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~~June 30, ~~2022~~2023

☐ 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

☐

☒

~~168,529,015~~168,992,778 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of ~~October~~July 12, ~~2022.~~2023.

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

2221

Item 4.

Controls and Procedures

2221

PART II - OTHER INFORMATION

Item 1A.

Risk Factors

2322

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

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				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net Sales	Net Sales	$	545,644	$	486,696	$	1,588,476	$	1,447,989	Net Sales	$	559,644	$	548,547	$	1,089,290	$	1,042,832
Cost of products sold	Cost of products sold	284,556		238,462		803,853		688,597		Cost of products sold	268,229		279,487		512,735		519,297
Gross Profit	Gross Profit	261,088		248,234		784,623		759,392		Gross Profit	291,415		269,060		576,555		523,535
Product development	Product development	19,704		19,762		58,749		60,739		Product development	21,286		19,967		41,765		39,045
Selling, marketing and distribution	Selling, marketing and distribution	61,386		66,078		186,457		197,432		Selling, marketing and distribution	68,380		62,076		133,763		125,071
General and administrative	General and administrative	36,849		37,795		119,225		114,493		General and administrative	44,697		38,337		87,307		82,376

Operating Earnings	Operating Earnings	143,149		124,599		420,192		386,728		Operating Earnings	157,052		148,680		313,720		277,043

Interest expense	Interest expense	1,542		2,500		8,555		7,456		Interest expense	1,798		1,726		3,145		7,013

Other expense (income), net		(866)		344		(106)		31
Other (income) expense, net										Other (income) expense, net	(4,365)		607		(6,394)		760
Earnings Before Income Taxes	Earnings Before Income Taxes	142,473		121,755		411,743		379,241		Earnings Before Income Taxes	159,619		146,347		316,969		269,270
Income taxes	Income taxes	26,241		17,926		77,290		59,607		Income taxes	25,351		28,969		53,535		51,049
Net Earnings	Net Earnings	$	116,232	$	103,829	$	334,453	$	319,634	Net Earnings	$	134,268	$	117,378	$	263,434	$	218,221
Net Earnings per Common Share	Net Earnings per Common Share									Net Earnings per Common Share
Basic	Basic	$	0.69	$	0.61	$	1.97	$	1.89	Basic	$	0.80	$	0.69	$	1.56	$	1.29
Diluted	Diluted	$	0.67	$	0.59	$	1.93	$	1.83	Diluted	$	0.78	$	0.68	$	1.53	$	1.26

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net Earnings	Net Earnings	$	116,232	$	103,829	$	334,453	$	319,634	Net Earnings	$	134,268	$	117,378	$	263,434	$	218,221
Components of other comprehensive income (loss)	Components of other comprehensive income (loss)									Components of other comprehensive income (loss)
Cumulative translation adjustment	Cumulative translation adjustment	(13,335)		(3,537)		(29,827)		(8,314)		Cumulative translation adjustment	4,553		(13,532)		9,528		(16,492)
Pension and postretirement medical liability adjustment	Pension and postretirement medical liability adjustment	1,340		2,559		3,602		8,240		Pension and postretirement medical liability adjustment	1,195		1,368		2,327		2,262
Income taxes - pension and postretirement medical liability adjustment	Income taxes - pension and postretirement medical liability adjustment	(312)		(564)		(826)		(1,771)		Income taxes - pension and postretirement medical liability adjustment	(264)		(320)		(508)		(514)
Other comprehensive income (loss)	Other comprehensive income (loss)	(12,307)		(1,542)		(27,051)		(1,845)		Other comprehensive income (loss)	5,484		(12,484)		11,347		(14,744)
Comprehensive Income	Comprehensive Income	$	103,925	$	102,287	$	307,402	$	317,789	Comprehensive Income	$	139,752	$	104,894	$	274,781	$	203,477

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands)


		September 30, 2022		December 31, 2021			June 30, 2023		December 30, 2022
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	414,827	$	624,302	Cash and cash equivalents	$	520,633	$	339,196
Accounts receivable, less allowances of $6,600 and $3,900		364,073		325,132
Accounts receivable, less allowances of $5,100 and $7,000						Accounts receivable, less allowances of $5,100 and $7,000	365,818		346,010
Inventories	Inventories	462,220		382,301		Inventories	479,095		476,790
Other current assets	Other current assets	44,783		31,886		Other current assets	44,907		43,624
Total current assets	Total current assets	1,285,903		1,363,621		Total current assets	1,410,453		1,205,620

Property, Plant and Equipment, net	Property, Plant and Equipment, net	562,807		451,061		Property, Plant and Equipment, net	680,040		607,609
Goodwill	Goodwill	359,645		356,255		Goodwill	371,880		368,171
Other Intangible Assets, net	Other Intangible Assets, net	136,948		149,740		Other Intangible Assets, net	131,089		137,507
Operating Lease Assets	Operating Lease Assets	30,996		30,046		Operating Lease Assets	29,158		29,785
Deferred Income Taxes	Deferred Income Taxes	30,450		55,786		Deferred Income Taxes	48,189		57,090
Other Assets	Other Assets	31,451		36,689		Other Assets	36,916		33,118
Total Assets	Total Assets	$	2,438,200	$	2,443,198	Total Assets	$	2,707,725	$	2,438,900
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	$	42,692	$	43,489	Notes payable to banks	$	49,099	$	20,974
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	99,025		78,432		Trade accounts payable	81,540		84,218
Salaries and incentives	Salaries and incentives	60,458		82,941		Salaries and incentives	55,150		63,969
Dividends payable	Dividends payable	35,836		35,771		Dividends payable	39,692		39,963
Other current liabilities	Other current liabilities	192,757		191,159		Other current liabilities	188,857		190,793
Total current liabilities	Total current liabilities	430,768		506,792		Total current liabilities	489,338		399,917
Long-term Debt	Long-term Debt	75,000		75,000		Long-term Debt	—		75,000
Retirement Benefits and Deferred Compensation	Retirement Benefits and Deferred Compensation	101,626		106,897		Retirement Benefits and Deferred Compensation	61,995		61,672
Operating Lease Liabilities	Operating Lease Liabilities	22,107		23,527		Operating Lease Liabilities	20,343		21,057
Deferred Income Taxes	Deferred Income Taxes	8,310		10,661		Deferred Income Taxes	8,730		9,443
Other Non-current Liabilities	Other Non-current Liabilities	12,078		10,978		Other Non-current Liabilities	11,012		12,159

Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Common stock	Common stock	168,523		170,308		Common stock	168,985		167,702
Additional paid-in-capital	Additional paid-in-capital	776,594		742,288		Additional paid-in-capital	850,900		784,477
Retained earnings	Retained earnings	950,414		876,916		Retained earnings	1,154,453		976,851
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(107,220)		(80,169)		Accumulated other comprehensive income (loss)	(58,031)		(69,378)
Total shareholders’ equity	Total shareholders’ equity	1,788,311		1,709,343		Total shareholders’ equity	2,116,307		1,859,652
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	2,438,200	$	2,443,198	Total Liabilities and Shareholders’ Equity	$	2,707,725	$	2,438,900

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)


