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 ~~July 1,~~September 30, 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

☐

☒

~~169,115,561~~168,529,015 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of ~~July 14,~~October 12, 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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II - OTHER INFORMATION

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

Exhibits

SIGNATURES

EXHIBITS

Table of Contents

PART I Item 1.

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited) (In thousands except per share amounts)


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Net Sales	Net Sales	$	548,547	$	507,164	$	1,042,832	$	961,293	Net Sales	$	545,644	$	486,696	$	1,588,476	$	1,447,989
Cost of products sold	Cost of products sold	279,487		243,340		519,297		450,135		Cost of products sold	284,556		238,462		803,853		688,597
Gross Profit	Gross Profit	269,060		263,824		523,535		511,158		Gross Profit	261,088		248,234		784,623		759,392
Product development	Product development	19,967		21,406		39,045		40,977		Product development	19,704		19,762		58,749		60,739
Selling, marketing and distribution	Selling, marketing and distribution	62,076		69,126		125,071		131,354		Selling, marketing and distribution	61,386		66,078		186,457		197,432
General and administrative	General and administrative	38,337		39,449		82,376		76,698		General and administrative	36,849		37,795		119,225		114,493

Operating Earnings	Operating Earnings	148,680		133,843		277,043		262,129		Operating Earnings	143,149		124,599		420,192		386,728

Interest expense	Interest expense	1,726		2,528		7,013		4,956		Interest expense	1,542		2,500		8,555		7,456

Other expense, net		607		(434)		760		(313)
Other expense (income), net										Other expense (income), net	(866)		344		(106)		31
Earnings Before Income Taxes	Earnings Before Income Taxes	146,347		131,749		269,270		257,486		Earnings Before Income Taxes	142,473		121,755		411,743		379,241
Income taxes	Income taxes	28,969		21,631		51,049		41,681		Income taxes	26,241		17,926		77,290		59,607
Net Earnings	Net Earnings	$	117,378	$	110,118	$	218,221	$	215,805	Net Earnings	$	116,232	$	103,829	$	334,453	$	319,634
Net Earnings per Common Share	Net Earnings per Common Share									Net Earnings per Common Share
Basic	Basic	$	0.69	$	0.65	$	1.29	$	1.27	Basic	$	0.69	$	0.61	$	1.97	$	1.89
Diluted	Diluted	$	0.68	$	0.63	$	1.26	$	1.24	Diluted	$	0.67	$	0.59	$	1.93	$	1.83

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Net Earnings	Net Earnings	$	117,378	$	110,118	$	218,221	$	215,805	Net Earnings	$	116,232	$	103,829	$	334,453	$	319,634
Components of other comprehensive income (loss)	Components of other comprehensive income (loss)									Components of other comprehensive income (loss)
Cumulative translation adjustment	Cumulative translation adjustment	(13,532)		5,693		(16,492)		(4,777)		Cumulative translation adjustment	(13,335)		(3,537)		(29,827)		(8,314)
Pension and postretirement medical liability adjustment	Pension and postretirement medical liability adjustment	1,368		2,373		2,262		5,681		Pension and postretirement medical liability adjustment	1,340		2,559		3,602		8,240
Income taxes - pension and postretirement medical liability adjustment	Income taxes - pension and postretirement medical liability adjustment	(320)		(535)		(514)		(1,207)		Income taxes - pension and postretirement medical liability adjustment	(312)		(564)		(826)		(1,771)
Other comprehensive income (loss)	Other comprehensive income (loss)	(12,484)		7,531		(14,744)		(303)		Other comprehensive income (loss)	(12,307)		(1,542)		(27,051)		(1,845)
Comprehensive Income	Comprehensive Income	$	104,894	$	117,649	$	203,477	$	215,502	Comprehensive Income	$	103,925	$	102,287	$	307,402	$	317,789

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands)


		July 1, 2022		December 31, 2021			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	413,359	$	624,302	Cash and cash equivalents	$	414,827	$	624,302
Accounts receivable, less allowances of $6,600 and $3,900	Accounts receivable, less allowances of $6,600 and $3,900	373,141		325,132		Accounts receivable, less allowances of $6,600 and $3,900	364,073		325,132
Inventories	Inventories	450,974		382,301		Inventories	462,220		382,301
Other current assets	Other current assets	39,002		31,886		Other current assets	44,783		31,886
Total current assets	Total current assets	1,276,476		1,363,621		Total current assets	1,285,903		1,363,621

Property, Plant and Equipment, net	Property, Plant and Equipment, net	516,156		451,061		Property, Plant and Equipment, net	562,807		451,061
Goodwill	Goodwill	365,491		356,255		Goodwill	359,645		356,255
Other Intangible Assets, net	Other Intangible Assets, net	145,201		149,740		Other Intangible Assets, net	136,948		149,740
Operating Lease Assets	Operating Lease Assets	31,055		30,046		Operating Lease Assets	30,996		30,046
Deferred Income Taxes	Deferred Income Taxes	37,137		55,786		Deferred Income Taxes	30,450		55,786
Other Assets	Other Assets	32,762		36,689		Other Assets	31,451		36,689
Total Assets	Total Assets	$	2,404,278	$	2,443,198	Total Assets	$	2,438,200	$	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	$	55,522	$	43,489	Notes payable to banks	$	42,692	$	43,489
Current portion of long term debt	Current portion of long term debt	—		75,000		Current portion of long term debt	—		75,000
Trade accounts payable	Trade accounts payable	85,452		78,432		Trade accounts payable	99,025		78,432
Salaries and incentives	Salaries and incentives	53,198		82,941		Salaries and incentives	60,458		82,941
Dividends payable	Dividends payable	35,794		35,771		Dividends payable	35,836		35,771
Other current liabilities	Other current liabilities	194,092		191,159		Other current liabilities	192,757		191,159
Total current liabilities	Total current liabilities	424,058		506,792		Total current liabilities	430,768		506,792
Long-term Debt	Long-term Debt	75,000		75,000		Long-term Debt	75,000		75,000
Retirement Benefits and Deferred Compensation	Retirement Benefits and Deferred Compensation	103,341		106,897		Retirement Benefits and Deferred Compensation	101,626		106,897
Operating Lease Liabilities	Operating Lease Liabilities	23,112		23,527		Operating Lease Liabilities	22,107		23,527
Deferred Income Taxes	Deferred Income Taxes	9,273		10,661		Deferred Income Taxes	8,310		10,661
Other Non-current Liabilities	Other Non-current Liabilities	12,220		10,978		Other Non-current Liabilities	12,078		10,978

Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Common stock	Common stock	169,114		170,308		Common stock	168,523		170,308
Additional paid-in-capital	Additional paid-in-capital	770,209		742,288		Additional paid-in-capital	776,594		742,288
Retained earnings	Retained earnings	912,864		876,916		Retained earnings	950,414		876,916
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(94,913)		(80,169)		Accumulated other comprehensive income (loss)	(107,220)		(80,169)
Total shareholders’ equity	Total shareholders’ equity	1,757,274		1,709,343		Total shareholders’ equity	1,788,311		1,709,343
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	2,404,278	$	2,443,198	Total Liabilities and Shareholders’ Equity	$	2,438,200	$	2,443,198

