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 29, 2017~~June 28, 2019

☐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)~~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	X☒	No	☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files).



Yes	X☒	No	☐

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



Large ~~Accelerated Filer~~accelerated filer	X☒	Accelerated ~~Filer~~filer	☐	Non-accelerated ~~Filer~~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	☐	No	X☒

~~56,130,000~~166,805,000 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of ~~October 19, 2017.~~July 17, 2019.

TABLE OF CONTENTS



			Page
PART I - FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Statements of Earnings	3

		Consolidated Statements of Comprehensive Income	3

		Consolidated Balance Sheets	4

		Consolidated Statements of Cash Flows	5

		Consolidated Statements of Shareholders' Equity	6

		Notes to Consolidated Financial Statements	67

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

	Item 4.	Controls and Procedures	20



PART II - OTHER INFORMATION

	Item 1A.	Risk Factors	21

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

	Item 6.	Exhibits	22


SIGNATURES


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 29, 2017			September 23, 2016		September 29, 2017			September 23, 2016			June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Net Sales	$	379,812		$	327,192	$	1,099,885		$	980,230		$	428,328	$	424,570	$	833,198	$	830,918
Cost of products sold	176,347			150,594		507,206			456,695			201,374		194,667		390,202		378,594
Gross Profit	203,465			176,598		592,679			523,535			226,954		229,903		442,996		452,324
Product development	14,815			14,671		44,215			44,964			17,324		16,112		33,893		31,401
Selling, marketing and distribution	57,941			49,269		168,912			158,106			60,441		62,949		121,258		125,471
General and administrative	31,072			31,194		95,325			99,710			36,828		37,464		70,957		70,378
Operating Earnings	99,637			81,464		284,227			220,755			112,361		113,378		216,888		225,074
Interest expense	3,901			4,432		12,110			13,468			3,431		3,891		6,966		7,124
Other expense (income), net	(656		)	416		(1,454		)	(338		)
Other expense, net												1,119		4,251		1,388		5,286
Earnings Before Income Taxes	96,392			76,616		273,571			207,625			107,811		105,236		208,534		212,664
Income taxes	20,932			22,228		57,551			62,738			19,674		16,096		33,648		38,014
Net Earnings	$	75,460		$	54,388	$	216,020		$	144,887		$	88,137	$	89,140	$	174,886	$	174,650
Per Common Share
Basic net earnings	$	1.35		$	0.98	$	3.87		$	2.61
Diluted net earnings	$	1.30		$	0.95	$	3.73		$	2.55
Cash dividends declared	$	0.36		$	0.33	$	1.08		$	0.99
Net Earnings per Common Share
Basic												$	0.53	$	0.53	$	1.05	$	1.04
Diluted												$	0.51	$	0.51	$	1.02	$	1.00

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 29, 2017			September 23, 2016			September 29, 2017			September 23, 2016			June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Net Earnings	$	75,460		$	54,388		$	216,020		$	144,887		$	88,137		$	89,140		$	174,886		$	174,650
Components of other comprehensive income (loss)
Cumulative translation adjustment	574			(6,642		)	17,921			(16,679		)	1,232			(15,112		)	2,401			(6,366		)
Pension and postretirement medical liability adjustment	2,250			1,707			6,034			4,957			1,910			2,705			4,037			4,531
Income taxes - pension and postretirement medical liability adjustment	(797		)	(619		)	(2,280		)	(1,823		)	(423		)	(596		)	(893		)	(997		)
Other comprehensive income (loss)	2,027			(5,554		)	21,675			(13,545		)
Other comprehensive income													2,719			(13,003		)	5,545			(2,832		)
Comprehensive Income	$	77,487		$	48,834		$	237,695		$	131,342		$	90,856		$	76,137		$	180,431		$	171,818

See notes to consolidated financial statements.

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands)


	September 29, 2017			December 30, 2016			June 28, 2019			December 28, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	140,000		$	52,365		$	180,883		$	132,118
Accounts receivable, less allowances of $14,100 and $12,700	258,632			218,365
Accounts receivable, less allowances of $5,200 and $5,300							291,008			274,608
Inventories	222,878			201,609			297,545			283,982
Other current assets	20,889			31,023			29,457			32,508
Total current assets	642,399			503,362			798,893			723,216
Property, Plant and Equipment
Cost	518,486			489,642
Accumulated depreciation	(319,058		)	(300,046		)
Property, Plant and Equipment, net	199,428			189,596			286,521			229,295
Goodwill	272,858			259,849			296,273			293,846
Other Intangible Assets, net	181,108			178,336			163,564			166,310
Operating Lease Assets							32,170			—
Deferred Income Taxes	81,756			86,653			32,691			32,055
Other Assets	26,674			25,313			30,435			28,019
Total Assets	$	1,404,223		$	1,243,109		$	1,640,547		$	1,472,741
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Notes payable to banks	$	6,215		$	8,913		$	7,284		$	11,083
Current portion of long term debt	75,000			—			75,000			—
Trade accounts payable	46,603			39,988			61,958			56,902
Salaries and incentives	49,574			37,109			47,109			62,297
Dividends payable	20,196			20,088			26,716			26,480
Other current liabilities	90,683			71,887			141,535			143,041
Total current liabilities	288,271			177,985			359,602			299,803
Long-term Debt	225,000			305,685			179,081			266,391
Retirement Benefits and Deferred Compensation	145,224			159,250			135,209			133,388
Operating Lease Liabilities							25,734			—
Deferred Income Taxes	17,433			17,672			14,963			16,586
Other Non-current Liabilities	8,306			8,697			—			4,700
Shareholders’ Equity
Common stock	56,115			55,834			166,792			165,171
Additional paid-in-capital	504,072			453,394			556,170			510,825
Retained earnings	280,355			206,820			342,308			220,734
Accumulated other comprehensive income (loss)	(120,553		)	(142,228		)	(139,312		)	(144,857		)
Total shareholders’ equity	719,989			573,820			925,958			751,873
Total Liabilities and Shareholders’ Equity	$	1,404,223		$	1,243,109		$	1,640,547		$	1,472,741

See notes to consolidated financial statements.

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)


	Nine Months Ended						Six Months Ended
	September 29, 2017			September 23, 2016			June 28, 2019			June 29, 2018
Cash Flows From Operating Activities
Net Earnings	$	216,020		$	144,887		$	174,886		$	174,650
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	33,620			36,846			24,087			23,755
Deferred income taxes	58			(8,470		)	(3,881		)	355
Share-based compensation	19,154			16,143			17,548			15,832
Change in
Accounts receivable	(31,614		)	6,100			(16,051		)	(26,100		)
Inventories	(16,788		)	1,628			(13,157		)	(17,700		)
Trade accounts payable	4,319			1,057			4,603			2,298
Salaries and incentives	7,214			(6,914		)	(18,514		)	(13,231		)
Retirement benefits and deferred compensation	(8,595		)	7,431			5,780			6,627
Other accrued liabilities	25,402			9,379			(10,789		)	6,493
Other	(2,642		)	(367		)	(690		)	(2,202		)
Net cash provided by operating activities	246,148			207,720			163,822			170,777
Cash Flows From Investing Activities
Property, plant and equipment additions	(28,899		)	(34,347		)	(70,186		)	(27,443		)
Acquisition of businesses, net of cash acquired	(12,905		)	(48,643		)	(6,176		)	(10,519		)
Change in restricted assets	1,349			150
Other	(124		)	(130		)	(828		)	(65		)
Net cash provided by (used in) investing activities	(40,579		)	(82,970		)	(77,190		)	(38,027		)
Cash Flows From Financing Activities
Borrowings (payments) on short-term lines of credit, net	(3,361		)	(7,349		)	(3,767		)	112
Borrowings on long-term line of credit	293,880			532,724
Payments on long-term line of credit	(299,565		)	(569,639		)
Borrowings on long-term lines of credit							23,944			389,340
Payments on long-term debt and lines of credit							(36,453		)	(320,603		)
Common stock issued	53,422			28,729			33,954			20,052
Common stock repurchased	(90,160		)	(48,050		)	(2,438		)	(155,601		)
Taxes paid related to net share settlement of equity awards	(10,735		)	(3,165		)	(1,268		)	(16,151		)
Cash dividends paid	(60,273		)	(55,058		)	(53,075		)	(44,650		)
Net cash provided by (used in) financing activities	(116,792		)	(121,808		)	(39,103		)	(127,501		)
Effect of exchange rate changes on cash	(1,142		)	(1,915		)	1,236			448
Net increase (decrease) in cash and cash equivalents	87,635			1,027			48,765			5,697
Cash and Cash Equivalents
Cash, Cash Equivalents and Restricted Cash
Beginning of year	52,365			52,295			132,118			112,904
End of period	$	140,000		$	53,322		$	180,883		$	118,601
Reconciliation to Consolidated Balance Sheets
Cash and cash equivalents							$	180,883		$	109,854
Restricted cash included in other current assets							—			8,747
Cash, cash equivalents and restricted cash							$	180,883		$	118,601

See notes to consolidated financial statements.