		Nine Months Ended					Six Months Ended
		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net Earnings	Net Earnings	$	334,453	$	319,634	Net Earnings	$	263,434	$	218,221
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	48,223		44,846		Depreciation and amortization	36,117		31,453
Deferred income taxes	Deferred income taxes	20,062		(10,219)		Deferred income taxes	7,650		14,743
Share-based compensation	Share-based compensation	19,480		19,882		Share-based compensation	18,417		14,386

Change in	Change in					Change in
Accounts receivable	Accounts receivable	(56,524)		(10,793)		Accounts receivable	(17,421)		(56,263)
Inventories	Inventories	(86,455)		(77,531)		Inventories	(184)		(70,879)
Trade accounts payable	Trade accounts payable	8,456		14,033		Trade accounts payable	(8,243)		8,369
Salaries and incentives	Salaries and incentives	(20,841)		22,770		Salaries and incentives	(10,179)		(29,201)
Retirement benefits and deferred compensation	Retirement benefits and deferred compensation	473		6,676		Retirement benefits and deferred compensation	1,953		349
Other accrued liabilities	Other accrued liabilities	411		27,307		Other accrued liabilities	(5,728)		(386)
Other	Other	3,814		626		Other	(3,493)		4,193
Net cash provided by operating activities	Net cash provided by operating activities	271,552		357,231		Net cash provided by operating activities	282,323		134,985
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	(147,193)		(82,628)		Property, plant and equipment additions	(92,232)		(88,861)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(25,296)		(19,386)		Acquisition of businesses, net of cash acquired	—		(25,296)
Other	Other	(477)		(102)		Other	(940)		(397)
Net cash used in investing activities	Net cash used in investing activities	(172,966)		(102,116)		Net cash used in investing activities	(93,172)		(114,554)
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	4,110		27,880		Borrowings on short-term lines of credit, net	28,966		13,830

Payments on long-term debt	Payments on long-term debt	(75,000)		(69)		Payments on long-term debt	—		(75,000)
Payments of debt issuance costs	Payments of debt issuance costs	—		(1,422)		Payments of debt issuance costs	(1,025)		—
Common stock issued	Common stock issued	28,299		40,445		Common stock issued	52,053		23,410
Common stock repurchased	Common stock repurchased	(155,181)		—		Common stock repurchased	(7,766)		(120,021)
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	(1,225)		(1,219)
Cash dividends paid	Cash dividends paid	(106,855)		(95,238)		Cash dividends paid	(78,991)		(71,341)
Net cash used in financing activities		(305,846)		(28,404)
Net cash provided (used) in financing activities						Net cash provided (used) in financing activities	(7,988)		(230,341)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(2,215)		(1,792)		Effect of exchange rate changes on cash	274		(1,033)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	(209,475)		224,919		Net increase (decrease) in cash and cash equivalents	181,437		(210,943)
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	339,196		624,302
End of period	End of period	$	414,827	$	603,828	End of period	$	520,633	$	413,359

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 30, 2022
Balance, July 1, 2022 $ 169,114 $ 770,209 $ 912,864 $ (94,913) $ 1,757,274
Shares issued 182 4,707 — — 4,889
Shares repurchased (773) (3,369) (43,126) — (47,268)
Stock compensation cost — 5,047 — — 5,047
Net earnings — — 116,232 — 116,232
Dividends declared ($0.210 per share) — — (35,556) — (35,556)
Other comprehensive income (loss) — — — (12,307) (12,307)
Balance, September 30, 2022 $ 168,523 $ 776,594 $ 950,414 $ (107,220) $ 1,788,311



Three Months Ended June 30, 2023
Balance, March 31, 2023	$	168,308	$	821,570	$	1,059,980	$	(63,515)	$	1,986,343

Shares issued	677		20,350		—		—		21,027

Stock compensation cost	—		8,980		—		—		8,980


Net earnings	—		—		134,268		—		134,268
Dividends declared (0.2350 per share)	—		—		(39,795)		—		(39,795)

Other comprehensive income (loss)	—		—		—		5,484		5,484
Balance, June 30, 2023	$	168,985	$	850,900	$	1,154,453	$	(58,031)	$	2,116,307


Nine Months Ended September 30, 2022
Balance, December 31, 2021		$	170,308	$	742,288	$	876,916	$	(80,169)	$	1,709,343
Six Months Ended June 30, 2023												Six Months Ended June 30, 2023
Balance, December 30, 2022												Balance, December 30, 2022	$	167,702	$	784,477	$	976,851	$	(69,378)	$	1,859,652

Shares issued	Shares issued	689		26,392		—		—		27,081		Shares issued	1,398		49,430		—		—		50,828
Shares repurchased	Shares repurchased	(2,474)		(10,781)		(154,034)		—		(167,289)		Shares repurchased	(115)		(539)		(7,112)		—		(7,766)
Stock compensation cost	Stock compensation cost	—		18,696		—		—		18,696		Stock compensation cost	—		17,532		—		—		17,532

Restricted stock canceled (issued)		—		(1)		—		—		(1)

Net earnings	Net earnings	—		—		334,453		—		334,453		Net earnings	—		—		263,434		—		263,434
Dividends declared ($0.630 per share)		—		—		(106,921)		—		(106,921)
Dividends declared ($0.470 per share)												Dividends declared ($0.470 per share)	—		—		(78,720)		—		(78,720)

Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		(27,051)		(27,051)		Other comprehensive income (loss)	—		—		—		11,347		11,347
Balance, September 30, 2022		$	168,523	$	776,594	$	950,414	$	(107,220)	$	1,788,311
Balance, June 30, 2023												Balance, June 30, 2023	$	168,985	$	850,900	$	1,154,453	$	(58,031)	$	2,116,307


Three Months Ended September 24, 2021
Balance, June 25, 2021		$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263
Three Months Ended July 1, 2022												Three Months Ended July 1, 2022
Balance, April 1, 2022												Balance, April 1, 2022	$	169,223	$	761,959	$	841,503	$	(82,429)	$	1,690,256

Shares issued	Shares issued	287		6,942		—		—		7,229		Shares issued	70		2,047		—		—		2,117

Shares repurchased												Shares repurchased	(179)		(777)		(10,360)		—		(11,316)
Stock compensation cost	Stock compensation cost	—		5,438		—		—		5,438		Stock compensation cost	—		6,980		—		—		6,980

Restricted stock canceled (issued)												Restricted stock canceled (issued)	—		—		—		—		—
Net earnings	Net earnings	—		—		103,829		—		103,829		Net earnings	—		—		117,378		—		117,378
Dividends declared ($0.188 per share)		—		—		(31,868)		—		(31,868)
Dividends declared ($0.210 per share)												Dividends declared ($0.210 per share)	—		—		(35,657)		—		(35,657)

Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		(1,542)		(1,542)		Other comprehensive income (loss)	—		—		—		(12,484)		(12,484)
Balance, September 24, 2021		$	169,954	$	728,015	$	792,390	$	(126,010)	$	1,564,349
Balance, July 1, 2022												Balance, July 1, 2022	$	169,114	$	770,209	$	912,864	$	(94,913)	$	1,757,274


Nine Months Ended September 24, 2021
Balance, December 25, 2020		$	168,568	$	671,206	$	568,295	$	(124,165)	$	1,283,904
Six Months Ended July 1, 2022												Six Months Ended July 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	1,386		41,395		—		—		42,781		Shares issued	507		21,685		—		—		22,192

