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 ~~June 25, 2021~~July 1, 2022

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

For the transition period from to

Commission File Number: 001-09249


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


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


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


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

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


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

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

Yes

☒

☐

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

Yes

☒

☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes

☐

☒

~~169,741,603~~169,115,561 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of July 14, ~~2021.~~2022.

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Earnings

Consolidated Statements of Comprehensive Income

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders' Equity

Notes to Consolidated Financial Statements

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2122

Item 4.

Controls and Procedures

2122

PART II - OTHER INFORMATION

Item 1A.

Risk Factors

2123

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.

EXHIBITS

PART I Item 1.

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited) (In thousands except per share amounts)


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		June 25, 2021		June 26, 2020		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net Sales	Net Sales	$	507,164	$	366,892	$	961,293	$	740,459	Net Sales	$	548,547	$	507,164	$	1,042,832	$	961,293
Cost of products sold	Cost of products sold	243,340		184,363		450,135		359,299		Cost of products sold	279,487		243,340		519,297		450,135
Gross Profit	Gross Profit	263,824		182,529		511,158		381,160		Gross Profit	269,060		263,824		523,535		511,158
Product development	Product development	21,406		17,948		40,977		35,029		Product development	19,967		21,406		39,045		40,977
Selling, marketing and distribution	Selling, marketing and distribution	69,126		48,831		131,354		106,219		Selling, marketing and distribution	62,076		69,126		125,071		131,354
General and administrative	General and administrative	39,449		36,015		76,698		70,365		General and administrative	38,337		39,449		82,376		76,698
Impairment		0		34,962		0		34,962

Operating Earnings	Operating Earnings	133,843		44,773		262,129		134,585		Operating Earnings	148,680		133,843		277,043		262,129

Interest expense	Interest expense	2,528		3,258		4,956		5,744		Interest expense	1,726		2,528		7,013		4,956

Other expense, net	Other expense, net	(434)		(510)		(313)		4,713		Other expense, net	607		(434)		760		(313)
Earnings Before Income Taxes	Earnings Before Income Taxes	131,749		42,025		257,486		124,128		Earnings Before Income Taxes	146,347		131,749		269,270		257,486
Income taxes	Income taxes	21,631		13,193		41,681		22,478		Income taxes	28,969		21,631		51,049		41,681
Net Earnings	Net Earnings	$	110,118	$	28,832	$	215,805	$	101,650	Net Earnings	$	117,378	$	110,118	$	218,221	$	215,805
Net Earnings per Common Share	Net Earnings per Common Share									Net Earnings per Common Share
Basic	Basic	$	0.65	$	0.17	$	1.27	$	0.61	Basic	$	0.69	$	0.65	$	1.29	$	1.27
Diluted	Diluted	$	0.63	$	0.17	$	1.24	$	0.59	Diluted	$	0.68	$	0.63	$	1.26	$	1.24

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands)


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		June 25, 2021		June 26, 2020		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net Earnings	Net Earnings	$	110,118	$	28,832	$	215,805	$	101,650	Net Earnings	$	117,378	$	110,118	$	218,221	$	215,805
Components of other comprehensive income (loss)	Components of other comprehensive income (loss)									Components of other comprehensive income (loss)
Cumulative translation adjustment	Cumulative translation adjustment	5,693		6,756		(4,777)		2,079		Cumulative translation adjustment	(13,532)		5,693		(16,492)		(4,777)
Pension and postretirement medical liability adjustment	Pension and postretirement medical liability adjustment	2,373		2,446		5,681		5,195		Pension and postretirement medical liability adjustment	1,368		2,373		2,262		5,681
Income taxes - pension and postretirement medical liability adjustment	Income taxes - pension and postretirement medical liability adjustment	(535)		(554)		(1,207)		(1,169)		Income taxes - pension and postretirement medical liability adjustment	(320)		(535)		(514)		(1,207)
Other comprehensive income (loss)	Other comprehensive income (loss)	7,531		8,648		(303)		6,105		Other comprehensive income (loss)	(12,484)		7,531		(14,744)		(303)
Comprehensive Income	Comprehensive Income	$	117,649	$	37,480	$	215,502	$	107,755	Comprehensive Income	$	104,894	$	117,649	$	203,477	$	215,502

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands)


		June 25, 2021		December 25, 2020			July 1, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	482,787	$	378,909	Cash and cash equivalents	$	413,359	$	624,302
Accounts receivable, less allowances of $4,400 and $4,400		354,222		314,946
Accounts receivable, less allowances of $6,600 and $3,900						Accounts receivable, less allowances of $6,600 and $3,900	373,141		325,132
Inventories	Inventories	337,525		285,704		Inventories	450,974		382,301
Other current assets	Other current assets	29,418		44,242		Other current assets	39,002		31,886
Total current assets	Total current assets	1,203,952		1,023,801		Total current assets	1,276,476		1,363,621