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 June 28, 2019
Balance, March 29, 2019	$	166,364	$	539,067	$	281,038		$	(142,031	)	$	844,438
Shares issued	428		8,678		—			—			9,106
Stock compensation cost	—		8,425		—			—			8,425
Net earnings	—		—		88,137			—			88,137
Dividends declared ($0.1600 per share)	—		—		(26,867		)	—			(26,867		)
Other comprehensive income (loss)	—		—		—			2,719			2,719
Balance, June 28, 2019	$	166,792	$	556,170	$	342,308		$	(139,312	)	$	925,958



Six Months Ended June 28, 2019
Balance, December 28, 2018	$	165,171	$	510,825	$	220,734		$	(144,857	)	$	751,873
Shares issued	1,621		31,064		—			—			32,685
Stock compensation cost	—		14,281		—			—			14,281
Net earnings	—		—		174,886			—			174,886
Dividends declared ($0.3200 per share)	—		—		(53,312		)	—			(53,312		)
Other comprehensive income (loss)	—		—		—			5,545			5,545
Balance, June 28, 2019	$	166,792	$	556,170	$	342,308		$	(139,312	)	$	925,958



Three Months Ended June 29, 2018
Balance, March 30, 2018	$	168,033		515,693		176,524		$	(133,071	)	$	727,179
Shares issued	548			(13,963	)	—		—			(13,415		)
Shares repurchased	(1,451		)	(4,285	)	(58,352	)	—			(64,088		)
Stock compensation cost	—			7,897		—		—			7,897
Restricted stock canceled (issued)	—			—		—		—			—
Net earnings	—			—		89,140		—			89,140
Dividends declared ($0.1325 per share)	—			—		(21,905	)	—			(21,905		)
Other comprehensive income (loss)	—			—		—		(13,003		)	(13,003		)
Balance, June 29, 2018	$	167,130		505,342		185,407		$	(146,074	)	$	711,805



Six Months Ended June 29, 2018
Balance, December 29, 2017	$	169,319		$	499,934		$	181,599		$	(127,789	)	$	723,063
Shares issued	1,313			3,360			—			—			4,673
Shares repurchased	(3,502		)	(10,340		)	(141,759		)	—			(155,601		)
Stock compensation cost	—			13,160			—			—			13,160
Restricted stock canceled (issued)	—			(772		)	—			—			(772		)
Net earnings	—			—			174,650			—			174,650
Dividends declared ($0.2650 per share)	—			—			(44,536		)	—			(44,536		)
Reclassified to retained earnings from AOCI	—			—			15,453			(15,453		)	—
Other comprehensive income (loss)	—			—			—			(2,832		)	(2,832		)
Balance, June 29, 2018	$	167,130		$	505,342		$	185,407		$	(146,074	)	$	711,805

See notes to consolidated financial statements.

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 29, 2017~~June 28, 2019 and the related statements of earnings, ~~and~~ comprehensive income and shareholders' equity for the three and ~~nine~~six months ended ~~September~~June 28, 2019 and June 29, ~~2017 and September 23, 2016,~~2018, and cash flows for the ~~nine~~six months ended ~~September~~June 28, 2019 and June 29, ~~2017 and September 23, 2016~~2018 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 29, 2017,~~June 28, 2019, 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 ~~2016~~2018 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

The Company has three reportable segments: Industrial, Process and Contractor. Sales and operating earnings by segment were as follows (in thousands):



	Three Months Ended						Six Months Ended
	June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Net Sales
Industrial	$	188,507		$	190,459		$	377,607		$	385,655
Process	85,064			85,059			171,958			165,094
Contractor	154,757			149,052			283,633			280,169
Total	$	428,328		$	424,570		$	833,198		$	830,918
Operating Earnings
Industrial	$	64,428		$	67,030		$	129,631		$	136,155
Process	18,378			17,065			38,392			34,767
Contractor	40,054			38,382			66,593			69,793
Unallocated corporate (expense)	(10,499		)	(9,099		)	(17,728		)	(15,641		)
Total	$	112,361		$	113,378		$	216,888		$	225,074

Assets by segment were as follows (in thousands):



	June 28, 2019		December 28, 2018
Industrial	$	633,813	$	640,683
Process	364,496		350,306
Contractor	361,832		283,727
Unallocated corporate	280,406		198,025
Total	$	1,640,547	$	1,472,741

Geographic information follows (in thousands):



	Three Months Ended				Six Months Ended
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Net Sales (based on customer location)
United States	$	221,565	$	212,541	$	424,450	$	406,323
Other countries	206,763		212,029		408,748		424,595
Total	$	428,328	$	424,570	$	833,198	$	830,918



	June 28, 2019		December 28, 2018
Long-lived Assets
United States	$	229,398	$	178,331
Other countries	57,123		50,964
Total	$	286,521	$	229,295

2.3.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
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Net earnings available to common shareholders	$	88,137	$	89,140	$	174,886	$	174,650
Weighted average shares outstanding for basic earnings per share	166,684		167,260		166,150		168,166
Dilutive effect of stock options computed using the treasury stock method and the average market price	5,363		6,005		5,303		6,291
Weighted average shares outstanding for diluted earnings per share	172,047		173,265		171,453		174,457
Basic earnings per share	$	0.53	$	0.53	$	1.05	$	1.04
Diluted earnings per share	$	0.51	$	0.51	$	1.02	$	1.00

Three Months Ended Nine Months Ended
September 29,
2017 September 23,
2016 September 29,
2017 September 23,
2016
Net earnings available to common shareholders $ 75,460
$ 54,388
$ 216,020
$ 144,887
Weighted average shares outstanding for basic earnings per share 56,023
55,684
55,864
55,571
Dilutive effect of stock options computed using the treasury stock method and the average market price 2,181
1,285
2,084
1,335
Weighted average shares outstanding for diluted earnings per share 58,204
56,969
57,948
56,906
Basic earnings per share $ 1.35
$ 0.98
$ 3.87
$ 2.61
Diluted earnings per share $ 1.30
$ 0.95
$ 3.73
$ 2.55

Stock options to purchase ~~6,000~~1,532,000 and ~~1,034,000~~1,099,000 shares were not included in the ~~September~~June 28, 2019 and June 29, ~~2017 and September 23, 2016~~2018 computations of diluted earnings per share, respectively, because they would have been anti-dilutive.