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)


		Six Months Ended					Nine Months Ended
		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net Earnings	Net Earnings	$	218,221	$	215,805	Net Earnings	$	334,453	$	319,634
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	31,453		29,812		Depreciation and amortization	48,223		44,846
Deferred income taxes	Deferred income taxes	14,743		(10,313)		Deferred income taxes	20,062		(10,219)
Share-based compensation	Share-based compensation	14,386		13,745		Share-based compensation	19,480		19,882

Change in	Change in					Change in
Accounts receivable	Accounts receivable	(56,263)		(38,747)		Accounts receivable	(56,524)		(10,793)
Inventories	Inventories	(70,879)		(51,359)		Inventories	(86,455)		(77,531)
Trade accounts payable	Trade accounts payable	8,369		14,496		Trade accounts payable	8,456		14,033
Salaries and incentives	Salaries and incentives	(29,201)		8,334		Salaries and incentives	(20,841)		22,770
Retirement benefits and deferred compensation	Retirement benefits and deferred compensation	349		5,980		Retirement benefits and deferred compensation	473		6,676
Other accrued liabilities	Other accrued liabilities	(386)		32,399		Other accrued liabilities	411		27,307
Other	Other	4,193		(105)		Other	3,814		626
Net cash provided by operating activities	Net cash provided by operating activities	134,985		220,047		Net cash provided by operating activities	271,552		357,231
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	(88,861)		(54,759)		Property, plant and equipment additions	(147,193)		(82,628)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(25,296)		(19,322)		Acquisition of businesses, net of cash acquired	(25,296)		(19,386)
Other	Other	(397)		(112)		Other	(477)		(102)
Net cash used in investing activities	Net cash used in investing activities	(114,554)		(74,193)		Net cash used in investing activities	(172,966)		(102,116)
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	13,830		(9,282)		Borrowings on short-term lines of credit, net	4,110		27,880

Payments on long-term debt	Payments on long-term debt	(75,000)		(70)		Payments on long-term debt	(75,000)		(69)
Payments of debt issuance costs	Payments of debt issuance costs	—		(1,422)		Payments of debt issuance costs	—		(1,422)
Common stock issued	Common stock issued	23,410		33,216		Common stock issued	28,299		40,445
Common stock repurchased	Common stock repurchased	(120,021)		—		Common stock repurchased	(155,181)		—
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(1,219)		—		Taxes paid related to net share settlement of equity awards	(1,219)		—
Cash dividends paid	Cash dividends paid	(71,341)		(63,414)		Cash dividends paid	(106,855)		(95,238)
Net cash used in financing activities	Net cash used in financing activities	(230,341)		(40,972)		Net cash used in financing activities	(305,846)		(28,404)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(1,033)		(1,004)		Effect of exchange rate changes on cash	(2,215)		(1,792)
Net increase in cash and cash equivalents		(210,943)		103,878
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	(209,475)		224,919
Cash and Cash Equivalents	Cash and Cash Equivalents					Cash and Cash Equivalents
Beginning of year	Beginning of year	624,302		378,909		Beginning of year	624,302		378,909
End of period	End of period	$	413,359	$	482,787	End of period	$	414,827	$	603,828

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 July 1, 2022
Balance, April 1, 2022		$	169,223	$	761,959	$	841,503	$	(82,429)	$	1,690,256
Three Months Ended September 30, 2022												Three Months Ended September 30, 2022
Balance, July 1, 2022												Balance, July 1, 2022	$	169,114	$	770,209	$	912,864	$	(94,913)	$	1,757,274

Shares issued	Shares issued	70		2,047		0		0		2,117		Shares issued	182		4,707		—		—		4,889
Shares repurchased	Shares repurchased	(179)		(777)		(10,360)		0		(11,316)		Shares repurchased	(773)		(3,369)		(43,126)		—		(47,268)
Stock compensation cost	Stock compensation cost	0		6,980		0		0		6,980		Stock compensation cost	—		5,047		—		—		5,047

Restricted stock canceled (issued)		0		—		0		0		—

Net earnings	Net earnings	0		0		117,378		0		117,378		Net earnings	—		—		116,232		—		116,232
Dividends declared ($0.210 per share)	Dividends declared ($0.210 per share)	0		0		(35,657)		0		(35,657)		Dividends declared ($0.210 per share)	—		—		(35,556)		—		(35,556)

Other comprehensive income (loss)	Other comprehensive income (loss)	0		0		0		(12,484)		(12,484)		Other comprehensive income (loss)	—		—		—		(12,307)		(12,307)
Balance, July 1, 2022		$	169,114	$	770,209	$	912,864	$	(94,913)	$	1,757,274
Balance, September 30, 2022												Balance, September 30, 2022	$	168,523	$	776,594	$	950,414	$	(107,220)	$	1,788,311


Six Months Ended July 1, 2022
Nine Months Ended September 30, 2022													Nine Months Ended September 30, 2022
Balance, December 31, 2021	Balance, December 31, 2021	$	170,308	$	742,288		$	876,916	$	(80,169)	$	1,709,343	Balance, December 31, 2021	$	170,308	$	742,288	$	876,916	$	(80,169)	$	1,709,343

Shares issued	Shares issued	507		21,685			0		0		22,192		Shares issued	689		26,392		—		—		27,081
Shares repurchased	Shares repurchased	(1,701)		(7,412)			(110,908)		0		(120,021)		Shares repurchased	(2,474)		(10,781)		(154,034)		—		(167,289)
Stock compensation cost	Stock compensation cost	0		13,649		0			0		13,649		Stock compensation cost	—		18,696		—		—		18,696

Restricted stock canceled (issued)	Restricted stock canceled (issued)	0		(1)			0		0		(1)		Restricted stock canceled (issued)	—		(1)		—		—		(1)
Net earnings	Net earnings	0		0			218,221		0		218,221		Net earnings	—		—		334,453		—		334,453
Dividends declared ($0.420 per share)		0		0			(71,365)		0		(71,365)
Dividends declared ($0.630 per share)													Dividends declared ($0.630 per share)	—		—		(106,921)		—		(106,921)

Other comprehensive income (loss)	Other comprehensive income (loss)	0		0			0		(14,744)		(14,744)		Other comprehensive income (loss)	—		—		—		(27,051)		(27,051)
Balance, July 1, 2022		$	169,114	$	770,209		$	912,864	$	(94,913)	$	1,757,274
Balance, September 30, 2022													Balance, September 30, 2022	$	168,523	$	776,594	$	950,414	$	(107,220)	$	1,788,311


Three Months Ended June 25, 2021
Balance, March 26, 2021		$	169,413	$	702,829	$	642,259	$	(131,999)	$	1,382,502
Three Months Ended September 24, 2021												Three Months Ended September 24, 2021
Balance, June 25, 2021												Balance, June 25, 2021	$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263

Shares issued	Shares issued	254		8,838		—		—		9,092		Shares issued	287		6,942		—		—		7,229