Shares repurchased												Shares repurchased	(1,701)		(7,412)		(110,908)		—		(120,021)
Stock compensation cost	Stock compensation cost	—		17,750		—		—		17,750		Stock compensation cost	—		13,649		—		—		13,649

Restricted stock canceled (issued)	Restricted stock canceled (issued)	—		(2,336)		—		—		(2,336)		Restricted stock canceled (issued)	—		(1)		—		—		(1)
Net earnings	Net earnings	—		—		319,634		—		319,634		Net earnings	—		—		218,221		—		218,221
Dividends declared ($0.563 per share)		—		—		(95,539)		—		(95,539)
Dividends declared ($0.4200 per share)												Dividends declared ($0.4200 per share)	—		—		(71,365)		—		(71,365)

Other comprehensive income (loss)	Other comprehensive income (loss)	—		—		—		(1,845)		(1,845)		Other comprehensive income (loss)	—		—		—		(14,744)		(14,744)
Balance, September 24, 2021		$	169,954	$	728,015	$	792,390	$	(126,010)	$	1,564,349
Balance, July 1, 2022												Balance, July 1, 2022	$	169,114	$	770,209	$	912,864	$	(94,913)	$	1,757,274

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~~June 30, ~~2022~~2023 and the related statements of earnings, comprehensive income and shareholders' equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September 24, 2021,~~July 1, 2022, and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September 24, 2021~~July 1, 2022 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~~June 30, ~~2022,~~2023, 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~~2022 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 three reportable segments: Contractor, Industrial ~~Process~~ and ~~Contractor.~~Process. Sales and operating earnings by segment were as follows (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net Sales	Net Sales									Net Sales
Contractor										Contractor	$	255,648	$	265,739	$	501,619	$	500,331
Industrial	Industrial	$	156,182	$	154,560	$	459,176	$	428,872	Industrial	163,523		158,325		313,713		302,994
Process	Process	125,376		96,185		364,883		284,790		Process	140,473		124,483		273,958		239,507
Contractor		264,086		235,951		764,417		734,327
Total	Total	$	545,644	$	486,696	$	1,588,476	$	1,447,989	Total	$	559,644	$	548,547	$	1,089,290	$	1,042,832
Operating Earnings	Operating Earnings									Operating Earnings
Contractor										Contractor	$	68,868	$	68,244	$	142,640	$	127,191
Industrial	Industrial	$	53,964	$	50,812	$	161,795	$	138,879	Industrial	55,887		55,201		108,657		107,831
Process	Process	30,638		21,514		89,183		64,923		Process	43,620		31,057		84,185		58,545
Contractor		65,123		58,659		192,314		203,366
Unallocated corporate (expense)	Unallocated corporate (expense)	(6,576)		(6,386)		(23,100)		(20,440)		Unallocated corporate (expense)	(11,323)		(5,822)		(21,762)		(16,524)

Total	Total	$	143,149	$	124,599	$	420,192	$	386,728	Total	$	157,052	$	148,680	$	313,720	$	277,043

Assets by segment were as follows (in thousands):


	June 30, 2023		December 30, 2022
Contractor	$	769,654	$	752,729
Industrial	617,270		578,302
Process	583,002		564,539
Unallocated corporate	737,799		543,330
Total	$	2,707,725	$	2,438,900

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

September 30,
2022 December 31,
2021
Industrial $ 606,224 $ 601,843
Process 543,701 436,203
Contractor 698,698 599,726
Unallocated corporate 589,577 805,426
Total $ 2,438,200 $ 2,443,198

Geographic information follows (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net Sales (based on customer location)	Net Sales (based on customer location)									Net Sales (based on customer location)
United States	United States	$	289,831	$	244,086	$	840,922	$	739,309	United States	$	301,953	$	296,009	$	590,942	$	551,091
Other countries	Other countries	255,813		242,610		747,554		708,680		Other countries	257,691		252,538		498,348		491,741
Total	Total	$	545,644	$	486,696	$	1,588,476	$	1,447,989	Total	$	559,644	$	548,547	$	1,089,290	$	1,042,832


		September 30, 2022		December 31, 2021			June 30, 2023		December 30, 2022
Long-lived Assets	Long-lived Assets					Long-lived Assets
United States	United States	$	498,780	$	388,835	United States	$	583,160	$	532,401
Other countries	Other countries	64,027		62,226		Other countries	96,880		75,208
Total	Total	$	562,807	$	451,061	Total	$	680,040	$	607,609

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				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Net earnings available to common shareholders	Net earnings available to common shareholders	$	116,232	$	103,829	$	334,453	$	319,634	Net earnings available to common shareholders	$	134,268	$	117,378	$	263,434	$	218,221
Weighted average shares outstanding for basic earnings per share	Weighted average shares outstanding for basic earnings per share	169,166		169,834		169,368		169,459		Weighted average shares outstanding for basic earnings per share	168,683		169,128		168,351		169,469
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	3,623		4,940		4,020		4,939		Dilutive effect of stock options computed using the treasury stock method and the average market price	3,868		3,570		3,763		4,219
Weighted average shares outstanding for diluted earnings per share	Weighted average shares outstanding for diluted earnings per share	172,789		174,774		173,388		174,398		Weighted average shares outstanding for diluted earnings per share	172,551		172,698		172,114		173,688
Basic earnings per share	Basic earnings per share	$	0.69	$	0.61	$	1.97	$	1.89	Basic earnings per share	$	0.80	$	0.69	$	1.56	$	1.29
Diluted earnings per share	Diluted earnings per share	$	0.67	$	0.59	$	1.93	$	1.83	Diluted earnings per share	$	0.78	$	0.68	$	1.53	$	1.26

Anti-dilutive shares not included in diluted earnings per share computation										Anti-dilutive shares not included in diluted earnings per share computation	1,868		1,632		2,206		1,625

Stock options to purchase 1,618,000 and 428,000 shares were not included in the September 30, 2022 and 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		9,575	$	39.31	7,296	$	33.75
Outstanding, December 30, 2022								Outstanding, December 30, 2022	10,265	$	44.40	7,793	$	37.22
Granted	Granted	831	71.73					Granted	1,114	71.45
Exercised	Exercised	(391)	24.00					Exercised	(1,093)	30.74
Canceled	Canceled	(40)	49.17					Canceled	(62)	64.80
Outstanding, September 30, 2022		9,975	$	42.58	7,648	$	36.35
Outstanding, June 30, 2023								Outstanding, June 30, 2023	10,224	$	48.68	7,529	$	40.96

The Company recognized year-to-date share-based compensation of ~~$17.9~~$18.4 million in ~~2022~~2023 and ~~$19.9~~$12.9 million in ~~2021.~~2022. As of ~~September~~June 30, ~~2022,~~2023, there was ~~$11.0~~$25.8 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of ~~2.7~~2.9 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes ~~option-pricing~~option pricing model with the following weighted average assumptions and results:


		Nine Months Ended							Six Months Ended
		September 30, 2022			September 24, 2021				June 30, 2023			July 1, 2022
Expected life in years	Expected life in years	7.3			7.5			Expected life in years	6.7			7.3
Interest rate	Interest rate	1.9		%	1.2		%	Interest rate	4.0		%	1.9		%
Volatility	Volatility	25.5		%	25.3		%	Volatility	26.3		%	25.5		%
Dividend yield	Dividend yield	1.2		%	1.0		%	Dividend yield	1.3		%	1.2		%
Weighted average fair value per share	Weighted average fair value per share	$	19.06		$	18.91		Weighted average fair value per share	$	21.76		$	19.06