3.4.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
Outstanding, December 28, 2018	12,270		$	24.67	7,312	$	20.17
Granted	1,285		45.91
Exercised	(1,241	)	15.59
Canceled	(22	)	32.72
Outstanding, June 28, 2019	12,292		$	27.79	7,731	$	22.98

Option
Shares

Weighted Average
Exercise Price

Options
Exercisable

Weighted Average
Exercise Price
Outstanding, December 30, 2016 5,535
$ 55.26
3,672
$ 45.40
Granted 575
92.13

Exercised (1,138 ) 40.97

Canceled (38 ) 80.31

Outstanding, September 29, 2017 4,934
$ 62.66
3,071
$ 51.40

The Company recognized year-to-date share-based compensation of ~~$19.2~~$17.5 million in ~~2017~~2019 and ~~$16.1~~$15.8 million in ~~2016.~~2018. As of ~~September 29, 2017,~~June 28, 2019, there was ~~$12.5~~$12.4 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of ~~2.3~~2.0 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
	June 28, 2019			June 29, 2018
Expected life in years	7.5			7.5
Interest rate	2.6		%	2.8		%
Volatility	24.6		%	25.5		%
Dividend yield	1.4		%	1.2		%
Weighted average fair value per share	$	12.26		$	12.84

Nine Months Ended
September 29,
2017 September 23,
2016
Expected life in years 7.0
7.0
Interest rate 2.2 % 1.4 %
Volatility 26.7 % 30.1 %
Dividend yield 1.6 % 1.8 %
Weighted average fair value per share $ 24.23
$ 19.00

Under the Company’s Employee Stock Purchase Plan, the Company issued ~~167,000~~398,000 shares in ~~2017~~2019 and ~~170,000~~480,000 shares in ~~2016.~~2018. The fair value of the employees’ purchase rights under this Plan was estimated on the date of grant. The benefit of the 15 percentdiscount 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
	June 28, 2019			June 29, 2018
Expected life in years	1.0			1.0
Interest rate	2.6		%	2.1		%
Volatility	22.7		%	21.3		%
Dividend yield	1.4		%	1.2		%
Weighted average fair value per share	$	11.36		$	10.28

Nine Months Ended
September 29,
2017 September 23,
2016
Expected life in years 1.0
1.0
Interest rate 0.9 % 0.7 %
Volatility 22.3 % 24.6 %
Dividend yield 1.5 % 1.7 %
Weighted average fair value per share $ 21.97
$ 19.14

4.5.Retirement Benefits

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



	Three Months Ended						Six Months Ended
	June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Pension Benefits
Service cost	$	1,635		$	1,998		$	3,644		$	4,211
Interest cost	3,572			3,411			7,310			6,845
Expected return on assets	(4,216		)	(4,632		)	(8,575		)	(8,718		)
Amortization and other	1,838			2,080			3,817			4,175
Net periodic benefit cost	$	2,829		$	2,857		$	6,196		$	6,513
Postretirement Medical
Service cost	$	123		$	175		$	273		$	350
Interest cost	264			265			581			529
Amortization	29			136			137			272
Net periodic benefit cost	$	416		$	576		$	991		$	1,151

Three Months Ended Nine Months Ended
September 29,
2017 September 23,
2016 September 29,
2017 September 23,
2016
Pension Benefits
Service cost $ 1,917
$ 1,968
$ 5,732
$ 5,880
Interest cost 3,874
3,902
11,477
11,765
Expected return on assets (4,236 ) (4,504 ) (12,700 ) (13,509 )
Amortization and other 2,408
2,491
6,932
7,410
Net periodic benefit cost $ 3,963
$ 3,857
$ 11,441
$ 11,546
Postretirement Medical
Service cost $ 150
$ 136
$ 451
$ 407
Interest cost 274
271
820
813
Amortization (2 ) (120 ) (7 ) (360 )
Net periodic benefit cost $ 422
$ 287
$ 1,264
$ 860

The Company made a $20 million tax-deductible contribution to its funded U.S. defined benefit plan in the third quarter of 2017. Also in the third quarter, the Company approved an amendment to restructure the plan effective October 30, 2017. Under the restructuring, the plan will purchase insurance contracts to settle a portion of its benefit obligations. The Company expects that net periodic benefit cost for the fourth quarter will include a settlement loss related to the restructuring~~, estimated to be in the range of $11 million to $13 million.~~ ~~The actual amount of the settlement loss will depend on the value of plan assets, the amount transferred to the insurance company and the discount rate as of the measurement date.~~

5.6.Shareholders’ Equity

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

Pension and
Postretirement
Medical

Cumulative
Translation
Adjustment
Total
Balance, June 24, 2016 $ (67,876 ) $ (44,612 ) $ (112,488 )
Other comprehensive income (loss) before reclassifications —
(6,642 ) (6,642 )
Amounts reclassified from accumulated other comprehensive income 1,088
—
1,088
Balance, September 23, 2016 $ (66,788 ) $ (51,254 ) $ (118,042 )

Balance, June 30, 2017 $ (74,125 ) $ (48,455 ) $ (122,580 )
Other comprehensive income (loss) before reclassifications —
574
574
Amounts reclassified from accumulated other comprehensive income 1,453
—
1,453
Balance, September 29, 2017 $ (72,672 ) $ (47,881 ) $ (120,553 )



	Pension and Postretirement Medical			Cumulative Translation Adjustment			Total
Three Months Ended June 28, 2019
Balance, March 29, 2019	$	(85,232	)	$	(56,799	)	$	(142,031	)
Other comprehensive income (loss) before reclassifications	—			1,232			1,232
Reclassified to pension cost and deferred tax	1,487			—			1,487
Balance, June 28, 2019	$	(83,745	)	$	(55,567	)	$	(139,312	)



Six Months Ended June 28, 2019
Balance, December 28, 2018	$	(86,889	)	$	(57,968	)	$	(144,857	)
Other comprehensive income (loss) before reclassifications	—			2,401			2,401
Reclassified to pension cost and deferred tax	3,144			—			3,144
Balance, June 28, 2019	$	(83,745	)	$	(55,567	)	$	(139,312	)

Balance, December 25, 2015 $ (69,922 ) $ (34,575 ) $ (104,497 )
Other comprehensive income (loss) before reclassifications —
(16,679 ) (16,679 )
Amounts reclassified from accumulated other comprehensive income 3,134
—
3,134
Balance, September 23, 2016 $ (66,788 ) $ (51,254 ) $ (118,042 )



Three Months Ended June 29, 2018
Balance, March 30, 2018	$	(92,458	)	$	(40,613	)	$	(133,071	)
Other comprehensive income (loss) before reclassifications	—			(15,112		)	(15,112		)
Reclassified to pension cost and deferred tax	2,109			—			2,109
Balance, June 29, 2018	$	(90,349	)	$	(55,725	)	$	(146,074	)

Balance, December 30, 2016 $ (76,426 ) $ (65,802 ) $ (142,228 )
Other comprehensive income (loss) before reclassifications —
17,921
17,921
Amounts reclassified from accumulated other comprehensive income 3,754
—
3,754
Balance, September 29, 2017 $ (72,672 ) $ (47,881 ) $ (120,553 )



Six Months Ended June 29, 2018
Balance, December 29, 2017	$	(78,430	)	$	(49,359	)	$	(127,789	)
Other comprehensive income (loss) before reclassifications	—			(6,366		)	(6,366		)
Reclassified to pension cost and deferred tax	3,534			—			3,534
Reclassified to retained earnings	(15,453		)	—			(15,453		)
Balance, June 29, 2018	$	(90,349	)	$	(55,725	)	$	(146,074	)

Amounts related to pension and postretirement medical adjustments are reclassified to non-service components of pension cost ~~which is allocated~~that are included within other non-operating expenses.

In February 2018, the Financial Accounting Standards Board ("FASB") issued a new standard related to ~~cost~~reclassification of ~~products sold~~certain tax effects from accumulated other comprehensive income (AOCI). We adopted the new standard in the first quarter of 2018. We elected to reclassify $15.5 million from accumulated other comprehensive income to retained earnings, representing the amount of "stranded" tax effects resulting from the change in the U.S. federal tax rate and ~~operating expenses based on salaries~~the consequent revaluation of deferred tax assets related to pension and ~~wages, approximately as follows (in thousands):~~

postretirement medical expense.