Stock compensation cost	Stock compensation cost	—		6,304		—		—		6,304		Stock compensation cost	—		5,438		—		—		5,438

Restricted stock canceled (issued)		—		(2,336)		—		—		(2,336)

Net earnings	Net earnings	—		—		110,118		—		110,118		Net earnings	—		—		103,829		—		103,829
Dividends declared ($0.188 per share)	Dividends declared ($0.188 per share)	—		—		(31,948)		—		(31,948)		Dividends declared ($0.188 per share)	—		—		(31,868)		—		(31,868)

Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		7,531		7,531		Other comprehensive income (loss)	—		—		—		(1,542)		(1,542)
Balance, June 25, 2021		$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263
Balance, September 24, 2021												Balance, September 24, 2021	$	169,954	$	728,015	$	792,390	$	(126,010)	$	1,564,349


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

Shares issued	Shares issued	1,099		34,453		—		—		35,552		Shares issued	1,386		41,395		—		—		42,781

Stock compensation cost	Stock compensation cost	—		12,312		—		—		12,312		Stock compensation cost	—		17,750		—		—		17,750

Restricted stock canceled (issued)	Restricted stock canceled (issued)	—		(2,336)		—		—		(2,336)		Restricted stock canceled (issued)	—		(2,336)		—		—		(2,336)
Net earnings	Net earnings	—		—		215,805		—		215,805		Net earnings	—		—		319,634		—		319,634
Dividends declared ($0.375 per share)		—		—		(63,671)		—		(63,671)
Dividends declared ($0.563 per share)												Dividends declared ($0.563 per share)	—		—		(95,539)		—		(95,539)

Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		(303)		(303)		Other comprehensive income (loss)	—		—		—		(1,845)		(1,845)
Balance, June 25, 2021		$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263
Balance, September 24, 2021												Balance, September 24, 2021	$	169,954	$	728,015	$	792,390	$	(126,010)	$	1,564,349

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 ~~July 1,~~September 30, 2022 and the related statements of earnings, comprehensive income and shareholders' equity for the three and ~~six~~nine months ended ~~July 1,~~September 30, 2022 and ~~June 25,~~September 24, 2021, and cash flows for the ~~six~~nine months ended ~~July 1,~~September 30, 2022 and ~~June 25,~~September 24, 2021 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 ~~July 1,~~September 30, 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 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 3three reportable segments: Industrial, Process and Contractor. Sales and operating earnings by segment were as follows (in thousands):


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Net Sales	Net Sales									Net Sales
Industrial	Industrial	$	158,325	$	144,448	$	302,994	$	274,312	Industrial	$	156,182	$	154,560	$	459,176	$	428,872
Process	Process	124,483		97,232		239,507		188,605		Process	125,376		96,185		364,883		284,790
Contractor	Contractor	265,739		265,484		500,331		498,376		Contractor	264,086		235,951		764,417		734,327
Total	Total	$	548,547	$	507,164	$	1,042,832	$	961,293	Total	$	545,644	$	486,696	$	1,588,476	$	1,447,989
Operating Earnings	Operating Earnings									Operating Earnings
Industrial	Industrial	$	55,201	$	45,709	$	107,831	$	88,067	Industrial	$	53,964	$	50,812	$	161,795	$	138,879
Process	Process	31,057		21,676		58,545		43,409		Process	30,638		21,514		89,183		64,923
Contractor	Contractor	68,244		73,656		127,191		144,707		Contractor	65,123		58,659		192,314		203,366
Unallocated corporate (expense)	Unallocated corporate (expense)	(5,822)		(7,198)		(16,524)		(14,054)		Unallocated corporate (expense)	(6,576)		(6,386)		(23,100)		(20,440)

Total	Total	$	148,680	$	133,843	$	277,043	$	262,129	Total	$	143,149	$	124,599	$	420,192	$	386,728

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Assets by segment were as follows (in thousands):


		July 1, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Industrial	Industrial	$	604,654	$	601,843	Industrial	$	606,224	$	601,843
Process	Process	517,098		436,203		Process	543,701		436,203
Contractor	Contractor	658,361		599,726		Contractor	698,698		599,726
Unallocated corporate	Unallocated corporate	624,165		805,426		Unallocated corporate	589,577		805,426
Total	Total	$	2,404,278	$	2,443,198	Total	$	2,438,200	$	2,443,198

Geographic information follows (in thousands):


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Net Sales (based on customer location)	Net Sales (based on customer location)									Net Sales (based on customer location)
United States	United States	$	296,009	$	263,722	$	551,091	$	495,223	United States	$	289,831	$	244,086	$	840,922	$	739,309
Other countries	Other countries	252,538		243,442		491,741		466,070		Other countries	255,813		242,610		747,554		708,680
Total	Total	$	548,547	$	507,164	$	1,042,832	$	961,293	Total	$	545,644	$	486,696	$	1,588,476	$	1,447,989


		July 1, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Long-lived Assets	Long-lived Assets					Long-lived Assets
United States	United States	$	456,238	$	388,835	United States	$	498,780	$	388,835
Other countries	Other countries	59,918		62,226		Other countries	64,027		62,226
Total	Total	$	516,156	$	451,061	Total	$	562,807	$	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				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Net earnings available to common shareholders	Net earnings available to common shareholders	$	117,378	$	110,118	$	218,221	$	215,805	Net earnings available to common shareholders	$	116,232	$	103,829	$	334,453	$	319,634
Weighted average shares outstanding for basic earnings per share	Weighted average shares outstanding for basic earnings per share	169,128		169,594		169,469		169,271		Weighted average shares outstanding for basic earnings per share	169,166		169,834		169,368		169,459
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	3,570		4,978		4,219		4,939		Dilutive effect of stock options computed using the treasury stock method and the average market price	3,623		4,940		4,020		4,939
Weighted average shares outstanding for diluted earnings per share	Weighted average shares outstanding for diluted earnings per share	172,698		174,572		173,688		174,210		Weighted average shares outstanding for diluted earnings per share	172,789		174,774		173,388		174,398
Basic earnings per share	Basic earnings per share	$	0.69	$	0.65	$	1.29	$	1.27	Basic earnings per share	$	0.69	$	0.61	$	1.97	$	1.89
Diluted earnings per share	Diluted earnings per share	$	0.68	$	0.63	$	1.26	$	1.24	Diluted earnings per share	$	0.67	$	0.59	$	1.93	$	1.83

Stock options to purchase ~~1,632,000~~1,618,000 and ~~737,000~~428,000 shares were not included in the ~~July 1,~~September 30, 2022 and ~~June 25,~~September 24, 2021 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 31, 2021	Outstanding, December 31, 2021	9,575	$	39.31	7,296	$	33.75	Outstanding, December 31, 2021	9,575	$	39.31	7,296	$	33.75
Granted	Granted	831	71.73					Granted	831	71.73
Exercised	Exercised	(228)	24.62					Exercised	(391)	24.00
Canceled	Canceled	(24)	43.75					Canceled	(40)	49.17
Outstanding, July 1, 2022		10,154	$	42.29	7,809	$	36.06
Outstanding, September 30, 2022								Outstanding, September 30, 2022	9,975	$	42.58	7,648	$	36.35

The Company recognized year-to-date share-based compensation of ~~$12.9~~$17.9 million in 2022 and ~~$13.7~~$19.9 million in 2021. As of ~~July 1,~~September 30, 2022, there was ~~$14.9~~$11.0 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of ~~3.0~~2.7 years.