Under the Company’s Employee Stock Purchase Plan, the Company issued ~~316,000~~323,000 shares in ~~2022~~2023 and ~~416,000~~319,000 shares in ~~2021.~~2022. 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~~option pricing model with the following assumptions and results:


		Nine Months Ended							Six Months Ended
		September 30, 2022			September 24, 2021				June 30, 2023			July 1, 2022
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	5.1		%	0.9		%
Volatility	Volatility	20.5		%	40.1		%	Volatility	26.4		%	20.5		%
Dividend yield	Dividend yield	1.2		%	1.1		%	Dividend yield	1.4		%	1.2		%
Weighted average fair value per share	Weighted average fair value per share	$	16.01		$	21.50		Weighted average fair value per share	$	18.04		$	16.01

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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				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Pension Benefits	Pension Benefits									Pension Benefits
Service cost	Service cost	$	2,053	$	1,674	$	6,187	$	7,119	Service cost	$	1,467	$	1,964	$	2,931	$	4,134
Interest cost	Interest cost	2,745		2,519		8,249		8,476		Interest cost	3,798		2,766		7,575		5,504
Expected return on assets	Expected return on assets	(5,237)		(5,412)		(14,816)		(15,673)		Expected return on assets	(3,980)		(4,777)		(7,955)		(9,579)
Amortization and other	Amortization and other	1,200		2,148		3,695		7,254		Amortization and other	415		1,419		855		2,495
Net periodic benefit cost	Net periodic benefit cost	$	761	$	929	$	3,315	$	7,176	Net periodic benefit cost	$	1,700	$	1,372	$	3,406	$	2,554
Postretirement Medical	Postretirement Medical									Postretirement Medical
Service cost	Service cost	$	129	$	153	$	387	$	503	Service cost	$	100	$	83	$	200	$	258
Interest cost	Interest cost	209		124		629		624		Interest cost	210		195		420		420
Amortization	Amortization	86		252		259		752		Amortization	90		(2)		180		173
Net periodic benefit cost	Net periodic benefit cost	$	424	$	529	$	1,275	$	1,879	Net periodic benefit cost	$	400	$	276	$	800	$	851

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 30, 2022
Balance, July 1, 2022 $ (58,359) $ (36,554) $ (94,913)
Other comprehensive income (loss) before reclassifications — (13,335) (13,335)
Reclassified to pension cost and deferred tax 1,028 — 1,028
Balance, September 30, 2022 $ (57,331) $ (49,889) $ (107,220)


	Pension and Post-retirement Medical		Cumulative Translation Adjustment		Total
Three Months Ended June 30, 2023
Balance, March 31, 2023	$	(38,846)	$	(24,669)	$	(63,515)
Other comprehensive income (loss) before reclassifications	—		4,553		4,553
Reclassified to pension cost and deferred tax	931		—		931

Balance, June 30, 2023	$	(37,915)	$	(20,116)	$	(58,031)

Nine Months Ended September 30, 2022
Balance, December 31, 2021 $ (60,107) $ (20,062) $ (80,169)
Other comprehensive income (loss) before reclassifications — (29,827) (29,827)
Reclassified to pension cost and deferred tax 2,776 — 2,776
Balance, September 30, 2022 $ (57,331) $ (49,889) $ (107,220)



Six Months Ended June 30, 2023
Balance, December 30, 2022	$	(39,734)	$	(29,644)	$	(69,378)
Other comprehensive income (loss) before reclassifications	—		9,528		9,528
Reclassified to pension cost and deferred tax	1,819		—		1,819

Balance, June 30, 2023	$	(37,915)	$	(20,116)	$	(58,031)

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)



Three Months Ended July 1, 2022
Balance, April 1, 2022	$	(59,407)	$	(23,022)	$	(82,429)
Other comprehensive income (loss) before reclassifications	—		(13,532)		(13,532)
Reclassified to pension cost and deferred tax	1,048		—		1,048

Balance, July 1, 2022	$	(58,359)	$	(36,554)	$	(94,913)

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)



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

Balance, July 1, 2022	$	(58,359)	$	(36,554)	$	(94,913)

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Amounts related to pension and ~~postretirement~~post-retirement 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~~include trade receivables of ~~$350~~$354 million and other receivables of ~~$14~~$12 million as of ~~September~~June 30, ~~2022~~2023 and ~~$315~~$334 million and ~~$10~~$12 million, respectively, as of December ~~31, 2021.~~30, 2022.

Allowance for Credit Losses

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


							Three Months Ended				Six Months Ended
		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Balance, beginning	Balance, beginning	$	3,254	$	3,745	Balance, beginning	$	4,232	$	6,474	$	6,130	$	3,254
Additions (reversals) charged to costs and expenses		3,262		164
Additions charged to costs and expenses						Additions charged to costs and expenses	417		26		280		3,246
Deductions from reserves (1)	Deductions from reserves (1)	(564)		(425)		Deductions from reserves (1)	(449)		(542)		(2,269)		(575)
Other additions (deductions) (2)	Other additions (deductions) (2)	(452)		68		Other additions (deductions) (2)	(1)		(269)		58		(236)
Balance, ending	Balance, ending	$	5,500	$	3,552	Balance, ending	$	4,199	$	5,689	$	4,199	$	5,689

(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):


		September 30, 2022		December 31, 2021			June 30, 2023		December 30, 2022
Finished products and components	Finished products and components	$	211,195	$	166,922	Finished products and components	$	245,480	$	222,326
Products and components in various stages of completion	Products and components in various stages of completion	140,892		117,063		Products and components in various stages of completion	138,264		138,957
Raw materials and purchased components	Raw materials and purchased components	229,127		185,291		Raw materials and purchased components	227,972		248,636
Subtotal	Subtotal	581,214		469,276		Subtotal	611,716		609,919
Reduction to LIFO cost	Reduction to LIFO cost	(118,994)		(86,975)		Reduction to LIFO cost	(132,621)		(133,129)
Total	Total	$	462,220	$	382,301	Total	$	479,095	$	476,790

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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 30, 2022
As of June 30, 2023												As of June 30, 2023
Cost	Cost	$	202,103	$	26,574	$	1,700	$	62,633	$	293,010	Cost	$	197,417	$	26,374	$	1,300	$	62,633	$	287,724
Accumulated amortization	Accumulated amortization	(119,529)		(17,519)		(659)		—		(137,707)		Accumulated amortization	(126,617)		(19,245)		(445)		—		(146,307)
Foreign currency translation	Foreign currency translation	(12,791)		(1,042)		—		(4,522)		(18,355)		Foreign currency translation	(8,803)		(848)		—		(677)		(10,328)
Book value	Book value	$	69,783	$	8,013	$	1,041	$	58,111	$	136,948	Book value	$	61,997	$	6,281	$	855	$	61,956	$	131,089
Weighted average life in years	Weighted average life in years	13		10		5		N/A				Weighted average life in years	13		9		6		N/A