Three Months Ended Nine Months Ended
September 29,
2017 September 23,
2016 September 29,
2017 September 23,
2016
Cost of products sold $ 765
$ 611
$ 2,093
$ 1,776
Product development 331
241
887
706
Selling, marketing and distribution 703
578
1,865
1,633
General and administrative 451
277
1,189
842
Total before tax $ 2,250
$ 1,707
$ 6,034
$ 4,957
Income tax (benefit) (797 ) (619 ) (2,280 ) (1,823 )
Total after tax $ 1,453
$ 1,088
$ 3,754
$ 3,134

On February 21, 2017, the Company entered into an accelerated share repurchase arrangement (“ASR”) with a financial institution. In exchange for an up-front payment of $90 million, the financial institution delivered 850,000 shares of Company common stock with a fair value of $78 million. The total number of shares ultimately delivered under the ASR was determined at the end of the purchase period based on the volume weighted-average price (“VWAP”) of the Company’s common stock during that period. The purchase period ended in the third quarter and the Company received an additional 31,499 shares to complete the ASR at an average realized price of $102.10 per share.7.Inventories

The Company accounted for the up-front payment as a reduction of shareholders’ equity in the period made. Shares received under the ASR were retired and reflected as a reduction of outstanding shares on the date delivered for purposes of calculating earnings per share. The forward contract aspect of the ASR met all of the applicable criteria for equity classification, and therefore was accounted for as a derivative indexed to the Company's equity.


6.	~~Segment Information~~

~~The Company has three reportable segments, Industrial, Process and Contractor. Sales and operating earnings by segment were as follows (in thousands):~~

Three Months Ended Nine Months Ended
September 29,
2017 September 23,
2016 September 29,
2017 September 23,
2016
Net Sales
Industrial $ 178,461
$ 150,893
$ 509,719
$ 454,978
Process 73,656
67,077
217,084
196,068
Contractor 127,695
109,222
373,082
329,184
Total $ 379,812
$ 327,192
$ 1,099,885
$ 980,230
Operating Earnings
Industrial $ 61,790
$ 50,573
$ 177,121
$ 147,419
Process 12,088
10,394
38,969
25,305
Contractor 33,471
25,593
93,249
71,700
Unallocated corporate (expense) (7,712 ) (5,096 ) (25,112 ) (23,669 )
Total $ 99,637
$ 81,464
$ 284,227
$ 220,755

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

September 29,
2017 December 30,
2016
Industrial $ 575,024
$ 546,366
Process 335,769
318,444
Contractor 254,342
208,016
Unallocated corporate 239,088
170,283
Total $ 1,404,223
$ 1,243,109

~~Geographic information follows (in thousands):~~

Three Months Ended Nine Months Ended
September 29,
2017 September 23,
2016 September 29,
2017 September 23,
2016
Net Sales (based on customer location)
United States $ 190,178
$ 171,988
$ 559,651
$ 511,273
Other countries 189,634
155,204
540,234
468,957
Total $ 379,812
$ 327,192
$ 1,099,885
$ 980,230

September 29,
2017 December 30,
2016
Long-lived Assets
United States $ 161,034
$ 151,911
Other countries 38,394
37,685
Total $ 199,428
$ 189,596

7.~~Inventories~~

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



	June 28, 2019				December 28, 2018
Finished products and components	$	147,159			$	142,535
Products and components in various stages of completion	87,670				83,768
Raw materials and purchased components	122,318			��	115,705
Subtotal	357,147				342,008
Reduction to LIFO cost	(59,602		)		(58,026		)
Total	$	297,545			$	283,982

September 29,
2017 December 30,
2016
Finished products and components $ 111,481
$ 113,643
Products and components in various stages of completion 59,961
50,557
Raw materials and purchased components 98,720
84,631
Subtotal 270,162
248,831
Reduction to LIFO cost (47,284 ) (47,222 )
Total $ 222,878
$ 201,609

8.Intangible Assets

Components of other intangible assets were (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 29, 2017
As of June 28, 2019
Cost	$	176,065		$	18,322		$	1,070		$	57,853		$	253,310		$	182,410		$	18,913		$	1,020		$	60,220		$	262,563
Accumulated amortization	(51,312		)	(7,448		)	(472		)	—			(59,232		)	(73,974		)	(9,557		)	(545		)	—			(84,076		)
Foreign currency translation	(9,029		)	(703		)	(57		)	(3,181		)	(12,970		)	(10,352		)	(861		)	(72		)	(3,638		)	(14,923		)
Book value	$	115,724		$	10,171		$	541		$	54,672		$	181,108		$	98,084		$	8,495		$	403		$	56,582		$	163,564
Weighted average life in years	13			10			4			N/A						13			10			4			N/A


As of December 30, 2016
As of December 28, 2018
Cost	$	170,284		$	17,321		$	895		$	57,853		$	246,353		$	179,449		$	18,571		$	1,020		$	59,537		$	258,577
Accumulated amortization	(41,599		)	(6,088		)	(337		)	—			(48,024		)	(67,322		)	(8,647		)	(439		)	—			(76,408		)
Foreign currency translation	(13,630		)	(1,055		)	(59		)	(5,249		)	(19,993		)	(10,817		)	(895		)	(73		)	(4,074		)	(15,859		)
Book value	$	115,055		$	10,178		$	499		$	52,604		$	178,336		$	101,310		$	9,029		$	508		$	55,463		$	166,310
Weighted average life in years	13			10			4			N/A						13			10			4			N/A

Amortization of intangibles for the quarter was $3.8 million in ~~2017~~2019 and ~~$4.6~~$4.0 million in ~~2016~~2018 and for the year to date was ~~$11.0~~$7.7 million in ~~2017~~2019 and ~~$14.3~~$8.0 million in ~~2016.~~2018. Estimated annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):



	2019		2020		2021		2022		2023		Thereafter
Estimated Amortization Expense	$	15,503	$	15,289	$	15,089	$	15,001	$	14,088	$	39,686

2017 2018 2019 2020 2021 Thereafter
Estimated Amortization Expense $ 14,834
$ 14,959
$ 14,630
$ 14,448
$ 14,279
$ 64,311

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



	Industrial		Process		Contractor		Total
Balance, December 28, 2018	$	177,124	$	97,168	$	19,554	$	293,846
Additions, adjustments from business acquisitions	—		1,575		—		1,575
Foreign currency translation	803		49		—		852
Balance, June 28, 2019	$	177,927	$	98,792	$	19,554	$	296,273

Industrial Process Contractor Total
Balance, December 30, 2016 $ 150,556
$ 96,561
$ 12,732
$ 259,849
Additions (adjustments) from business acquisitions 7,152
(63 ) —
7,089
Foreign currency translation 4,480
1,440
—
5,920
Balance, September 29, 2017 $ 162,188
$ 97,938
$ 12,732
$ 272,858

The Company completed business acquisitions in 2019 that were not material to the consolidated financial statements.


9.	Other Current Liabilities

Components of other current liabilities were (in thousands):



	June 28, 2019		December 28, 2018
Accrued self-insurance retentions	$	7,920	$	7,870
Accrued warranty and service liabilities	11,797		11,056
Accrued trade promotions	7,229		11,449
Payable for employee stock purchases	6,437		11,916
Customer advances and deferred revenue	41,509		39,995
Income taxes payable	9,727		8,515
Right of return refund liability	12,996		12,705
Operating lease liability, current	8,416		—
Other	35,504		39,535
Total	$	141,535	$	143,041

September 29,
2017 December 30,
2016
Accrued self-insurance retentions $ 7,164
$ 7,105
Accrued warranty and service liabilities 9,876
8,934
Accrued trade promotions 8,126
6,007
Payable for employee stock purchases 7,188
9,328
Customer advances and deferred revenue 21,097
9,400
Income taxes payable 9,778
8,608
Other 27,454
22,505
Total $ 90,683
$ 71,887

The Company manages certain self-insured loss exposures through a wholly-owned captive insurance subsidiary. Cash balances of $7.9 million as of September 29, 2017 and $9.2 million as of December 30, 2016 were restricted to funding of the captive's loss reserves and are included within other current assets on the Company's Consolidated Balance Sheets.