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:


		Six Months Ended							Nine Months Ended
		July 1, 2022			June 25, 2021				September 30, 2022			September 24, 2021
Expected life in years	Expected life in years	7.3			7.5			Expected life in years	7.3			7.5
Interest rate	Interest rate	1.9		%	1.2		%	Interest rate	1.9		%	1.2		%
Volatility	Volatility	25.5		%	25.3		%	Volatility	25.5		%	25.3		%
Dividend yield	Dividend yield	1.2		%	1.0		%	Dividend yield	1.2		%	1.0		%
Weighted average fair value per share	Weighted average fair value per share	$	19.06		$	18.91		Weighted average fair value per share	$	19.06		$	18.91

Under the Company’s Employee Stock Purchase Plan, the Company issued ~~319,000~~316,000 shares in 2022 and 416,000 shares in 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:


		Six Months Ended							Nine Months Ended
		July 1, 2022			June 25, 2021				September 30, 2022			September 24, 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	0.9		%	0.1		%	Interest rate	0.9		%	0.1		%
Volatility	Volatility	20.5		%	40.1		%	Volatility	20.5		%	40.1		%
Dividend yield	Dividend yield	1.2		%	1.1		%	Dividend yield	1.2		%	1.1		%
Weighted average fair value per share	Weighted average fair value per share	$	16.01		$	21.50		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				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Pension Benefits	Pension Benefits									Pension Benefits
Service cost	Service cost	$	1,964	$	2,724	$	4,134	$	5,445	Service cost	$	2,053	$	1,674	$	6,187	$	7,119
Interest cost	Interest cost	2,766		2,976		5,504		5,957		Interest cost	2,745		2,519		8,249		8,476
Expected return on assets	Expected return on assets	(4,777)		(5,131)		(9,579)		(10,261)		Expected return on assets	(5,237)		(5,412)		(14,816)		(15,673)
Amortization and other	Amortization and other	1,419		2,555		2,495		5,106		Amortization and other	1,200		2,148		3,695		7,254
Net periodic benefit cost	Net periodic benefit cost	$	1,372	$	3,124	$	2,554	$	6,247	Net periodic benefit cost	$	761	$	929	$	3,315	$	7,176
Postretirement Medical	Postretirement Medical									Postretirement Medical
Service cost	Service cost	$	83	$	175	$	258	$	350	Service cost	$	129	$	153	$	387	$	503
Interest cost	Interest cost	195		250		420		500		Interest cost	209		124		629		624
Amortization	Amortization	(2)		250		173		500		Amortization	86		252		259		752
Net periodic benefit cost	Net periodic benefit cost	$	276	$	675	$	851	$	1,350	Net periodic benefit cost	$	424	$	529	$	1,275	$	1,879

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			Pension and Postretirement Medical		Cumulative Translation Adjustment		Total
Three Months Ended July 1, 2022
Balance, April 1, 2022		$	(59,407)	$	(23,022)	$	(82,429)
Three Months Ended September 30, 2022								Three Months Ended September 30, 2022
Balance, July 1, 2022								Balance, July 1, 2022	$	(58,359)	$	(36,554)	$	(94,913)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	—		(13,532)		(13,532)		Other comprehensive income (loss) before reclassifications	—		(13,335)		(13,335)
Reclassified to pension cost and deferred tax	Reclassified to pension cost and deferred tax	1,048		—		1,048		Reclassified to pension cost and deferred tax	1,028		—		1,028

Balance, July 1, 2022		$	(58,359)	$	(36,554)	$	(94,913)
Balance, September 30, 2022								Balance, September 30, 2022	$	(57,331)	$	(49,889)	$	(107,220)


Six Months Ended July 1, 2022
Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2022
Balance, December 31, 2021	Balance, December 31, 2021	$	(60,107)	$	(20,062)	$	(80,169)	Balance, December 31, 2021	$	(60,107)	$	(20,062)	$	(80,169)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	—		(16,492)		(16,492)		Other comprehensive income (loss) before reclassifications	—		(29,827)		(29,827)
Reclassified to pension cost and deferred tax	Reclassified to pension cost and deferred tax	1,748		—		1,748		Reclassified to pension cost and deferred tax	2,776		—		2,776

Balance, July 1, 2022		$	(58,359)	$	(36,554)	$	(94,913)
Balance, September 30, 2022								Balance, September 30, 2022	$	(57,331)	$	(49,889)	$	(107,220)


Three Months Ended June 25, 2021
Balance, March 26, 2021		$	(111,493)	$	(20,506)	$	(131,999)
Three Months Ended September 24, 2021								Three Months Ended September 24, 2021
Balance, June 25, 2021								Balance, June 25, 2021	$	(109,655)	$	(14,813)	$	(124,468)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	—		5,693		5,693		Other comprehensive income (loss) before reclassifications	—		(3,537)		(3,537)
Reclassified to pension cost and deferred tax	Reclassified to pension cost and deferred tax	1,838		—		1,838		Reclassified to pension cost and deferred tax	1,995		—		1,995

Balance, June 25, 2021		$	(109,655)	$	(14,813)	$	(124,468)
Balance, September 24, 2021								Balance, September 24, 2021	$	(107,660)	$	(18,350)	$	(126,010)


Six Months Ended June 25, 2021
Nine Months Ended September 24, 2021								Nine Months Ended September 24, 2021
Balance, December 25, 2020	Balance, December 25, 2020	$	(114,129)	$	(10,036)	$	(124,165)	Balance, December 25, 2020	$	(114,129)	$	(10,036)	$	(124,165)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	—		(4,777)		(4,777)		Other comprehensive income (loss) before reclassifications	—		(8,314)		(8,314)
Reclassified to pension cost and deferred tax	Reclassified to pension cost and deferred tax	4,474		—		4,474		Reclassified to pension cost and deferred tax	6,469		—		6,469

Balance, June 25, 2021		$	(109,655)	$	(14,813)	$	(124,468)
Balance, September 24, 2021								Balance, September 24, 2021	$	(107,660)	$	(18,350)	$	(126,010)

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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.

7.Receivables and Credit Losses

Accounts receivable includes trade receivables of ~~$361~~$350 million and other receivables of ~~$12~~$14 million as of ~~July 1,~~September 30, 2022 and $315 million and $10 million, respectively, as of December 31, 2021.

Allowance for Credit Losses

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


		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021
Balance, beginning	Balance, beginning	$	3,254	$	3,745	Balance, beginning	$	3,254	$	3,745
Additions (reversals) charged to costs and expenses	Additions (reversals) charged to costs and expenses	3,246		265		Additions (reversals) charged to costs and expenses	3,262		164
Deductions from reserves (1)	Deductions from reserves (1)	(575)		(495)		Deductions from reserves (1)	(564)		(425)
Other additions (deductions) (2)	Other additions (deductions) (2)	(236)		(4)		Other additions (deductions) (2)	(452)		68
Balance, ending	Balance, ending	$	5,688	$	3,511	Balance, ending	$	5,500	$	3,552

(1) Represents amounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves.