As of December 31, 2021
As of December 30, 2022												As of December 30, 2022
Cost	Cost	$	194,505	$	26,074	$	900	$	62,633	$	284,112	Cost	$	202,103	$	26,374	$	1,300	$	62,633	$	292,410
Accumulated amortization	Accumulated amortization	(108,657)		(15,734)		(452)		—		(124,843)		Accumulated amortization	(123,603)		(18,027)		(330)		—		(141,960)
Foreign currency translation	Foreign currency translation	(7,710)		(707)		—		(1,112)		(9,529)		Foreign currency translation	(10,060)		(894)		—		(1,989)		(12,943)
Book value	Book value	$	78,138	$	9,633	$	448	$	61,521	$	149,740	Book value	$	68,440	$	7,453	$	970	$	60,644	$	137,507
Weighted average life in years	Weighted average life in years	13		10		5		N/A				Weighted average life in years	13		10		6		N/A

Amortization of intangibles for the second quarter was ~~$4.8~~$4.4 million in ~~2022~~2023 and $4.6 million in ~~2021~~2022, and for the year to date was ~~$14.1~~$8.9 million in ~~2022~~2023 and ~~$13.4~~$9.4 million in ~~2021.~~2022. 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 $ 4,556 $ 16,860 $ 15,639 $ 15,071 $ 8,660 $ 18,051


	2023 (Remainder)		2024		2025		2026		2027		Thereafter
Estimated Amortization Expense	$	8,526	$	16,448	$	15,986	$	9,105	$	6,443	$	12,625

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


		Industrial		Process		Contractor		Total			Contractor		Industrial		Process		Total
Balance, December 31, 2021		$	185,733	$	141,304	$	29,218	$	356,255
Balance, December 30, 2022										Balance, December 30, 2022	$	77,034	$	134,771	$	156,366	$	368,171
Additions, adjustments from business acquisitions	Additions, adjustments from business acquisitions	—		16,994		—		16,994		Additions, adjustments from business acquisitions	—		—		—		—
Foreign currency translation	Foreign currency translation	(10,162)		(3,442)		—		(13,604)		Foreign currency translation	276		2,646		787		3,709
Balance, September 30, 2022		$	175,571	$	154,856	$	29,218	$	359,645
Balance, June 30, 2023										Balance, June 30, 2023	$	77,310	$	137,417	$	157,153	$	371,880

~~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):


		September 30, 2022		December 31, 2021			June 30, 2023		December 30, 2022
Accrued self-insurance retentions	Accrued self-insurance retentions	$	9,306	$	9,303	Accrued self-insurance retentions	$	9,203	$	9,338
Accrued warranty and service liabilities	Accrued warranty and service liabilities	14,263		14,463		Accrued warranty and service liabilities	15,413		14,674
Accrued trade promotions	Accrued trade promotions	13,670		15,872		Accrued trade promotions	11,434		13,799
Payable for employee stock purchases	Payable for employee stock purchases	12,244		15,746		Payable for employee stock purchases	7,515		16,497
Customer advances and deferred revenue	Customer advances and deferred revenue	60,657		60,554		Customer advances and deferred revenue	58,226		50,747
Income taxes payable	Income taxes payable	13,652		5,200		Income taxes payable	19,369		15,987
Tax payable, other						Tax payable, other	9,337		9,614
Right of return refund liability	Right of return refund liability	18,219		18,614		Right of return refund liability	18,257		18,449
Operating lease liabilities, current	Operating lease liabilities, current	9,193		9,096		Operating lease liabilities, current	9,126		9,555

Other	Other	41,553		42,311		Other	30,977		32,133
Total	Total	$	192,757	$	191,159	Total	$	188,857	$	190,793

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~~30, 2022	$	~~14,463~~14,674
~~Assumed in business acquisition~~	38
Charged to expense	~~6,251~~5,229
Margin on parts sales reversed	~~1,811~~2,179
Reductions for claims settled	~~(8,300)~~(6,669)
Balance, ~~September~~June 30, ~~2022~~2023	$	~~14,263~~15,413

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 ~~nine~~six months ended ~~September~~June 30, 2023, we recognized $16.0 million and $36.6 million, respectively, that was included in deferred revenue at December 30, 2022. During the three and six months ended July 1, 2022, we recognized ~~$11.2~~$18.3 million and ~~$52.0~~$40.8 million, respectively, that was included in deferred revenue at December 31, 2021. ~~During the three and nine months ended September 24, 2021, we recognized $16.4 million and $40.4 million, respectively, that was included in deferred revenue at December 25, 2020.~~

11.Debt

On May 23, 2023 and June 8, 2023, the Company executed amendments to its amended and restated credit agreement that amended, superseded and restated in its entirety the Company's existing credit agreement with U.S. Bank National Association, as administrative agent and a lender, and the other lenders that are parties thereto. The first amendment removed references to LIBOR for calculating rates and replaced it with SOFR and its equivalent benchmark rates such as EURIBOR, TIBOR and RFR loans.

The second amendment increased, from $500 million to $750 million, the amount of availability under an unsecured revolving credit facility, as well as increasing, from $200 million to $375 million, the maximum amount of outstanding loans in currencies other than U.S. Dollars. The amendment also increased, from $250 million to $375 million, the amount by which the size of the credit facility may be increased upon exercise of an accordion feature. The accordion feature may be exercised by means of an increase in the revolving commitments or the addition of term loans.

In addition, the second amendment increased the applicable margin percentages used for purposes of calculating the interest rates applicable to base rate loans and non-base rate loans (e.g., SOFR, EURIBOR, TIBOR and RFR loans). Under the amendment, the applicable margin percentages for base rate loans (which ranged from 0.000% to 0.750% under the prior credit agreement) range from 0.125% to 0.875%, and the applicable margin percentages for non-base rate loans (which ranged from 1.000% to 1.750% under the prior credit agreement) range from 1.125% to 1.875%.

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Subsequent Event

In July 2023, the Company prepaid $75 million of its Series D private placement note in addition to a $0.7 million prepayment fee, which will be recognized as interest expense in the third quarter of 2023.

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 30, 2022		December 31, 2021			Level	June 30, 2023		December 30, 2022
Assets	Assets						Assets
Cash surrender value of life insurance	Cash surrender value of life insurance	2	$	17,575	$	23,147	Cash surrender value of life insurance	2	$	21,015	$	19,192
Forward exchange contracts	Forward exchange contracts	2	171		—		Forward exchange contracts	2	160		—
Total assets at fair value	Total assets at fair value		$	17,746	$	23,147	Total assets at fair value		$	21,175	$	19,192
Liabilities	Liabilities						Liabilities
Contingent consideration	Contingent consideration	3	$	14,411	$	12,274	Contingent consideration	3	$	9,975	$	14,914
Deferred compensation	Deferred compensation	2	5,554		5,962		Deferred compensation	2	5,984		5,842
Forward exchange contracts	Forward exchange contracts	2	—		111		Forward exchange contracts	2	—		520
Total liabilities at fair value	Total liabilities at fair value		$	19,965	$	18,347	Total liabilities at fair value		$	15,959	$	21,276

~~Table of Contents~~

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 an estimated fair value of $75 million as of ~~September~~both June 30, ~~2022. As of~~2023 and December ~~31, 2021, the long- term notes had a carrying amount of $150 million and estimated fair value of $165 million.~~30, 2022. 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: Contractor, Industrial ~~Process~~ and ~~Contractor.~~Process. 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~~Company continued 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 the associated effects of inflation ~~have adversely impacted profitability~~ in the ~~near-term~~first half of 2023; however, the impact was not as significant as compared to the same period in the prior year. Pricing actions implemented have generally mitigated the effects of increased costs and ~~limited our ability to satisfy strengthening customer demand, especially within our high-volume Contractor segment. We expect these challenges~~expenses. The Company expects isolated supply chain disruptions and an overall inflationary environment 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 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 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.~~2023.