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 28, 2018	$	11,056
Charged to expense	5,001
Margin on parts sales reversed	1,537
Reductions for claims settled	(5,797		)
Balance, June 28, 2019	$	11,797

Balance, December 30, 2016 $ 8,934
Charged to expense 5,708
Margin on parts sales reversed 1,977
Reductions for claims settled (6,743 )
Balance, September 29, 2017 $ 9,876

Deferred Revenues

For certain products or services and customer types, we require payment before delivery to the customer. We defer revenue when cash payments are received or due in advance of our performance, including amounts which are refundable. This is also the case for services associated with certain product sales. The balance in the deferred revenue and customer advances was $41.5 million as of June 28, 2019 and $40.0 million as of December 28, 2018. Net sales for the year to date included $29.9 million in 2019 and $20.0 million in 2018 that related to deferred revenue as of the beginning of each period.

10.Fair Value

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



	Level	June 28, 2019		December 28, 2018
Assets
Cash surrender value of life insurance	2	$	16,572	$	14,320
Forward exchange contracts	2	78		82
Total assets at fair value		$	16,650	$	14,402
Liabilities
Contingent consideration	3	$	4,700	$	7,200
Deferred compensation	2	4,373		4,203
Total liabilities at fair value		$	9,073	$	11,403

Level September 29,
2017 December 30,
2016
Assets
Cash surrender value of life insurance 2 $ 15,480
$ 13,785
Forward exchange contracts 2 513
571
Total assets at fair value $ 15,993
$ 14,356
Liabilities
Contingent consideration 3 $ 4,081
$ 4,081
Deferred compensation 2 3,640
3,265
Forward exchange contracts 2 —
—
Total liabilities at fair value $ 7,721
$ 7,346

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 an acquired business based on future revenues.

Long-term notes payable with fixed interest rates have a carrying amount of ~~$300~~$225 million, ~~(including~~including $75 million classified as ~~current)~~current, and an estimated fair value of ~~$325~~$240 million as of ~~September 29, 2017~~June 28, 2019 and ~~$325~~$235 millionas of December ~~30, 2016.~~28, 2018. 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.

11.Recent Accounting Pronouncements

~~A new accounting standard that changed certain aspects~~Leases

Adoption of ~~accounting for share-based payments became effective for~~New Accounting Standard

The Company adopted ASU No. 2016-02— Leases (Topic 842) as of December 29, 2018, the ~~Company in the first quarter~~beginning of 2017. Excess tax benefits on exercised stock options that were previously credited to equity now reduce the current income tax provision. For the quarter, the change in accounting for excess tax benefits decreased the current income tax provision and increased net earnings by $3.2 million, reduced the effective income tax rate by 3 percentage points, and increased diluted earnings per share by $0.06. For theour fiscal year to date, the change in accounting for excess tax benefits decreased the current income tax provision and increased net earnings by $20.5 million, reduced the effective income tax rate by 7 percentage points, and increased diluted earnings per share by $0.36. Under the new standard, excess tax benefits are no longer reclassified out of cash flows from operating activities to financing activities in the Consolidated Statements of Cash Flows. We elected to apply the cash flow presentation requirements retrospectively to all periods presented, which resulted in a year-to-date increase in previously reported net cash provided by operating activities and a decrease in net cash provided by financing activities of $5.5 million for the nine months ended September 23, 2016. Also under the new standard, the Company elected to account for share-based grant forfeitures as they occur. The impact of the change in accounting for forfeitures was not significant, and was reflected in share-based compensation cost in the first quarter.

In May 2014, the Financial Accounting Standards Board (FASB) issued a final standard on revenue from contracts with customers. The new standard sets forth a single comprehensive model for recognizing and reporting revenue. The new standard will become effective for the Company beginning with the first quarter of 2018, and the Company plans to adopt the accounting standard using2019. Using the modified retrospective approach with transition ~~approach. The modified retrospective transition approach will recognize any changes from the beginning~~relief, we recorded operating lease assets and liabilities of ~~the year~~approximately $35 million as of ~~initial application through~~December 29, 2018, and made no adjustments to retained ~~earnings with no restatement of comparative periods.~~

We have established an implementation team and engaged a third-party consultant to assist with our assessment of the impact of the new revenue guidance on our operations, consolidated financial statements and related disclosures. To date, this assessment has included (1) utilizing questionnaires to assist with the identification of our revenue streams, (2) performing contract analyses for each revenue stream identified, (3) assessing the noted differences in recognition and measurement that may result from adopting this new standard, (4) performing detailed analyses of contracts with large customers, and (5) performing transaction level testing (based on our designed test plans) for consistency with contract provisions that affect revenue recognition. Based on the preliminary results of the evaluation, which is still in process, nothing has come to our attention that would indicate that adoptionearnings. Adoption of the new standard ~~will have a material~~did not materially impact on our consolidated ~~financial statements. However, given our acquisition strategy, there may be additional revenue streams acquired prior~~net earnings and cash flows.

Practical Expedients and Exemptions

Electing the package of practical expedients permitted under transition guidance, we did not reassess previous conclusions about whether existing contracts contained a lease, historical lease classification, or initial direct costs. Electing the hindsight practical expedient to determine the ~~adoption date. We currently believe the most significant potential change relates to whether certain project-based revenues will be recognized over time or at a point~~lease term for existing leases did not result in ~~time, although our technical analysis of potential impacts is still on-going. We also anticipate~~any changes to existing lease terms. We elected not to apply recognition requirements to short term leases with terms of twelve months or less across all asset classes. We elected to analyze vehicle assets using the ~~consolidated balance sheet~~portfolio approach. Lastly, we elected as an accounting policy not to separate the lease and non-lease components in the lease payments across all asset classes.

Accounting Policy

The Company owns most of the assets used in its operations, but leases certain buildings and land, vehicles, office equipment and other rental assets. The Company determines if an arrangement is a lease at inception. All of the Company's current lease arrangements are classified as operating leases. The Company historically has not entered into financing leases. Operating lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease expense is recognized by amortizing the amount recorded as an asset on a straight-line basis over the lease term.

In determining lease asset value, the Company considers fixed or variable payment terms, prepayments, incentives, and options to extend, terminate or purchase. Renewal, termination or purchase options affect the lease term used for determining lease asset value only if the option is reasonably certain to be exercised. The Company generally uses its incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments.

As of June 28, 2019, the weighted average remaining lease term was 6.0 years and the weighted average discount rate used to determine the operating lease liability was 4.1%. For the six months ended June 28, 2019, expense related to ~~accounts receivable, contract~~operating leases was $5.8 million, operating lease payments included in operating cash flows totaled $5.7 million and non-cash additions to operating lease assets ~~and contract liabilities.~~totaled $2.0 million.

~~We are in the process~~As of ~~evaluating and designing the necessary changes to our business processes, policies, systems and controls to support recognition and disclosure~~June 28, 2019, future maturities of operating lease liabilities were as follows (in thousands):



	Operating Leases
2019	$	4,755
2020	8,581
2021	6,473
2022	5,320
2023	3,947
2024	1,825
Thereafter	7,507
Total lease payments	$	38,408
Present value adjustment	(4,258		)
Operating lease liabilities	$	34,150

Aggregate annual rental commitments under ~~the new standard. Further, we are continuing to assess what incremental disaggregated revenue disclosures will be required in our consolidated financial statements. The implementation team has~~operating leases with noncancelable terms of more than one year at December 28, 2018 were reported ~~these findings and the progress of the project to the Audit Committee of our Board of Directors.~~under previous lease accounting standards as follows (in thousands):



	Total
2019	$	11,613
2020	8,759
2021	6,745
2022	5,102
2023	3,721
Thereafter	2,340
Total	$	38,280

Credit Losses

In ~~March 2017,~~June 2016, the FASB issued a final standard ~~that changes~~on accounting for credit losses. The new standard is effective for the ~~presentation of net periodic benefit cost related to defined benefit plans.~~Company in fiscal 2020 and requires a change in credit loss calculations using the expected loss method. The Company ~~will adopt~~expects no significant impact on earnings or financial condition from the ~~standard when it becomes effective in fiscal 2018 and it will be applied retrospectively~~adoption of the new standard. The Company is continuing to ~~all periods presented. Under~~evaluate the effects of the new standard ~~net periodic benefit costs are required to be disaggregated between service costs presented as operating expenses~~on related disclosures and other components of pension costs presented as non-operating expenses. The Company currently charges service costs to segment operations and includes other components of pension cost in unallocated corporate operating expenses. Under the new standard, unallocated corporate operating expenses will decrease, operating earnings will increase and other expense will increase by the amount of other (non-service) components of pension cost. There will be no impact on reported segment earnings, net earnings or earnings per share.

accounting systems.