(2) Includes effects of foreign currency translation.

8.Inventories

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


		July 1, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Finished products and components	Finished products and components	$	197,042	$	166,922	Finished products and components	$	211,195	$	166,922
Products and components in various stages of completion	Products and components in various stages of completion	137,268		117,063		Products and components in various stages of completion	140,892		117,063
Raw materials and purchased components	Raw materials and purchased components	221,746		185,291		Raw materials and purchased components	229,127		185,291
Subtotal	Subtotal	556,056		469,276		Subtotal	581,214		469,276
Reduction to LIFO cost	Reduction to LIFO cost	(105,082)		(86,975)		Reduction to LIFO cost	(118,994)		(86,975)
Total	Total	$	450,974	$	382,301	Total	$	462,220	$	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 July 1, 2022
As of September 30, 2022												As of September 30, 2022
Cost	Cost	$	202,903	$	26,974	$	1,700	$	62,633	$	294,210	Cost	$	202,103	$	26,574	$	1,700	$	62,633	$	293,010
Accumulated amortization	Accumulated amortization	(116,312)		(17,176)		(581)		—		(134,069)		Accumulated amortization	(119,529)		(17,519)		(659)		—		(137,707)
Foreign currency translation	Foreign currency translation	(10,815)		(930)		—		(3,195)		(14,940)		Foreign currency translation	(12,791)		(1,042)		—		(4,522)		(18,355)
Book value	Book value	$	75,776	$	8,868	$	1,119	$	59,438	$	145,201	Book value	$	69,783	$	8,013	$	1,041	$	58,111	$	136,948
Weighted average life in years	Weighted average life in years	13		9		5		N/A				Weighted average life in years	13		10		5		N/A


As of December 31, 2021
Cost	$	194,505	$	26,074	$	900	$	62,633	$	284,112
Accumulated amortization	(108,657)		(15,734)		(452)		—		(124,843)
Foreign currency translation	(7,710)		(707)		—		(1,112)		(9,529)
Book value	$	78,138	$	9,633	$	448	$	61,521	$	149,740
Weighted average life in years	13		10		5		N/A

Amortization of intangibles for the quarter was ~~$4.6~~$4.8 million in 2022 and $4.6 million in 2021 and for the year to date was ~~$9.4~~$14.1 million in 2022 and ~~$8.9~~$13.4 million in 2021. Estimated annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):

2022 (Remainder) 2023 2024 2025 2026 Thereafter
Estimated Amortization Expense $ 9,253 $ 17,309 $ 16,076 $ 15,511 $ 8,915 $ 18,699


	2022 (Remainder)		2023		2024		2025		2026		Thereafter
Estimated Amortization Expense	$	4,556	$	16,860	$	15,639	$	15,071	$	8,660	$	18,051

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 31, 2021	Balance, December 31, 2021	$	185,733	$	141,304	$	29,218	$	356,255	Balance, December 31, 2021	$	185,733	$	141,304	$	29,218	$	356,255
Additions, adjustments from business acquisitions	Additions, adjustments from business acquisitions	—		16,994		—		16,994		Additions, adjustments from business acquisitions	—		16,994		—		16,994
Foreign currency translation	Foreign currency translation	(5,977)		(1,781)		—		(7,758)		Foreign currency translation	(10,162)		(3,442)		—		(13,604)
Balance, July 1, 2022		$	179,756	$	156,517	$	29,218	$	365,491
Balance, September 30, 2022										Balance, September 30, 2022	$	175,571	$	154,856	$	29,218	$	359,645

In the first quarter, the Company completed an 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):


		July 1, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Accrued self-insurance retentions	Accrued self-insurance retentions	$	9,553	$	9,303	Accrued self-insurance retentions	$	9,306	$	9,303
Accrued warranty and service liabilities	Accrued warranty and service liabilities	14,188		14,463		Accrued warranty and service liabilities	14,263		14,463
Accrued trade promotions	Accrued trade promotions	12,762		15,872		Accrued trade promotions	13,670		15,872
Payable for employee stock purchases	Payable for employee stock purchases	8,767		15,746		Payable for employee stock purchases	12,244		15,746
Customer advances and deferred revenue	Customer advances and deferred revenue	69,222		60,554		Customer advances and deferred revenue	60,657		60,554
Income taxes payable	Income taxes payable	12,975		5,200		Income taxes payable	13,652		5,200
Right of return refund liability	Right of return refund liability	18,556		18,614		Right of return refund liability	18,219		18,614
Operating lease liabilities, current	Operating lease liabilities, current	9,384		9,096		Operating lease liabilities, current	9,193		9,096

Other	Other	38,685		42,311		Other	41,553		42,311
Total	Total	$	194,092	$	191,159	Total	$	192,757	$	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 31, 2021	$	14,463
Assumed in business acquisition	38
Charged to expense	~~3,807~~6,251
Margin on parts sales reversed	~~1,335~~1,811
Reductions for claims settled	~~(5,455)~~(8,300)
Balance, ~~July 1,~~September 30, 2022	$	~~14,188~~14,263

Customer Advances and 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. During the three and ~~six~~nine months ended ~~July 1,~~September 30, 2022, we recognized ~~$18.3~~$11.2 million and ~~$40.8~~$52.0 million, respectively, that was included in deferred revenue at December 31, 2021. During the three and ~~six~~nine months ended ~~June 25,~~September 24, 2021, we recognized ~~$6.6~~$16.4 million and ~~$24.0~~$40.4 million, respectively, that was included in deferred revenue at December 25, 2020.

11.Fair Value

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


		Level	July 1, 2022		December 31, 2021			Level	September 30, 2022		December 31, 2021
Assets	Assets						Assets
Cash surrender value of life insurance	Cash surrender value of life insurance	2	$	18,872	$	23,147	Cash surrender value of life insurance	2	$	17,575	$	23,147
Forward exchange contracts	Forward exchange contracts	2	145		—		Forward exchange contracts	2	171		—
Total assets at fair value	Total assets at fair value		$	19,017	$	23,147	Total assets at fair value		$	17,746	$	23,147
Liabilities	Liabilities						Liabilities
Contingent consideration	Contingent consideration	3	$	13,697	$	12,274	Contingent consideration	3	$	14,411	$	12,274
Deferred compensation	Deferred compensation	2	5,537		5,962		Deferred compensation	2	5,554		5,962
Forward exchange contracts	Forward exchange contracts	2	—		111		Forward exchange contracts	2	—		111
Total liabilities at fair value	Total liabilities at fair value		$	19,234	$	18,347	Total liabilities at fair value		$	19,965	$	18,347

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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 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~~$75 million as of ~~July 1,~~September 30, 2022. As of December 31, 2021, the long- term notes had a carrying amount of $150 million and estimated fair value of $165 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 societal responses continue to have an impact on our operations, supply chains, distribution channels, and end-user customers. The timing, duration, and extent of the impact from the pandemic in our major geographies is still uncertain and we cannot predict the magnitude of the impact to the results of our operations or financial position.

