term debt payments of $75 million, property, plant and equipment additions of $47 million, dividend payments of $36 million, and $25 million to acquire businesses that were not material to the ~~increase~~consolidated financial statements. Proceeds from shares issued in ~~net earnings, partially offset by increases in accounts receivable and inventories that reflect growth in business activity.~~ 2022 totaled $21 million.

Significant uses of cash in 2021 included dividend payments of ~~$95~~$32 million, property, plant and equipment additions of ~~$83~~$21 million and business acquisitions of $19 million. Proceeds from shares issued in 2021 totaled $40 million. Although the Company did not repurchase any shares through the third quarter of 2021, it may make opportunistic purchases going forward.

At September 24, 2021, the Company had various lines of credit totaling $595 million, of which $545 million was unused. In addition to its lines of credit, under the terms of a master note agreement with a sole lender expiring in January 2023, the Company may issue up to $200 million of senior notes. Interest on the 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 date of issuance.

~~Significant uses of cash in 2020 included purchases of Company common stock totaling $102 million, which were~~ partially offset by ~~net~~ proceeds from shares issued ~~totaling $56~~of $26 million. ~~Other significant uses~~

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As of April 1, 2022, the Company had available liquidity of $908 million, including cash held in ~~2020 included dividend payments~~deposit accounts of ~~$88~~$380 million, ~~property, plant~~of which $152 million was held outside of the U.S., and ~~equipment additions~~available credit under existing committed credit facilities of ~~$46 million and business acquisitions of $28~~$528 million.

Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in ~~2021,~~2022, including its capital expenditure plan, planned dividends, share repurchases, acquisitions and operating requirements. Capital expenditures for 2022 are expected to be approximately $190 million, including $140 million in facility expansion projects. The Company may make opportunistic share repurchases going forward.

Outlook

For the full-year ~~2021,~~2022, the Company ~~continues to target mid-to-high teen~~is targeting high single digit sales growth on an organic, constant currency basis. ~~Demand levels for all segments remains strong across major~~Underlying demand in key end markets and ~~product categories which~~geographies remains solid, however, the Company is ~~expected to continue for~~keeping a close eye on how economic and geopolitical conditions may impact the balance of the ~~year.~~year, especially in EMEA. While the Company is starting the second quarter with a strong backlog, the Company’s backlog is not a good indicator of future long-term business levels. In addition to economic growth, the successful launch of new products and expanded distribution coverage, the sales outlook is dependent on many factors, including realization of price increases and stable foreign currency exchange rates.

Cautionary Statement Regarding Forward-Looking Statements

The Company desires to take advantage of the “safe harbor” provisions regarding forward-looking statements of the Private Securities Litigation Reform Act of 1995 and is filing this Cautionary Statement in order to do so. From time to time various forms filed by our Company with the Securities and Exchange Commission, including our Form 10-K, Form 10-Qs and Form 8-Ks, and other disclosures, including our ~~2020~~2021 Overview report, press releases, earnings releases, analyst briefings, conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ

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materially from those expressed in these statements. The Company undertakes no obligation to update these statements in light of new information or future events.

Future results could differ materially from those expressed due to the impact of changes in various factors. These risk factors include, but are not limited to: the impact of the COVID-19 pandemic on our business; Russia's invasion of Ukraine, and the sanctions and actions taken against Russia and Belarus in response to the invasion;economic conditions in the United States and other major world economies; our Company’s growth strategies, which include making acquisitions, investing in new products, expanding geographically and targeting new industries; changes in currency translation rates; the ability to meet our customers’ needs and changes in product demand; supply interruptions or delays; security breaches; new entrants who copy our products or infringe on our intellectual property; risks incident to conducting business internationally; catastrophic events; changes in laws and regulations; compliance with anti-corruption and trade laws; changes in tax rates or the adoption of new tax legislation; the possibility of asset impairments if acquired businesses do not meet performance expectations; political instability; results of and costs associated with litigation, administrative proceedings and regulatory reviews incident to our business; our ability to attract, develop and retain qualified personnel; the possibility of decline in purchases from a few large customers of the Contractor segment, variations in activity in the construction, automotive, mining and oil and natural gas industries, and the impact of declines in interest rates, asset values and investment returns on pension costs and required pension contributions. Please refer to Item 1A of our Annual Report on Form 10-K for fiscal year ~~2020~~2021 and Item 1A of this Form 10-Q for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com and the Securities and Exchange Commission’s website at www.sec.gov. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