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

Consolidated Results

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 29, 2017		September 23, 2016		% Change		September 29, 2017		September 23, 2016		% Change		June 28, 2019		June 29, 2018		% Change		June 28, 2019		June 29, 2018		% Change
Net Sales	$	379.8	$	327.2	16	%	$	1,099.9	$	980.2	12	%	$	428.3	$	424.6	1	%	$	833.2	$	830.9	0	%
Operating Earnings	99.6		81.5		22	%	284.2		220.8		29	%	112.4		113.4		(1	)%	216.9		225.1		(4	)%
Net Earnings	75.5		54.4		39	%	216.0		144.9		49	%	88.1		89.1		(1	)%	174.9		174.7		0	%
Net Earnings adjusted (1)	66.8		54.4		23	%	190.0		144.9		31	%
Net Earnings, adjusted ⁽¹⁾													85.9		82.7		4	%	166.0		166.8		0	%
Diluted Net Earnings per Common Share	$	1.30	$	0.95	37	%	$	3.73	$	2.55	46	%	$	0.51	$	0.51	0	%	$	1.02	$	1.00	2	%
Diluted Net Earnings per Common Share, adjusted (1)	$	1.15	$	0.95	21	%	$	3.28	$	2.55	29	%	$	0.50	$	0.48	4	%	$	0.97	$	0.96	1	%

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

~~All segments~~Sales increases in the Americas and ~~regions had double-digit~~EMEA were offset by decreases in Asia Pacific. Changes in currency translation rates decreased worldwide sales by approximately $9 million (2 percentage ~~sales growth~~points) for the quarter and ~~year to date. Sales growth and operating expense leverage drove operating earnings increases of 22 percent for the quarter and 29 percent~~$20 million for the year to ~~date.~~date (3 percentage points). Gross margin rates decreased from the comparable periods last year, and operating expenses decreased both in dollars and as a percentage of sales.

~~Adoption~~Excluding the impact of ~~a new~~tax benefits related to stock ~~compensation accounting standard~~option exercises and ~~recognition~~the effects of certain tax planning benefits in 2017 created large fluctuations in net earnings compared to prior periods. Excluding the excess tax benefits on exercised stock options and other tax planning benefits recognized as reductions of income taxes in 2017provision 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
	Sep 29, 2017			Sep 23, 2016			Sep 29, 2017			Sep 23, 2016			June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Earnings before income taxes													$	107.8		$	105.2		$	208.5		$	212.7

Income taxes, as reported	$	20.9		$	22.2		$	57.6		$	62.7		$	19.7		$	16.1		$	33.6		$	38.0
Excess tax benefit from option exercises	3.2			—			20.5			—			2.2			6.4			7.4			7.9
Tax planning benefit	5.5			—			5.5			—
Other non-recurring tax benefit													—			—			1.5			—
Income taxes, adjusted	$	29.6		$	22.2		$	83.6		$	62.7		$	21.9		$	22.5		$	42.5		$	45.9

Effective income tax rate
As reported	22		%	29		%	21		%	30		%	18.2		%	15.3		%	16.1		%	17.9		%
Adjusted	31		%	29		%	31		%	30		%	20.3		%	21.4		%	20.4		%	21.6		%

Net Earnings, as reported	$	75.5		$	54.4		$	216.0		$	144.9		$	88.1		$	89.1		$	174.9		$	174.7
Excess tax benefit from option exercises	(3.2		)	—			(20.5		)	—			(2.2		)	(6.4		)	(7.4		)	(7.9		)
Tax planning benefit	(5.5		)	—			(5.5		)	—
Other non-recurring tax benefit													—			—			(1.5		)	—
Net Earnings, adjusted	$	66.8		$	54.4		$	190.0		$	144.9		$	85.9		$	82.7		$	166.0		$	166.8

Weighted Average Diluted Shares	58.2			57.0			57.9			56.9			172.0			173.3			171.5			174.5
Diluted Earnings per Share
As reported	$	1.30		$	0.95		$	3.73		$	2.55		$	0.51		$	0.51		$	1.02		$	1.00
Adjusted	$	1.15		$	0.95		$	3.28		$	2.55		$	0.50		$	0.48		$	0.97		$	0.96

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 29, 2017		September 23, 2016		September 29, 2017		September 23, 2016		June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Net Sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of products sold	46.4		46.0		46.1		46.6		47.0		45.9		46.8		45.6
Gross Profit	53.6		54.0		53.9		53.4		53.0		54.1		53.2		54.4
Product development	3.9		4.5		4.0		4.6		4.1		3.8		4.1		3.8
Selling, marketing and distribution	15.3		15.1		15.4		16.1		14.1		14.8		14.6		15.1
General and administrative	8.2		9.5		8.7		10.2		8.6		8.8		8.5		8.4
Operating Earnings	26.2		24.9		25.8		22.5		26.2		26.7		26.0		27.1
Interest expense	1.0		1.4		1.1		1.3		0.8		0.9		0.8		0.9
Other expense (income), net	(0.2	)	0.1		(0.1	)	—
Other expense, net									0.2		1.0		0.2		0.6
Earnings Before Income Taxes	25.4		23.4		24.8		21.2		25.2		24.8		25.0		25.6
Income taxes	5.5		6.8		5.2		6.4		4.6		3.8		4.0		4.6
Net Earnings	19.9	%	16.6	%	19.6	%	14.8	%	20.6	%	21.0	%	21.0	%	21.0	%

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 29, 2017		September 23, 2016		September 29, 2017		September 23, 2016		June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Americas⁽¹⁾	$	217.7	$	194.4	$	639.1	$	575.3	$	253.7	$	245.7	$	485.7	$	467.1
EMEA⁽²⁾	86.7		73.6		252.8		229.4		101.1		96.8		200.6		198.2
Asia Pacific	75.4		59.2		208.0		175.5		73.5		82.1		146.9		165.6
Consolidated	$	379.8	$	327.2	$	1,099.9	$	980.2	$	428.3	$	424.6	$	833.2	$	830.9


(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 Ended				Nine Months Ended				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	11%	1%	0%	12%	11%	0%	0%	11%	4%	0%	(1)%	3%	4%	0%	0%	4%
EMEA	14%	0%	4%	18%	12%	0%	(2)%	10%	10%	0%	(6)%	4%	7%	0%	(6)%	1%
Asia Pacific	28%	0%	(1)%	27%	20%	0%	(2)%	18%	(6)%	0%	(4)%	(10)%	(7)%	0%	(4)%	(11)%
Consolidated	15%	0%	1%	16%	13%	0%	(1)%	12%	3%	0%	(2)%	1%	3%	0%	(3)%	0%

Gross Profit

Gross profit margin ~~rate decreased by one-half percentage point~~rates for the quarter and ~~increased one-half percentage point for the year to date. Favorable effects from higher production volume and realized pricing were offset in varying degrees for the quarter and the~~ year to date decreased by 1 percentage point from the ~~unfavorable~~comparable periods last year. Changes in currency translation rates accounted for approximately half of the decrease. Price changes implemented in the first quarter had a stronger impact on second quarter gross margin rate, largely offsetting the adverse impacts of higher material costs, lower factory volume and product and channel mix.