The Company 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 have experienced the effects of price inflation related to raw materials, purchased components, and freight and transportation costs. The supply chain disruptions and associated effects of inflation have adversely impacted profitability in the near-term and limited our ability to satisfy strengthening customer demand, especially within our high-volume Contractor segment. We expect these challenges to continue through the remainder 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~~implemented 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 in those countries. In the first quarter of 2022, we decided to suspend sales into Russia 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 ~~half~~three quarters 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.

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Consolidated Results

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


		Three Months Ended						Six Months Ended							Three Months Ended						Nine Months Ended
		Jul 1, 2022		Jun 25, 2021		% Change		Jul 1, 2022		Jun 25, 2021		% Change			Sep 30, 2022		Sep 24, 2021		% Change		Sep 30, 2022		Sep 24, 2021		% Change
Net Sales	Net Sales	$	548.5	$	507.2	8	%	$	1,042.8	$	961.3	8	%	Net Sales	$	545.6	$	486.7	12	%	$	1,588.5	$	1,448.0	10	%
Operating Earnings	Operating Earnings	148.7		133.8		11	%	277.0		262.1		6	%	Operating Earnings	143.1		124.6		15	%	420.2		386.7		9	%

Net Earnings	Net Earnings	117.4		110.1		7	%	218.2		215.8		1	%	Net Earnings	116.2		103.8		12	%	334.5		319.6		5	%
Net Earnings, adjusted (1)	Net Earnings, adjusted (1)	117.0		108.0		8	%	216.3		209.6		3	%	Net Earnings, adjusted (1)	114.8		100.3		14	%	331.3		309.9		7	%
Diluted Net Earnings per Common Share	Diluted Net Earnings per Common Share	$	0.68	$	0.63	8	%	$	1.26	$	1.24	2	%	Diluted Net Earnings per Common Share	$	0.67	$	0.59	14	%	$	1.93	$	1.83	5	%
Diluted Net Earnings per Common Share, adjusted (1)	Diluted Net Earnings per Common Share, adjusted (1)	$	0.68	$	0.62	10	%	$	1.25	$	1.20	4	%	Diluted Net Earnings per Common Share, adjusted (1)	$	0.66	$	0.57	16	%	$	1.91	$	1.78	7	%

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

Sales increased 812 percent for ~~both~~ the quarter and 10 percent year to date, with increases in all segments. Changes in currency translation rates reduced worldwide sales by ~~$15~~$20 million (4(5 percentage points) for the quarter and ~~$23~~$43 million (3 percentage points) for the year to date. Sales from acquired operations contributed approximately $3 million (1 percentage point) for the quarter and $5$8 million (1 percentage point) for the year to date.

Gross profit margin rates for the quarter and year to date decreased 3 percentage points as strong realized pricing was unable to offset ~~continued increases in products~~higher product costs ~~due to ongoing supply chain~~ and ~~inflationary challenges.~~unfavorable currency translation.

Total operating expenses decreased ~~$10~~$6 million (7(5 percentage points) for the quarter and $3$8 million (1(2 percentage ~~point)~~points) for the year to date primarily due to lower sales and earnings-based expenses. Expense leverage largely offset the effects of lower gross profit margin rates on operating earnings.

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Excluding the impact of excess tax benefits related to stock option exercises and certain non-recurring 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						Six Months Ended							Three Months Ended						Nine Months Ended
		July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021				September 30, 2022			September 24, 2021			September 30, 2022			September 24, 2021

Earnings before income taxes	Earnings before income taxes	$	146.3		$	131.7		$	269.3		$	257.5		Earnings before income taxes	$	142.4		$	121.8		$	411.8		$	379.2

Income taxes, as reported	Income taxes, as reported	$	29.0		$	21.6		$	51.1		$	41.7		Income taxes, as reported	$	26.2		$	17.9		$	77.3		$	59.6

Excess tax benefit from option exercises	Excess tax benefit from option exercises	0.4			2.1			1.9			6.2			Excess tax benefit from option exercises	1.4			2.6			3.2			8.8

Other non-recurring tax benefit														Other non-recurring tax benefit	—			0.9			—			0.9
Income taxes, adjusted	Income taxes, adjusted	$	29.4		$	23.7		$	53.0		$	47.9		Income taxes, adjusted	$	27.6		$	21.4		$	80.5		$	69.3

Effective income tax rate	Effective income tax rate													Effective income tax rate
As reported	As reported	19.8		%	16.4		%	19.0		%	16.2		%	As reported	18.4		%	14.7		%	18.8		%	15.7		%
Adjusted	Adjusted	20.0		%	18.0		%	19.7		%	18.6		%	Adjusted	19.4		%	17.6		%	19.6		%	18.3		%

Net Earnings, as reported	Net Earnings, as reported	$	117.4		$	110.1		$	218.2		$	215.8		Net Earnings, as reported	$	116.2		$	103.8		$	334.5		$	319.6

Excess tax benefit from option exercises	Excess tax benefit from option exercises	(0.4)			(2.1)			(1.9)			(6.2)			Excess tax benefit from option exercises	(1.4)			(2.6)			(3.2)			(8.8)

Other non-recurring tax benefit														Other non-recurring tax benefit	—			(0.9)			—			(0.9)
Net Earnings, adjusted	Net Earnings, adjusted	$	117.0		$	108.0		$	216.3		$	209.6		Net Earnings, adjusted	$	114.8		$	100.3		$	331.3		$	309.9

Weighted Average Diluted Shares	Weighted Average Diluted Shares	172.7			174.6			173.7			174.2			Weighted Average Diluted Shares	172.8			174.8			173.4			174.4
Diluted Earnings per Share	Diluted Earnings per Share													Diluted Earnings per Share
As reported	As reported	$	0.68		$	0.63		$	1.26		$	1.24		As reported	$	0.67		$	0.59		$	1.93		$	1.83
Adjusted	Adjusted	$	0.68		$	0.62		$	1.25		$	1.20		Adjusted	$	0.66		$	0.57		$	1.91		$	1.78

~~Table of Contents~~

Table of Contents

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


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Net Sales	Net Sales	100.0	%	100.0	%	100.0	%	100.0	%	Net Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of products sold	Cost of products sold	51.0		48.0		49.8		46.8		Cost of products sold	52.2		49.0		50.6		47.6
Gross Profit	Gross Profit	49.0		52.0		50.2		53.2		Gross Profit	47.8		51.0		49.4		52.4
Product development	Product development	3.6		4.2		3.7		4.3		Product development	3.6		4.1		3.7		4.2
Selling, marketing and distribution	Selling, marketing and distribution	11.3		13.6		12.0		13.7		Selling, marketing and distribution	11.3		13.6		11.7		13.6
General and administrative	General and administrative	7.0		7.8		7.9		8.0		General and administrative	6.8		7.8		7.5		7.9