Investors should realize that factors other than those identified above and in Item 1A might prove important to the Company’s future results. It is not possible for management to identify each and every factor that may have an impact on the Company’s operations in the future as new factors can develop from time to time.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes related to market risk from the disclosures made in the Company’s ~~2020~~2021 Annual Report on Form 10-K.

Item 4.Controls and Procedures

Evaluation of disclosure controls and procedures

As of the end of the fiscal quarter covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was done under the supervision and with the participation of the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer. Based upon that evaluation, the Company's President and Chief Executive Officer and the Chief Financial Officer and Treasurer concluded that the Company’s disclosure controls and procedures are effective.

Changes in internal controls

During the quarter, there was no change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART IIOTHER INFORMATION

Item 1A.Risk Factors

~~There~~Except as noted below, there have been no material changes to the Company’s risk factors from those disclosed in the Company’s ~~2020~~2021 Annual Report on Form 10-K.

Russian Invasion of Ukraine – Russia’s invasion of Ukraine, and the sanctions and actions taken against Russia and Belarus in response to the invasion, could adversely impact our business.

While our sales into Russia and Belarus are not material to our overall business, and we do not have any physical operations in Russia or Belarus or source raw materials or components directly from either country, the Russian invasion of Ukraine and the resulting sanctions and actions taken against Russia and Belarus by the United States, the United Kingdom, the European Union, Switzerland and others have considerably depressed demand for our products in Russia and Belarus and restricted our ability to sell certain products in those countries. As a result, we have decided to suspend sales into Russia and Belarus for the time being. We expect demand for our products in Russia and Belarus to remain depressed, and our ability to sell certain products in Russia and Belarus to continue to be restricted, for the foreseeable future. A significant escalation or expansion of the conflict beyond its current geographic, political and economic scope and scale could have a material adverse effect on our business, results of operations and financial condition, and could exacerbate other risks discussed in our 2021 Annual Report on Form 10-K. Such risks include, but are not limited to: an increase in the frequency and severity of the cybersecurity threats we and various third parties with whom we do business experience; unfavorable changes in exchange rates; further shortages, delivery delays and price inflation in a wide variety of raw materials and components; widespread reductions in end-user demand; and increased logistical challenges.

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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On April 24, 2015, the Board of Directors authorized the Company to purchase up to 18 million shares of its outstanding common stock, primarily through open-market transactions. There were approximately 3.3 million shares remaining under the authorization on December 7, 2018, when the Board of Directors authorized the purchase of up to an additional 18 million shares. The authorizations are for an indefinite period of time or until terminated by the Board.

In addition to shares purchased under the Board authorizations, the Company purchases shares of common stock held by employees who wish to tender owned shares to satisfy the exercise price or tax due upon exercise of options or vesting of restricted stock.

Information on issuer purchases of equity securities follows:

~~Period~~

Total Number
of Shares Purchased

Average Price
Paid per Share

~~Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs~~

Maximum Number of Shares that May Yet Be
Purchased Under the Plans or Programs
(at end of period)

~~June 26, 2021 - July 23, 2021~~

—

~~18,517,834~~

~~July 24, 2021 - August 20, 2021~~

—

~~18,517,834~~

~~August 21, 2021 - September 24, 2021~~

—

~~18,517,834~~


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (at end of period)
January 1, 2022 - January 28, 2022	17,200	$	69.69	—	18,500,634
January 29, 2022 - February 25, 2022	1,117,639	$	71.44	—	17,382,995
February 26, 2022 - April 1, 2022	382,361	$	71.37	—	17,000,634

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Item 6.Exhibits


3.1						Restated Articles of Incorporation as amended December 8, 2017. (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K filed December 8, 2017.)