Operating Expenses

Total operating expenses for the quarter ~~increased $9~~and year to date decreased $2 million (9(2 percent) and $1 million (1 percent), respectively, compared to ~~the third quarter~~ last year. ~~More~~Reductions in volume and earnings-based expenses more than ~~half of the increase was from~~offset increases in ~~sales and earnings-based incentives and unallocated corporate operating expense (mostly from market-based stock compensation and pension costs). Year-to-date operating~~product development expenses, which increased ~~$6 million (2 percent). Volume and rate-related increases were partially offset by a $3 million decrease in amortization expense~~8 percent for both the quarter and the ~~impact of currency translation.~~year to date.

Income Taxes

The effective income tax rate for the quarter was 2218 percent, ~~down~~up 3 percentage points from ~~29 percent~~the comparable period last year. The increase was primarily due to a $4 million decrease in excess tax benefits related to stock option exercises. The effective income tax rate for the year to date was 2116 percent, down 2 percentage points from ~~30 percent~~the comparable period last year. ~~Adoption of a new accounting standard, requiring excess~~The decrease was due to additional net benefits from U.S. tax reform provisions and non-recurring benefits related to stock option exercises to be credited to the income tax provision (formerly credited to equity), reduced the tax provision by $3.2 million for the quarter and $20.5 million for the year to date, decreasing the effective tax rate for the quarter and year to date by 3 and 7 percentage points, respectively. The effective tax rates for both the quarter and year to date were further reduced by the impacts offrom other tax planning ~~that will not recur in 2018 and foreign earnings taxed at lower rates than the U.S.~~activities.

Segment Results

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

Industrial Segment

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

(dollars in millions):


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 29, 2017			September 23, 2016			September 29, 2017			September 23, 2016			June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Net Sales
Americas	$	74.9		$	66.8		$	219.8		$	201.3		$	80.7		$	79.3		$	161.6		$	153.5
EMEA	52.1			44.4			146.1			134.2			59.1			56.5			117.2			116.7
Asia Pacific	51.5			39.7			143.8			119.5			48.7			54.7			98.8			115.5
Total	$	178.5		$	150.9		$	509.7		$	455.0		$	188.5		$	190.5		$	377.6		$	385.7
Operating earnings as a percentage of net sales	35		%	34		%	35		%	32		%	34		%	35		%	34		%	35		%

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


	Three Months Ended				Nine Months Ended				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	11%	1%	0%	12%	9%	0%	0%	9%	2%	0%	0%	2%	6%	0%	(1)%	5%
EMEA	13%	0%	5%	18%	10%	0%	(1)%	9%	10%	0%	(5)%	5%	7%	0%	(7)%	0%
Asia Pacific	30%	1%	(1)%	30%	22%	1%	(3)%	20%	(6)%	0%	(5)%	(11)%	(10)%	0%	(4)%	(14)%
Segment Total	17%	0%	1%	18%	12%	1%	(1)%	12%	2%	0%	(3)%	(1)%	1%	0%	(3)%	(2)%

~~Sales increased in all~~For both the quarter and the year to date, Industrial segment ~~product applications. Year-to-date operating margin rate for~~sales growth in the ~~Industrial segment increased 3~~Americas and EMEA was more than offset by decreases in Asia Pacific, where end markets softened. Operating earnings as a percentage ~~points compared to last year. Favorable~~of sales decreased as the favorable effects of ~~higher sales volume~~pricing and expense leverage were ~~partially~~more than offset by the ~~unfavorable effect~~adverse impacts of currency ~~translation.~~translation, higher material costs, lower factory volume and product and channel mix.

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 29, 2017			September 23, 2016			September 29, 2017			September 23, 2016			June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Net Sales
Americas	$	47.9		$	43.0		$	139.1		$	124.3		$	55.1		$	54.8		$	112.2		$	106.1
EMEA	12.4			12.7			41.2			40.1			14.3			14.4			30.1			29.4
Asia Pacific	13.4			11.4			36.8			31.7			15.7			15.9			29.7			29.6
Total	$	73.7		$	67.1		$	217.1		$	196.1		$	85.1		$	85.1		$	172.0		$	165.1
Operating earnings as a percentage of net sales	16		%	15		%	18		%	13		%	22		%	20		%	22		%	21		%

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


	Three Months Ended				Nine Months Ended				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	11%	0%	0%	11%	12%	0%	0%	12%	1%	0%	0%	1%	6%	0%	0%	6%
EMEA	(3)%	0%	1%	(2)%	7%	0%	(4)%	3%	2%	1%	(4)%	(1)%	6%	0%	(4)%	2%
Asia Pacific	17%	0%	0%	17%	17%	0%	(1)%	16%	3%	0%	(4)%	(1)%	4%	0%	(4)%	0%
Segment Total	9%	0%	1%	10%	12%	0%	(1)%	11%	1%	0%	(1)%	0%	6%	0%	(2)%	4%

~~The~~ Process segment ~~had solid~~ sales ~~growth~~for the year to date increased in ~~legacy~~all product applications, ~~partially offset by~~although the ~~effects~~rate of ~~continued weakness~~growth slowed in ~~Oil and Natural Gas. Year-to-date operating~~the second quarter. Gross margin rates were consistent with the comparable periods last year at constant currency translation rates. Operating margin rate for the quarter for this segment ~~increased 5~~improved by 2 percentage points, ~~compared~~driven by lower volume and earnings-based costs. For the year to ~~last year due to~~date, higher sales volume ~~favorable~~and expense leverage ~~and~~led to a ~~decrease~~1 percentage point increase in ~~intangible amortization related to the impairment recorded in the fourth quarter of 2016.~~operating margin rate.

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						Three Months Ended						Six Months Ended
	September 29, 2017			September 23, 2016			September 29, 2017			September 23, 2016			June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Net Sales
Americas	$	94.9		$	84.6		$	280.2		$	249.7		$	118.0		$	111.6		$	211.9		$	207.5
EMEA	22.3			16.5			65.6			55.2			27.7			26.0			53.3			52.2
Asia Pacific	10.5			8.1			27.3			24.3			9.1			11.5			18.4			20.5
Total	$	127.7		$	109.2		$	373.1		$	329.2		$	154.8		$	149.1		$	283.6		$	280.2
Operating earnings as a percentage of net sales	26		%	23		%	25		%	22		%	26		%	26		%	23		%	25		%

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


	Three Months Ended				Nine Months Ended				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	12%	0%	0%	12%	12%	0%	0%	12%	6%	0%	0%	6%	2%	0%	0%	2%
EMEA	29%	0%	5%	34%	20%	0%	(1)%	19%	12%	0%	(5)%	7%	9%	0%	(7)%	2%
Asia Pacific	30%	0%	1%	31%	13%	0%	0%	13%	(17)%	0%	(4)%	(21)%	(5)%	0%	(5)%	(10)%
Segment Total	16%	0%	1%	17%	13%	0%	0%	13%	5%	0%	(1)%	4%	3%	0%	(2)%	1%

Contractor segment sales at consistent currency translation rates increased ~~in all channels.~~by 5 percent, driving year-to-date growth to 3 percent. Operating margin ~~rates~~rate for ~~both~~ the quarter was consistent with the rate for the comparable quarter last year. Reductions in volume and earnings-based costs offset the adverse impacts of currency translation. Operating margin rate for the year to date ~~for the Contractor segment increased 3~~was 2 percentage points ~~compared to~~lower than last year due to changes in currency translation rates, higher ~~sales~~material costs, lower factory volume ~~improved gross margin rate~~ and ~~favorable expense leverage.~~higher factory spending.