Operating Earnings	Operating Earnings	27.1		26.4		26.6		27.2		Operating Earnings	26.2		25.6		26.5		26.7
Interest expense	Interest expense	0.3		0.5		0.7		0.5		Interest expense	0.3		0.5		0.5		0.5

Other expense, net		0.1		(0.1)		0.1		—
Other expense (income), net										Other expense (income), net	(0.2)		0.1		—		—
Earnings Before Income Taxes	Earnings Before Income Taxes	26.7		26.0		25.8		26.8		Earnings Before Income Taxes	26.1		25.0		25.9		26.2
Income taxes	Income taxes	5.3		4.3		4.9		4.3		Income taxes	4.8		3.7		4.9		4.1
Net Earnings	Net Earnings	21.4	%	21.7	%	20.9	%	22.4	%	Net Earnings	21.3	%	21.3	%	21.1	%	22.1	%

Net Sales

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


		Three Months Ended				Six Months Ended					Three Months Ended				Nine Months Ended
		July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021			September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021
Americas(1)	Americas(1)	$	338.1	$	302.0	$	631.3	$	566.9	Americas(1)	$	333.4	$	280.4	$	964.8	$	847.3
EMEA(2)	EMEA(2)	108.3		113.8		214.5		224.0		EMEA(2)	111.3		115.0		325.8		339.0
Asia Pacific	Asia Pacific	102.1		91.4		197.0		170.4		Asia Pacific	100.9		91.3		297.9		261.7
Consolidated	Consolidated	$	548.5	$	507.2	$	1,042.8	$	961.3	Consolidated	$	545.6	$	486.7	$	1,588.5	$	1,448.0

(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				Six Months					Three Months				Nine Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total
Americas	Americas	11%	1%	0%	12%	11%	1%	(1)%	11%	Americas	18%	1%	0%	19%	13%	1%	0%	14%
EMEA	EMEA	5%	0%	(10)%	(5)%	3%	1%	(8)%	(4)%	EMEA	10%	0%	(13)%	(3)%	5%	1%	(10)%	(4)%
Asia Pacific	Asia Pacific	16%	0%	(4)%	12%	19%	0%	(3)%	16%	Asia Pacific	17%	1%	(8)%	10%	18%	1%	(5)%	14%
Consolidated	Consolidated	11%	1%	(4)%	8%	11%	0%	(3)%	8%	Consolidated	16%	1%	(5)%	12%	12%	1%	(3)%	10%

Gross Profit

Gross profit margin ~~rate~~rates for the quarter and year to date decreased 3 percentage points. from the comparable periods last year. Realized pricing was unable to offset continued increases in ~~products~~product costs ~~due to ongoing supply chain~~ and ~~inflationary challenges. Currency~~the adverse impacts of changes in currency translation ~~also adversely affected margin rates for the quarter and year to date.~~rates.

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Operating Expenses

Total operating expenses ~~decreased $10 million (7 percentage points)~~ for the quarter decreased $6 million (5 percent) compared to the third quarter last year. Reductions of $5 million from the impact of currency translation and $3 million ~~(1 percentage point) for the year to date mostly due to decreases in~~from lower sales and earnings-based ~~expenses. Decreases in~~expenses were partially offset by volume and rate related increases. Year-to-date operating expenses ~~for~~decreased $8 million compared to the ~~year to date~~same period last year. Reductions of $10 million from the impact of currency translation and $10 million from lower sales and earnings-based expenses were partially offset by $3 million ~~(1 percentage point)~~ of allowances for credit losses on customer receivables in ~~Russia. Changes in currency translation rates reduced operating expenses by $3 million (3 percentage points) for the quarter~~Russia and ~~$5 million (2 percentage points) for the year to date.~~other volume and rate related increases.

Interest Expense

Interest expense increased $3$1 million for the year to date and includes a $3.5 million fee related to the prepayment of private placement debt in the first quarter of 2022.

Income Taxes

The effective income tax rate was 2018 percent for the quarter and 19 percent for the year to date, up ~~4 percentage points and~~ 3 percentage points, respectively, from the comparable periods last year. The increase was primarily due to decreases in excess tax benefits from stock option exercises and the unfavorable effects of foreign earnings taxed at higher rates than the U.S.

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						Six Months Ended							Three Months Ended						Nine Months Ended
		July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021				September 30, 2022			September 24, 2021			September 30, 2022			September 24, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	61.5		$	51.9		$	115.8		$	98.2		Americas	$	60.1		$	54.1		$	175.9		$	152.3
EMEA	EMEA	45.6			45.5			93.5			90.6			EMEA	48.1			53.9			141.6			144.5
Asia Pacific	Asia Pacific	51.2			47.1			93.7			85.6			Asia Pacific	47.9			46.4			141.7			132.0
Total	Total	$	158.3		$	144.5		$	303.0		$	274.4		Total	$	156.1		$	154.4		$	459.2		$	428.8
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	35		%	32		%	36		%	32		%	Operating earnings as a percentage of net sales	35		%	33		%	35		%	32		%

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


		Three Months				Six Months					Three Months				Nine Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total
Americas	Americas	19%	0%	0%	19%	18%	0%	0%	18%	Americas	11%	0%	0%	11%	16%	0%	(1)%	15%
EMEA	EMEA	12%	0%	(12)%	0%	13%	0%	(10)%	3%	EMEA	3%	0%	(14)%	(11)%	9%	0%	(11)%	(2)%
Asia Pacific	Asia Pacific	13%	0%	(4)%	9%	12%	0%	(3)%	9%	Asia Pacific	11%	0%	(8)%	3%	12%	0%	(5)%	7%
Segment Total	Segment Total	15%	0%	(5)%	10%	15%	0%	(5)%	10%	Segment Total	8%	0%	(7)%	1%	12%	0%	(5)%	7%

For both the quarter and year to date, strong Industrial segment sales ~~increased double-digits.~~growth in the Americas and Asia Pacific was partially offset by weakness in EMEA due to unfavorable macroeconomic conditions. The operating margin rate increased for both the quarter and year to date as strong realized pricing and expense leverage more than offset higher product costs and the adverse impacts of currency translation.