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.

~~Table of Contents~~

Consolidated Results

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


		Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
		Sep 30, 2022		Sep 24, 2021		% Change		Sep 30, 2022		Sep 24, 2021		% Change			Jun 30, 2023		Jul 1, 2022		% Change		Jun 30, 2023		Jul 1, 2022		% Change
Net Sales	Net Sales	$	545.6	$	486.7	12	%	$	1,588.5	$	1,448.0	10	%	Net Sales	$	559.6	$	548.5	2	%	$	1,089.3	$	1,042.8	4	%
Operating Earnings	Operating Earnings	143.1		124.6		15	%	420.2		386.7		9	%	Operating Earnings	157.1		148.7		6	%	313.7		277.0		13	%

Net Earnings	Net Earnings	116.2		103.8		12	%	334.5		319.6		5	%	Net Earnings	134.3		117.4		14	%	263.4		218.2		21	%
Net Earnings, adjusted (1)	Net Earnings, adjusted (1)	114.8		100.3		14	%	331.3		309.9		7	%	Net Earnings, adjusted (1)	128.8		117.0		10	%	255.3		216.3		18	%
Diluted Net Earnings per Common Share	Diluted Net Earnings per Common Share	$	0.67	$	0.59	14	%	$	1.93	$	1.83	5	%	Diluted Net Earnings per Common Share	$	0.78	$	0.68	15	%	$	1.53	$	1.26	21	%
Diluted Net Earnings per Common Share, adjusted (1)	Diluted Net Earnings per Common Share, adjusted (1)	$	0.66	$	0.57	16	%	$	1.91	$	1.78	7	%	Diluted Net Earnings per Common Share, adjusted (1)	$	0.75	$	0.68	10	%	$	1.48	$	1.25	18	%

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

Sales increased 122 percent for the ~~quarter and 10 percent year to date, with~~quarter. Strong growth in the Process segment more than offset a decrease in the Contractor segment. Sales increases in ~~all segments.~~the Americas and EMEA were partially offset by a decrease in Asia Pacific. Changes in currency translation rates ~~reduced worldwide~~decreased sales and net earnings by ~~$20~~approximately $3 million ~~(5 percentage points)~~and $2 million, for the quarter and ~~$43~~$14 million ~~(3 percentage points) for the year to date. Sales from acquired operations contributed approximately $3 million (1 percentage point) for the quarter~~ and $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 higher product costs and unfavorable currency translation.~~

~~Total operating expenses decreased $6 million (5 percentage points) for the quarter and $8 million (2 percentage points)~~ for the year to date, ~~primarily~~respectively.

Gross profit margin rate for the quarter was more than 3 percentage points higher than the second quarter last year mainly due to ~~lower~~the realized pricing and favorable product and channel mix.

Total operating expenses increased 12 percentage points and increased as a percentage of sales ~~and earnings-based expenses. Expense leverage largely offset the effects of lower gross profit margin rates on operating earnings.~~

by 2 percentage points.

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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						Nine Months Ended							Three Months Ended						Six Months Ended
		September 30, 2022			September 24, 2021			September 30, 2022			September 24, 2021				June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022

Earnings before income taxes	Earnings before income taxes	$	142.4		$	121.8		$	411.8		$	379.2		Earnings before income taxes	$	159.6		$	146.3		$	317.0		$	269.3

Income taxes, as reported	Income taxes, as reported	$	26.2		$	17.9		$	77.3		$	59.6		Income taxes, as reported	$	25.4		$	29.0		$	53.5		$	51.1

Excess tax benefit from option exercises	Excess tax benefit from option exercises	1.4			2.6			3.2			8.8			Excess tax benefit from option exercises	5.5			0.4			8.1			1.9
Other non-recurring tax benefit		—			0.9			—			0.9

Income taxes, adjusted	Income taxes, adjusted	$	27.6		$	21.4		$	80.5		$	69.3		Income taxes, adjusted	$	30.9		$	29.4		$	61.6		$	53.0

Effective income tax rate	Effective income tax rate													Effective income tax rate
As reported	As reported	18.4		%	14.7		%	18.8		%	15.7		%	As reported	15.9		%	19.8		%	16.9		%	19.0		%
Adjusted	Adjusted	19.4		%	17.6		%	19.6		%	18.3		%	Adjusted	19.4		%	20.0		%	19.4		%	19.7		%

Net Earnings, as reported	Net Earnings, as reported	$	116.2		$	103.8		$	334.5		$	319.6		Net Earnings, as reported	$	134.3		$	117.4		$	263.4		$	218.2

Excess tax benefit from option exercises	Excess tax benefit from option exercises	(1.4)			(2.6)			(3.2)			(8.8)			Excess tax benefit from option exercises	(5.5)			(0.4)			(8.1)			(1.9)
Other non-recurring tax benefit		—			(0.9)			—			(0.9)

Net Earnings, adjusted	Net Earnings, adjusted	$	114.8		$	100.3		$	331.3		$	309.9		Net Earnings, adjusted	$	128.8		$	117.0		$	255.3		$	216.3

Weighted Average Diluted Shares	Weighted Average Diluted Shares	172.8			174.8			173.4			174.4			Weighted Average Diluted Shares	172.6			172.7			172.1			173.7
Diluted Earnings per Share	Diluted Earnings per Share													Diluted Earnings per Share
As reported	As reported	$	0.67		$	0.59		$	1.93		$	1.83		As reported	$	0.78		$	0.68		$	1.53		$	1.26
Adjusted	Adjusted	$	0.66		$	0.57		$	1.91		$	1.78		Adjusted	$	0.75		$	0.68		$	1.48		$	1.25

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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				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
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	52.2		49.0		50.6		47.6		Cost of products sold	47.9		51.0		47.1		49.8
Gross Profit	Gross Profit	47.8		51.0		49.4		52.4		Gross Profit	52.1		49.0		52.9		50.2
Product development	Product development	3.6		4.1		3.7		4.2		Product development	3.8		3.6		3.8		3.7
Selling, marketing and distribution	Selling, marketing and distribution	11.3		13.6		11.7		13.6		Selling, marketing and distribution	12.2		11.3		12.3		12.0
General and administrative	General and administrative	6.8		7.8		7.5		7.9		General and administrative	8.0		7.0		8.0		7.9

Operating Earnings	Operating Earnings	26.2		25.6		26.5		26.7		Operating Earnings	28.1		27.1		28.8		26.6
Interest expense	Interest expense	0.3		0.5		0.5		0.5		Interest expense	0.3		0.3		0.3		0.7

Other expense (income), net		(0.2)		0.1		—		—
Other (income) expense, net										Other (income) expense, net	(0.8)		0.1		(0.6)		0.1
Earnings Before Income Taxes	Earnings Before Income Taxes	26.1		25.0		25.9		26.2		Earnings Before Income Taxes	28.5		26.7		29.1		25.8
Income taxes	Income taxes	4.8		3.7		4.9		4.1		Income taxes	4.5		5.3		4.9		4.9
Net Earnings	Net Earnings	21.3	%	21.3	%	21.1	%	22.1	%	Net Earnings	24.0	%	21.4	%	24.2	%	20.9	%