Liquidity and Capital Resources

Net cash provided by operating activities totaled $164 million in the first half of ~~$246 million increased $38 million~~2019 compared to $171 million in the ~~first nine months~~comparable period of ~~last year, mostly driven by the increase in net earnings.~~2018. The decrease reflects increased payments related to various accrued liabilities. Increases in accounts receivable ~~inventories~~ and ~~accrued liabilities~~inventories reflect growth in business activity in the ~~first nine~~six months ~~of 2017. The Company used cash of $13 million in 2017 and $49 million in 2016 to acquire businesses that were not material to the consolidated financial statements. Other significant~~ended June 28, 2019. Significant uses of cash in ~~2017~~2019 included ~~share repurchases~~dividend payments of ~~$90 million (partially offset by $43 million of net proceeds from shares issued), cash dividends of $60~~$53 million, property, plant and equipment additions of ~~$29~~$70 million and ~~a contribution~~net payments on credit lines of ~~$20~~$16 million. Proceeds from shares issued in the first half of 2019 totaled $34 million, ~~to a funded pension plan.~~partially offset by $2 million of payments for shares repurchased in 2018 and settled in 2019. Although the Company did not repurchase any shares in the first half of 2019, it may make additional opportunistic purchases going forward.

In 2018, significant uses of cash included share repurchases of $156 million, cash dividends of $45 million, and property, plant and equipment additions of $27 million.

At September 29, 2017, cash balances of $8 million were restricted to funding of certain self-insured loss reserves. Restricted cash is included within other current assets on the Company's consolidated balance sheet.

~~At September 29, 2017,~~June 28, 2019, the Company had various lines of credit totaling ~~$545~~$594 million, of which ~~$540~~$559 million was unused. Internally generated funds and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in ~~2017.~~2019, including its capital expenditure plan (including several building projects to expand production and distribution capacity), planned dividends, share repurchases, and acquisitions. Subsequent to the end of the second quarter of 2019, the Company prepaid $75 million of private placement debt that was due in January, 2020.

Outlook

~~Demand levels remained robust and broad based in~~Given the ~~third quarter. We expect the positive business environment to continue into 2018, however we do note that our fourth quarter represents our most difficult comparable of the year. In addition~~slow start to the ~~strong fourth quarter last~~ year, we ~~also had 14 weeks compared~~lowered our full-year 2019 worldwide outlook to ~~only 13 weeks in this year's fourth quarter. Consequently, we anticipate~~ low single-digit organic sales growth on a constant currency basis. While overall economic conditions are challenging, we continue to pursue our growth instrategies and manage the ~~fourth quarter. With that outlook we have the possibility to achieve double-digit sales growth~~business for the ~~full year 2017.~~long term.

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 ~~2016~~2018 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 materially from those expressed in these statements. The Company undertakes no obligation to update these statements in light of new information or future events.

Future results could differ materially from those expressed due to the impact of changes in various factors. These risk factors include, but are not limited to: our Company’s growth strategies, which include making acquisitions, investing in new products, expanding geographically and targeting new industries; changes in currency translation rates; economic conditions in the United States and other major world economies; the ability to meet our customers’ needs and changes in ~~currency translation rates; changes in laws and regulations; compliance with anti-corruption and trade laws;~~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; ~~the ability to meet our customers’ needs and~~catastrophic events; changes in ~~product demand; supply interruptions~~laws and regulations; compliance with anti-corruption and trade laws; changes in tax rates or ~~delays; security breaches;~~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 as well as indemnification claims under~~business; our ~~asset purchase agreement with Carlisle Companies Incorporated, Carlisle Fluid Technologies, Inc.,~~ability to attract, develop and ~~Finishing Brands Holdings Inc.;~~retain qualified personnel; the possibility of decline in purchases from a few large customers of the Contractor segment; and variations in activity in the construction, automotive, mining and oil and natural gas ~~industries; our ability to attract, develop and retain qualified personnel; and catastrophic events.~~industries. Please refer to Item 1A of our Annual Report on Form 10-K for fiscal year ~~2016~~2018 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 ~~2016~~2018 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 ~~the Vice President, Controller and Information Systems, and the Vice President, General Counsel and Secretary. Based upon that evaluation, they~~ concluded that the Company’s disclosure controls and procedures are effective.

Changes in internal controls

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

PART IIOTHER INFORMATION

Item 1A.Risk Factors

There have been no material changes to the Company’s risk factors from those disclosed in the Company’s ~~2016~~2018 Annual Report on Form 10-K.

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 ~~6,000,000~~18,000,000 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 ~~authorization is~~authorizations are for an indefinite period of time or until terminated by the Board.

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

~~Information on issuer purchases~~No shares were purchased in the second quarter 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)
Jul 1, 2017 - Jul 28, 2017 (1) 31,499
$ 102.10
—
2,935,868
Jul 29, 2017 - Aug 25, 2017 —
$ —
—
2,935,868
Aug 26, 2017 - Sep 29, 2017 —
$ —
—
2,935,868
2019. As of June 28, 2019, there were 21,002,528 shares that may yet be purchased under the Board authorizations.

(1) On February 21, 2017, the Company entered into an accelerated share repurchase arrangement (“ASR”) with a financial institution. In exchange for an up-front payment of $90 million, the financial institution delivered 850,000 shares of Company common stock with a fair value of $78 million. The total number of shares ultimately delivered under the ASR is determined at the end of the purchase period based on the volume weighted-average price (“VWAP”) of the Company’s common stock during that period. The purchase period ended in the third quarter and the Company received an additional 31,499 shares to complete the ASR at an average realized price of $102.10 per share.

Item 6.Exhibits



3.1			Restated Articles of Incorporation as amended December ~~9, 2016.~~ 8, 2017. ((Incorporated by reference to Exhibit 3.1 to the ~~Company’s~~Company's Report on Form 8-K filed December ~~9, 2016.~~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.)

10.1			Graco Inc. 2019 Stock Incentive Plan. (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A filed March 13, 2019.)

~~31.1~~10.2			Stock Option Agreement. Form of agreement used for award of non-incentive stock options to nonemployee directors under the Graco Inc. 2019 Stock Incentive Plan in 2019.

10.3			Nonemployee Director Stock and Deferred Stock Program (2019 Restatement).

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 25, 2017.~~July 24, 2019.

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

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 25, 2017~~July 24, 2019	By:	/s/ Patrick J. McHale
			Patrick J. McHale
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	~~October 25, 2017~~July 24, 2019	By:	/s/ ~~Christian E. Rothe~~Mark W. Sheahan
			~~Christian E. Rothe~~Mark W. Sheahan
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)

Date:	~~October 25, 2017~~July 24, 2019	By:	/s/ Caroline M. Chambers
			Caroline M. Chambers
			Executive Vice President, Corporate Controller and Information Systems
			(Principal Accounting Officer)



Balance, June 30, 2017	$	(74,125	)	$	(48,455	)	$	(122,580	)
Other comprehensive income (loss) before reclassifications	—			574			574
Amounts reclassified from accumulated other comprehensive income	1,453			—			1,453
Balance, September 29, 2017	$	(72,672	)	$	(47,881	)	$	(120,553	)



Balance, December 25, 2015	$	(69,922	)	$	(34,575	)	$	(104,497	)
Other comprehensive income (loss) before reclassifications	—			(16,679		)	(16,679		)
Amounts reclassified from accumulated other comprehensive income	3,134			—			3,134
Balance, September 23, 2016	$	(66,788	)	$	(51,254	)	$	(118,042	)



Balance, December 30, 2016	$	(76,426	)	$	(65,802	)	$	(142,228	)
Other comprehensive income (loss) before reclassifications	—			17,921			17,921
Amounts reclassified from accumulated other comprehensive income	3,754			—			3,754
Balance, September 29, 2017	$	(72,672	)	$	(47,881	)	$	(120,553	)



	2017		2018		2019		2020		2021		Thereafter
Estimated Amortization Expense	$	14,834	$	14,959	$	14,630	$	14,448	$	14,279	$	64,311



Balance, December 30, 2016	$	8,934
Charged to expense	5,708
Margin on parts sales reversed	1,977
Reductions for claims settled	(6,743		)
Balance, September 29, 2017	$	9,876



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)
Jul 1, 2017 - Jul 28, 2017 (1)	31,499	$	102.10	—	2,935,868
Jul 29, 2017 - Aug 25, 2017	—	$	—	—	2,935,868
Aug 26, 2017 - Sep 29, 2017	—	$	—	—	2,935,868