3.2						Restated Bylaws as amended February 14, 2014. (Incorporated by reference to Exhibit 3.2 to the Company’s 2013 Annual Report on Form 10-K.)

31.1						Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).

31.2						Certification of Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a).

32						Certification of President and Chief Executive Officer and Chief Financial Officer and Treasurer pursuant to Section 1350 of Title 18, U.S.C.

99.1						Press Release Reporting ~~Third~~First Quarter Earnings dated ~~October 20, 2021.~~April 27, 2022.

101						Interactive data files pursuant to Rule 405 of Regulation S-T formatted in iXBRL (Inline eXtensible Business Reporting Language).

104						Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).

2423

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GRACO INC.

Date:

~~October 20, 2021~~April 27, 2022

By:

/s/ Mark W. Sheahan

Mark W. Sheahan

President and Chief Executive Officer

(Principal Executive Officer)

Date:

~~October 20, 2021~~April 27, 2022

By:

/s/ David M. Lowe

David M. Lowe

Chief Financial Officer and Treasurer

(Principal Financial Officer)

Date:

~~October 20, 2021~~April 27, 2022

By:

/s/ Kathryn L. Schoenrock

Kathryn L. Schoenrock

Executive Vice President, Corporate Controller and Information Systems

(Principal Accounting Officer)



Nine Months Ended September 24, 2021
Balance, December 25, 2020	$	168,568	$	671,206	$	568,295	$	(124,165)	$	1,283,904

Shares issued	1,386		41,395		—		—		42,781

Stock compensation cost	—		17,750		—		—		17,750

Restricted stock canceled (issued)	—		(2,336)		—		—		(2,336)
Net earnings	—		—		319,634		—		319,634
Dividends declared ($0.563 per share)	—		—		(95,539)		—		(95,539)

Other comprehensive income (loss)	—		—		—		(1,845)		(1,845)
Balance, September 24, 2021	$	169,954	$	728,015	$	792,390	$	(126,010)	$	1,564,349



Three Months Ended September 25, 2020
Balance, June 26, 2020	$	166,693	$	623,803	$	400,154	$	(163,682)	$	1,026,968

Shares issued	751		14,981		—		—		15,732

Stock compensation cost	—		5,415		—		—		5,415


Net earnings	—		—		114,115		—		114,115
Dividends declared ($0.175 per share)	—		—		(29,060)		—		(29,060)

Other comprehensive income (loss)	—		—		—		32,767		32,767
Balance, September 25, 2020	$	167,444	$	644,199	$	485,209	$	(130,915)	$	1,165,937



Nine Months Ended September 25, 2020
Balance, December 27, 2019	$	167,287	$	578,440	$	448,991	$	(169,787)	$	1,024,931

Shares issued	2,484		54,399		—		—		56,883
Shares repurchased	(2,327)		(8,047)		(91,769)		—		(102,143)
Stock compensation cost	—		19,407		—		—		19,407


Net earnings	—		—		215,765		—		215,765
Dividends declared ($0.525 per share)	—		—		(87,778)		—		(87,778)

Other comprehensive income (loss)	—		—		—		38,872		38,872
Balance, September 25, 2020	$	167,444	$	644,199	$	485,209	$	(130,915)	$	1,165,937



Three Months Ended September 25, 2020
Balance, June 26, 2020	$	(109,695)	$	(53,987)	$	(163,682)
Other comprehensive income (loss) before reclassifications	—		30,966		30,966
Reclassified to pension cost and deferred tax	1,801		—		1,801

Balance, September 25, 2020	$	(107,894)	$	(23,021)	$	(130,915)



Nine Months Ended September 25, 2020
Balance, December 27, 2019	$	(113,721)	$	(56,066)	$	(169,787)
Other comprehensive income (loss) before reclassifications	—		33,045		33,045
Reclassified to pension cost and deferred tax	5,827		—		5,827

Balance, September 25, 2020	$	(107,894)	$	(23,021)	$	(130,915)


	2021 (Remainder)		2022		2023		2024		2025		Thereafter
Estimated Amortization Expense	$	4,646	$	17,757	$	16,980	$	15,425	$	14,853	$	23,420