Net Sales

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30, 2022		September 24, 2021		September 30, 2022		September 24, 2021			June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Americas(1)	Americas(1)	$	333.4	$	280.4	$	964.8	$	847.3	Americas(1)	$	345.8	$	338.1	$	677.7	$	631.3
EMEA(2)	EMEA(2)	111.3		115.0		325.8		339.0		EMEA(2)	115.7		108.3		224.6		214.5
Asia Pacific	Asia Pacific	100.9		91.3		297.9		261.7		Asia Pacific	98.1		102.1		187.0		197.0
Consolidated	Consolidated	$	545.6	$	486.7	$	1,588.5	$	1,448.0	Consolidated	$	559.6	$	548.5	$	1,089.3	$	1,042.8

(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				Six 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	18%	1%	0%	19%	13%	1%	0%	14%	Americas	2%	0%	0%	2%	7%	0%	0%	7%
EMEA	EMEA	10%	0%	(13)%	(3)%	5%	1%	(10)%	(4)%	EMEA	5%	0%	2%	7%	6%	0%	(1)%	5%
Asia Pacific	Asia Pacific	17%	1%	(8)%	10%	18%	1%	(5)%	14%	Asia Pacific	0%	0%	(4)%	(4)%	(1)%	0%	(4)%	(5)%
Consolidated	Consolidated	16%	1%	(5)%	12%	12%	1%	(3)%	10%	Consolidated	3%	0%	(1)%	2%	6%	0%	(2)%	4%

Gross Profit

Gross profit margin rates for the quarter and year to date ~~decreased~~increased approximately 3 percentage points from the comparable periods last year. ~~Realized pricing was unable to~~Strong price realization and favorable product and channel mix more than offset ~~continued increases in~~higher product ~~costs and the adverse impacts of changes in currency translation rates.~~costs.

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Operating Expenses

Total operating expenses for the quarter ~~decreased $6~~increased $14 million (5(12 percent) ~~compared to~~from the ~~third quarter~~comparable period last year. ~~Reductions~~The increase includes $4 million of ~~$5 million from the impact of currency translation~~incremental share-based compensation and $3 million ~~from lower sales~~of increased spending related to product development and ~~earnings-based expenses were partially offset by volume and rate related increases. Year-to-date~~other growth initiatives. Total operating expenses ~~decreased $8~~for the year to date increased $16 million ~~compared to~~(7 percent) from the ~~same~~comparable period last year. ~~Reductions~~Volume and rate-related increases, higher product development spending and incremental share-based compensation accounted for most of ~~$10 million from~~ the ~~impact of currency translation and $10 million from lower sales and earnings-based expenses~~increase. Partially offsetting the year-to-date increase were ~~partially offset by~~ $3 million of ~~allowances for~~ credit losses on customer receivables in Russia in the prior year that did not repeat and ~~other volume and rate related increases.~~$2 million from favorable changes in currency translation rates.

Interest and Other (Income) Expense

Interest expense ~~increased $1 million~~was flat for the quarter and for the year to date ~~and includes a $3.5~~decreased $4 million ~~fee related to the prepayment of~~as private placement debt was repaid in the first quarter ~~of 2022.~~last year. Other non-operating expenses decreased $5 million for the quarter and $7 million for the year-to-date mostly due to increased interest income and favorable market valuation changes on investments held to fund certain retirement benefits.

Income Taxes

The effective income tax rate was 1816 percent for the quarter and 1917 percent for the year to date, ~~up 3~~down 4 percentage points and 2 percentage points, respectively, from the comparable periods last ~~year. The increase was~~year, primarily due to ~~decreases~~increases in excess tax benefits from stock option ~~exercises and the unfavorable effects of foreign earnings taxed at higher rates than the U.S.~~

exercises.

Segment Results

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

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
	June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
Net Sales
Americas	$	188.4		$	199.7		$	372.5		$	370.2
EMEA	48.4			45.0			90.6			86.2
Asia Pacific	18.8			21.0			38.5			43.9
Total	$	255.6		$	265.7		$	501.6		$	500.3
Operating earnings as a percentage of net sales	27		%	26		%	28		%	25		%

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


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

Table of Contents

Slower economic activity in construction markets in the Americas and Asia Pacific drove Contractor segment sales down 4 percent for the quarter. For the year to date, favorable response to new product offerings and improved product availability were able to offset reduced demand. Operating margin rates for the quarter and year to date increased 1 percentage point and 3 percentage points, respectively, as price realization and favorable product and channel mix more than offset higher product costs and increased spending on product development and growth initiatives.

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						Six Months Ended
		September 30, 2022			September 24, 2021			September 30, 2022			September 24, 2021				June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
Net Sales	Net Sales													Net Sales
Americas	Americas	$	60.1		$	54.1		$	175.9		$	152.3		Americas	$	65.7		$	61.5		$	129.0		$	115.8
EMEA	EMEA	48.1			53.9			141.6			144.5			EMEA	49.1			45.6			97.2			93.5
Asia Pacific	Asia Pacific	47.9			46.4			141.7			132.0			Asia Pacific	48.7			51.2			87.5			93.7
Total	Total	$	156.1		$	154.4		$	459.2		$	428.8		Total	$	163.5		$	158.3		$	313.7		$	303.0
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	35		%	33		%	35		%	32		%	Operating earnings as a percentage of net sales	34		%	35		%	35		%	36		%

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


		Three Months				Nine Months					Three Months				Six 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%	0%	0%	11%	16%	0%	(1)%	15%	Americas	7%	0%	0%	7%	11%	0%	0%	11%
EMEA	EMEA	3%	0%	(14)%	(11)%	9%	0%	(11)%	(2)%	EMEA	5%	0%	3%	8%	5%	0%	(1)%	4%
Asia Pacific	Asia Pacific	11%	0%	(8)%	3%	12%	0%	(5)%	7%	Asia Pacific	(1)%	0%	(4)%	(5)%	(2)%	0%	(5)%	(7)%
Segment Total	Segment Total	8%	0%	(7)%	1%	12%	0%	(5)%	7%	Segment Total	4%	0%	(1)%	3%	6%	0%	(2)%	4%

~~For both~~Sales growth in the Americas and EMEA for the quarter and year to date ~~strong Industrial segment sales growth in the Americas and Asia Pacific~~ was partially offset by weakness in ~~EMEA due to~~Asia Pacific, where declines in finishing system sales and other project activity continued. The unfavorable ~~macroeconomic conditions. The~~effects of currency translation drove a 1 percentage point decrease in 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.~~date.