Property, Plant and Equipment, net	Property, Plant and Equipment, net	387,906		350,750		Property, Plant and Equipment, net	516,156		451,061
Goodwill	Goodwill	358,449		347,603		Goodwill	365,491		356,255
Other Intangible Assets, net	Other Intangible Assets, net	159,861		160,669		Other Intangible Assets, net	145,201		149,740
Operating Lease Assets	Operating Lease Assets	38,931		37,807		Operating Lease Assets	31,055		30,046
Deferred Income Taxes	Deferred Income Taxes	33,949		25,828		Deferred Income Taxes	37,137		55,786
Other Assets	Other Assets	46,157		41,670		Other Assets	32,762		36,689
Total Assets	Total Assets	$	2,229,205	$	1,988,128	Total Assets	$	2,404,278	$	2,443,198
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Notes payable to banks	Notes payable to banks	$	13,130	$	22,183	Notes payable to banks	$	55,522	$	43,489

Current portion of long term debt						Current portion of long term debt	—		75,000
Trade accounts payable	Trade accounts payable	76,074		58,305		Trade accounts payable	85,452		78,432
Salaries and incentives	Salaries and incentives	61,478		52,005		Salaries and incentives	53,198		82,941
Dividends payable	Dividends payable	31,893		31,636		Dividends payable	35,794		35,771
Other current liabilities	Other current liabilities	176,149		157,260		Other current liabilities	194,092		191,159
Total current liabilities	Total current liabilities	358,724		321,389		Total current liabilities	424,058		506,792
Long-term Debt	Long-term Debt	150,000		150,000		Long-term Debt	75,000		75,000
Retirement Benefits and Deferred Compensation	Retirement Benefits and Deferred Compensation	184,973		184,747		Retirement Benefits and Deferred Compensation	103,341		106,897
Operating Lease Liabilities	Operating Lease Liabilities	31,639		29,224		Operating Lease Liabilities	23,112		23,527
Deferred Income Taxes	Deferred Income Taxes	11,568		10,264		Deferred Income Taxes	9,273		10,661
Other Non-current Liabilities	Other Non-current Liabilities	11,038		8,600		Other Non-current Liabilities	12,220		10,978

Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Common stock	Common stock	169,667		168,568		Common stock	169,114		170,308
Additional paid-in-capital	Additional paid-in-capital	715,635		671,206		Additional paid-in-capital	770,209		742,288
Retained earnings	Retained earnings	720,429		568,295		Retained earnings	912,864		876,916
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(124,468)		(124,165)		Accumulated other comprehensive income (loss)	(94,913)		(80,169)
Total shareholders’ equity	Total shareholders’ equity	1,481,263		1,283,904		Total shareholders’ equity	1,757,274		1,709,343
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	2,229,205	$	1,988,128	Total Liabilities and Shareholders’ Equity	$	2,404,278	$	2,443,198

See notes to consolidated financial statements.

Table of Contents

GRACO INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)


		Six Months Ended					Six Months Ended
		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net Earnings	Net Earnings	$	215,805	$	101,650	Net Earnings	$	218,221	$	215,805
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	29,812		26,966		Depreciation and amortization	31,453		29,812
Deferred income taxes	Deferred income taxes	(10,313)		1,366		Deferred income taxes	14,743		(10,313)
Share-based compensation	Share-based compensation	13,745		15,445		Share-based compensation	14,386		13,745
Impairment		0		34,962

Change in	Change in					Change in
Accounts receivable	Accounts receivable	(38,747)		(19,705)		Accounts receivable	(56,263)		(38,747)
Inventories	Inventories	(51,359)		(22,662)		Inventories	(70,879)		(51,359)
Trade accounts payable	Trade accounts payable	14,496		342		Trade accounts payable	8,369		14,496
Salaries and incentives	Salaries and incentives	8,334		(16,677)		Salaries and incentives	(29,201)		8,334
Retirement benefits and deferred compensation	Retirement benefits and deferred compensation	5,980		6,134		Retirement benefits and deferred compensation	349		5,980
Other accrued liabilities	Other accrued liabilities	32,399		12,578		Other accrued liabilities	(386)		32,399
Other	Other	(105)		2,151		Other	4,193		(105)
Net cash provided by operating activities	Net cash provided by operating activities	220,047		142,550		Net cash provided by operating activities	134,985		220,047
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	(54,759)		(32,613)		Property, plant and equipment additions	(88,861)		(54,759)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(19,322)		(27,173)		Acquisition of businesses, net of cash acquired	(25,296)		(19,322)
Other	Other	(112)		(245)		Other	(397)		(112)
Net cash used in investing activities	Net cash used in investing activities	(74,193)		(60,031)		Net cash used in investing activities	(114,554)		(74,193)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Borrowings (payments) on short-term lines of credit, net		(9,282)		(768)
Borrowings on long-term lines of credit		0		250,000
Payments on long-term debt and lines of credit		(70)		0
Borrowings on short-term lines of credit, net						Borrowings on short-term lines of credit, net	13,830		(9,282)