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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						Six Months Ended							Three Months Ended						Nine Months Ended
		July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021				September 30, 2022			September 24, 2021			September 30, 2022			September 24, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	77.0		$	59.7		$	145.4		$	116.5		Americas	$	76.6		$	58.6		$	222.0		$	175.1
EMEA	EMEA	17.6			15.8			34.7			30.6			EMEA	16.6			13.8			51.4			44.4
Asia Pacific	Asia Pacific	29.9			21.7			59.4			41.5			Asia Pacific	32.2			23.8			91.5			65.3
Total	Total	$	124.5		$	97.2		$	239.5		$	188.6		Total	$	125.4		$	96.2		$	364.9		$	284.8
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	25		%	22		%	24		%	23		%	Operating earnings as a percentage of net sales	24		%	22		%	24		%	23		%

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


		Three Months				Six Months					Three Months				Nine Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total
Americas	Americas	25%	4%	0%	29%	22%	3%	0%	25%	Americas	27%	4%	0%	31%	24%	3%	0%	27%
EMEA	EMEA	18%	1%	(7)%	12%	18%	0%	(4)%	14%	EMEA	30%	1%	(11)%	20%	22%	1%	(7)%	16%
Asia Pacific	Asia Pacific	42%	1%	(5)%	38%	46%	0%	(3)%	43%	Asia Pacific	40%	1%	(7)%	34%	44%	1%	(5)%	40%
Segment Total	Segment Total	27%	3%	(2)%	28%	27%	2%	(2)%	27%	Segment Total	30%	4%	(4)%	30%	28%	2%	(2)%	28%

The Process segment had broad-based double-digit sales growth in all product applications and regions for the quarter and year to date. The operating margin rate for this segment increased 32 percentage points for the quarter and 1 percentage point for the year to date as increased volume and expense leverage offset higher product costs, unfavorable product and channel mix and the adverse impacts of 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						Six Months Ended							Three Months Ended						Nine Months Ended
		July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021				September 30, 2022			September 24, 2021			September 30, 2022			September 24, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	199.7		$	190.4		$	370.2		$	352.3		Americas	$	196.7		$	167.6		$	566.9		$	519.9
EMEA	EMEA	45.0			52.6			86.2			102.8			EMEA	46.6			47.3			132.8			150.1
Asia Pacific	Asia Pacific	21.0			22.5			43.9			43.2			Asia Pacific	20.8			21.2			64.7			64.4
Total	Total	$	265.7		$	265.5		$	500.3		$	498.3		Total	$	264.1		$	236.1		$	764.4		$	734.4
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	26		%	28		%	25		%	29		%	Operating earnings as a percentage of net sales	25		%	25		%	25		%	28		%

Table of Contents

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


		Three Months				Six Months					Three Months				Nine Months
		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total
Americas	Americas	5%	0%	0%	5%	5%	0%	0%	5%	Americas	18%	0%	(1)%	17%	9%	0%	0%	9%
EMEA	EMEA	(5)%	0%	(9)%	(14)%	(11)%	2%	(7)%	(16)%	EMEA	12%	0%	(13)%	(1)%	(4)%	1%	(9)%	(12)%
Asia Pacific	Asia Pacific	(2)%	0%	(5)%	(7)%	6%	0%	(5)%	1%	Asia Pacific	7%	0%	(8)%	(1)%	6%	0%	(5)%	1%
Segment Total	Segment Total	3%	0%	(3)%	0%	2%	0%	(2)%	0%	Segment Total	16%	0%	(4)%	12%	6%	1%	(3)%	4%

Contractor segment sales ~~were flat~~increased 12 percent for the quarter ~~and~~compared to last year ~~to date as growth in the Americas was mostly offset by decreases in Asia Pacific~~ due to ~~pandemic-related shutdowns and in EMEA due to weakened economic conditions. The operating margin rate decreased 2 percentage points for the quarter and~~improved product availability. Sales increased 4 ~~percentage points~~percent for the year to date ~~as price~~primarily due to continued strength in North American construction markets. Price realization, favorable product and ~~lower sales~~channel mix and ~~earnings-based expenses were unable to~~expense leverage offset higher product costs for the quarter, which resulted in a consistent operating margin rate compared to last year. For the year to date, the operating margin rate decreased 3 percentage points primarily due to higher product costs and ~~unfavorable~~the adverse impacts of currency ~~translation rates.~~translation.

Liquidity and Capital Resources

Net cash provided by operating activities of ~~$135~~$272 million decreased ~~$85~~$86 million from the comparable period last year, mostly driven by increased salary and incentive payments, increased inventory purchases to meet demand levels and higher accounts receivable that reflect growth in business activity inthrough the ~~first half of 2022.~~2022 year to date. Significant uses of cash in 2022 included share repurchases of ~~$120~~$155 million, plant and equipment additions of ~~$89 million, long-term debt payments of $75~~$147 million, dividend payments of ~~$71~~$107 million, prepayment of long-term debt of $75 million, and $25 million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in 2022 totaled ~~$23~~$28 million.

Significant uses of cash in 2021 included dividend payments of ~~$63~~$95 million, property, plant and equipment additions of ~~$55~~$83 million and $19 million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in 2021 totaled ~~$33~~$40 million.

As of ~~July 1,~~September 30, 2022, the Company had available liquidity of ~~$929~~$941 million, including cash ~~held in deposit accounts~~and cash equivalents of ~~$413~~$415 million, of which ~~$218~~$275 million was held outside of the U.S., and available credit under existing committed credit facilities of ~~$516~~$526 million.

Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2022, including its capital expenditure plan, planned dividends, share repurchases, acquisitions and operating requirements. Capital expenditures for 2022 are expected to be approximately ~~$215~~$230 million, including ~~$140~~$130 million in facility expansion projects. The Company may make opportunistic share repurchases going forward.

Outlook

Demand worldwide remains solid despite uncertain macroeconomic conditions. For the full-year 2022, the Company ~~continues~~is raising its target to ~~target high single-digit~~low double-digit sales growth on an organic, constant currency basis. Demand in the Americas remains strong, but end markets in EMEA slowed during the quarter as a result of unfavorable macroeconomic conditions, which are expected to continue to impact the Company for the remainder of the year. Pandemic-related shutdowns in the Asia Pacific region also affected incoming order rates, however, once lifted, these rates significantly improved. Commodity prices and component costs have increased significantly since the Company implemented its annual price increase in January 2022. To offset these pressures, the Company is implementing a second round of global price increases starting in August.

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 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

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

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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 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.

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 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.

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PART IIOTHER INFORMATION

Item 1A.Risk Factors

Except as noted below, there have been no material changes to the Company’s risk factors from those disclosed in the Company’s 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. Shares available for purchase under the April 2015 authorization were exhausted in the first quarter of 2022. Therefore, the Company will no longer purchase shares under the April 2015 authorization, and all purchases during the ~~second~~third quarter of 2022 were made under the December 2018 authorization.

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)
April 2, 2022 - April 29, 2022 121,461 $ 63.90 — 16,879,173
April 30, 2022 - May 27, 2022 56,881 $ 62.50 — 16,822,292
May 28, 2022 - July 1, 2022 — $ — — 16,822,292


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)
July 2, 2022 - July 29, 2022	—	$	—	—	16,822,292
July 30, 2022 - August 26, 2022	—	$	—	—	16,822,292
August 27, 2022 - September 30, 2022	772,716	$	61.17	—	16,049,576

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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 ~~Second~~Third Quarter Earnings dated ~~July 27,~~October 26, 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).

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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:

~~July 27,~~October 26, 2022

By:

/s/ Mark W. Sheahan

Mark W. Sheahan

President and Chief Executive Officer

(Principal Executive Officer)

Date:

~~July 27,~~October 26, 2022

By:

/s/ David M. Lowe

David M. Lowe

Chief Financial Officer and Treasurer

(Principal Financial Officer)

Date:

~~July 27,~~October 26, 2022

By:

/s/ Kathryn L. Schoenrock

Kathryn L. Schoenrock

Executive Vice President, Corporate Controller and Information Systems

(Principal Accounting Officer)