~~Table of Contents~~

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						Six Months Ended
		September 30, 2022			September 24, 2021			September 30, 2022			September 24, 2021				June 30, 2023			July 1, 2022			June 30, 2023			July 1, 2022
Net Sales	Net Sales													Net Sales
Americas	Americas	$	76.6		$	58.6		$	222.0		$	175.1		Americas	$	91.7		$	77.0		$	176.2		$	145.4
EMEA	EMEA	16.6			13.8			51.4			44.4			EMEA	18.2			17.6			36.8			34.7
Asia Pacific	Asia Pacific	32.2			23.8			91.5			65.3			Asia Pacific	30.6			29.9			61.0			59.4
Total	Total	$	125.4		$	96.2		$	364.9		$	284.8		Total	$	140.5		$	124.5		$	274.0		$	239.5
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	24		%	22		%	24		%	23		%	Operating earnings as a percentage of net sales	31		%	25		%	31		%	24		%

Table of Contents

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


		Three Months				Nine Months					Three Months				Six 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	27%	4%	0%	31%	24%	3%	0%	27%	Americas	19%	0%	0%	19%	20%	1%	0%	21%
EMEA	EMEA	30%	1%	(11)%	20%	22%	1%	(7)%	16%	EMEA	3%	0%	1%	4%	7%	0%	(1)%	6%
Asia Pacific	Asia Pacific	40%	1%	(7)%	34%	44%	1%	(5)%	40%	Asia Pacific	5%	0%	(3)%	2%	6%	0%	(3)%	3%
Segment Total	Segment Total	30%	4%	(4)%	30%	28%	2%	(2)%	28%	Segment Total	14%	0%	(1)%	13%	15%	1%	(2)%	14%

~~The~~Double-digit sales growth continued in the Process segment ~~had broad-based double-digit sales growth in all product applications and regions~~ for the quarter and year to ~~date.~~date from the comparable periods last year. Sales growth for the quarter and year to date was particularly strong in the automatic lubrication, vehicle service and semiconductor product applications. The operating margin rate for this segment increased 26 percentage points for the quarter and 17 percentage ~~point for the~~points year to date ~~as increased volume~~from the comparable periods last year primarily due to price realization and expense ~~leverage offset higher product costs, unfavorable product and channel mix and the adverse impacts of currency translation.~~leverage.

~~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 30,
2022 September 24,
2021 September 30,
2022 September 24,
2021
Net Sales
Americas $ 196.7 $ 167.6 $ 566.9 $ 519.9
EMEA 46.6 47.3 132.8 150.1
Asia Pacific 20.8 21.2 64.7 64.4
Total $ 264.1 $ 236.1 $ 764.4 $ 734.4
Operating earnings as a percentage of net sales 25 % 25 % 25 % 28 %

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

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

Contractor segment sales increased 12 percent for the quarter compared to last year due to improved product availability. Sales increased 4 percent for the year to date primarily due to continued strength in North American construction markets. Price realization, favorable product and channel mix and 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 the adverse impacts of currency translation.

Liquidity and Capital Resources

Net cash provided by operating activities of ~~$272~~$282 million ~~decreased $86~~increased $147 million ~~from~~compared to the ~~comparable period~~first half of last year, mostly driven by ~~increased~~higher net earnings, decreased inventory purchases and lower salary and incentive ~~payments, increased inventory~~payments. Inventory purchases were lower in the first six months of 2023 compared to ~~meet demand levels~~the same period last year as logistical and ~~higher~~production constraints from disruptions in the supply chain improved. Increases in accounts receivable ~~that~~ reflect growth in business activity ~~through~~in the ~~2022 year to date.~~first half of 2023. Significant uses of cash in 2023 included plant and equipment additions of $92 million and dividend payments of $79 million. Net proceeds from shares issued in 2023 totaled $52 million, which was partially offset by share repurchases of $8 million.

In 2022, significant uses of cash included share repurchases of ~~$155~~$120 million, plant and equipment additions of ~~$147~~$89 million, long-term debt payments of $75 million, dividend payments of ~~$107 million, prepayment of long-term debt of $75~~$71 million, and $25 million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in 2022 totaled ~~$28 million.~~

Significant uses of cash in 2021 included dividend payments of $95 million, property, plant and equipment additions of $83 million and $19 million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in 2021 totaled $40$23 million.

As of ~~September~~June 30, ~~2022,~~2023, the Company had available liquidity of ~~$941~~$1,280 million, including cash and cash equivalents of ~~$415~~$521 million, of which ~~$275~~$206 million was held outside of the U.S., and available credit under existing committed credit facilities of ~~$526~~$759 million.

Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in ~~2022,~~2023, including its capital expenditure plan, planned dividends, share repurchases, acquisitions and operating requirements. Capital expenditures for ~~2022~~2023 are expected to be approximately ~~$230~~$200 million, including $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~~Incoming order rates are in line with the ~~full-year 2022,~~Company's expectations of revenue growth for the ~~Company is raising its target to~~full year of low ~~double-digit sales growth~~single-digits on an organic, constant currency basis.

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~~2022 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.

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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,~~segment; variations in activity in the construction, automotive, mining and oil and natural gas ~~industries,~~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~~2022 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~~2022 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.

2221

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PART IIOTHER INFORMATION

Item 1A.Risk Factors

~~Except as noted below, there~~There have been no material changes to the Company’s risk factors from those disclosed in the Company’s ~~2021~~2022 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.

2322

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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.~~shares of common stock, primarily through open market transactions. The ~~authorizations are~~authorization is 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 third quarter of 2022 were made under the December 2018 authorization.

In addition to shares purchased under the Board ~~authorizations,~~authorization, 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)
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


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 1, 2023 - April 28, 2023	—	$	—	—	14,856,080
April 29, 2023 - May 26, 2023	—	$	—	—	14,856,080
May 27, 2023 - June 30, 2023	—	$	—	—	14,856,080

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Item 5.Other Information

During the three months ended June 30, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).

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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.~~ 17, 2023. ((Incorporated by reference to Exhibit 3.2 to the Company’s ~~2013~~2022 Annual Report on Form 10-K.)

10.1						Amendment No. 1 to Amended and Restated Credit Agreement, dated May 23, 2023, among Graco Inc., the borrowing subsidiaries from time to time party thereto, the banks from time to time party thereto and U.S. Bank National Association, as administrative agent. (Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K filed May 23, 2023.)

10.2						Amendment No. 2 to Amended and Restated Credit Agreement, dated June 8, 2023, among Graco Inc., the borrowing subsidiaries from time to time party thereto, the banks from time to time party thereto and U.S. Bank National Association, as administrative agent. (Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K filed June 8, 2023.)

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~~Second Quarter Earnings dated ~~October~~July 26, ~~2022.~~2023.

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:

~~October~~July 26, ~~2022~~2023

By:

/s/ Mark W. Sheahan

Mark W. Sheahan

President and Chief Executive Officer

(Principal Executive Officer)

Date:

~~October~~July 26, ~~2022~~2023

By:

/s/ David M. Lowe

David M. Lowe

Chief Financial Officer and Treasurer

(Principal Financial Officer)

Date:

~~October~~July 26, ~~2022~~2023

By:

/s/ ~~Kathryn L. Schoenrock~~Christopher D. Knutson

~~Kathryn L. Schoenrock~~Christopher D. Knutson

Executive Vice President, Corporate Controller ~~and Information Systems~~

(Principal Accounting Officer)



Three Months Ended September 30, 2022
Balance, July 1, 2022	$	169,114	$	770,209	$	912,864	$	(94,913)	$	1,757,274

Shares issued	182		4,707		—		—		4,889
Shares repurchased	(773)		(3,369)		(43,126)		—		(47,268)
Stock compensation cost	—		5,047		—		—		5,047


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

Other comprehensive income (loss)	—		—		—		(12,307)		(12,307)
Balance, September 30, 2022	$	168,523	$	776,594	$	950,414	$	(107,220)	$	1,788,311


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

Balance, September 30, 2022	$	(57,331)	$	(49,889)	$	(107,220)



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)



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)


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