Payments on long-term debt						Payments on long-term debt	(75,000)		(70)
Payments of debt issuance costs	Payments of debt issuance costs	(1,422)		0		Payments of debt issuance costs	—		(1,422)
Common stock issued	Common stock issued	33,216		42,217		Common stock issued	23,410		33,216
Common stock repurchased	Common stock repurchased	0		(102,143)		Common stock repurchased	(120,021)		—
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	0		(1,796)		Taxes paid related to net share settlement of equity awards	(1,219)		—
Cash dividends paid	Cash dividends paid	(63,414)		(58,490)		Cash dividends paid	(71,341)		(63,414)
Net cash provided by financing activities		(40,972)		129,020
Net cash used in financing activities						Net cash used in financing activities	(230,341)		(40,972)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(1,004)		196		Effect of exchange rate changes on cash	(1,033)		(1,004)
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	103,878		211,735		Net increase in cash and cash equivalents	(210,943)		103,878
Cash and Cash Equivalents	Cash and Cash Equivalents					Cash and Cash Equivalents
Beginning of year	Beginning of year	378,909		220,973		Beginning of year	624,302		378,909
End of period	End of period	$	482,787	$	432,708	End of period	$	413,359	$	482,787

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 June 25, 2021
Balance, March 26, 2021		$	169,413	$	702,829	$	642,259	$	(131,999)	$	1,382,502
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	254		8,838		0		0		9,092		Shares issued	70		2,047		0		0		2,117

Shares repurchased												Shares repurchased	(179)		(777)		(10,360)		0		(11,316)
Stock compensation cost	Stock compensation cost	0		6,304		0		0		6,304		Stock compensation cost	0		6,980		0		0		6,980

Restricted stock canceled (issued)	Restricted stock canceled (issued)	0		(2,336)		0		0		(2,336)		Restricted stock canceled (issued)	0		—		0		0		—
Net earnings	Net earnings	0		0		110,118		0		110,118		Net earnings	0		0		117,378		0		117,378
Dividends declared ($0.188 per share)		0		0		(31,948)		0		(31,948)
Dividends declared ($0.210 per share)												Dividends declared ($0.210 per share)	0		0		(35,657)		0		(35,657)

Other comprehensive income (loss)	Other comprehensive income (loss)	0		0		0		7,531		7,531		Other comprehensive income (loss)	0		0		0		(12,484)		(12,484)
Balance, June 25, 2021		$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263
Balance, July 1, 2022												Balance, July 1, 2022	$	169,114	$	770,209	$	912,864	$	(94,913)	$	1,757,274



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

Shares issued	507		21,685			0		0		22,192
Shares repurchased	(1,701)		(7,412)			(110,908)		0		(120,021)
Stock compensation cost	0		13,649		0	0		0		13,649

Restricted stock canceled (issued)	0		(1)			0		0		(1)
Net earnings	0		0			218,221		0		218,221
Dividends declared ($0.420 per share)	0		0			(71,365)		0		(71,365)

Other comprehensive income (loss)	0		0			0		(14,744)		(14,744)
Balance, July 1, 2022	$	169,114	$	770,209		$	912,864	$	(94,913)	$	1,757,274


Six Months Ended June 25, 2021
Balance, December 25, 2020		$	168,568	$	671,206	$	568,295	$	(124,165)	$	1,283,904
Three Months Ended June 25, 2021												Three Months Ended June 25, 2021
Balance, March 26, 2021												Balance, March 26, 2021	$	169,413	$	702,829	$	642,259	$	(131,999)	$	1,382,502

Shares issued	Shares issued	1,099		34,453		0		0		35,552		Shares issued	254		8,838		—		—		9,092

Stock compensation cost	Stock compensation cost	0		12,312		0		0		12,312		Stock compensation cost	—		6,304		—		—		6,304

Restricted stock canceled (issued)	Restricted stock canceled (issued)	0		(2,336)		0		0		(2,336)		Restricted stock canceled (issued)	—		(2,336)		—		—		(2,336)
Net earnings	Net earnings	0		0		215,805		0		215,805		Net earnings	—		—		110,118		—		110,118
Dividends declared ($0.375 per share)		0		0		(63,671)		0		(63,671)
Dividends declared ($0.188 per share)												Dividends declared ($0.188 per share)	—		—		(31,948)		—		(31,948)

Other comprehensive income (loss)	Other comprehensive income (loss)	0		0		0		(303)		(303)		Other comprehensive income (loss)	—		—		—		7,531		7,531
Balance, June 25, 2021	Balance, June 25, 2021	$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263	Balance, June 25, 2021	$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263

Three Months Ended June 26, 2020
Balance, March 27, 2020 $ 166,840 $ 612,698 $ 411,450 $ (172,330) $ 1,018,658
Shares issued 113 3,951 0 0 4,064
Shares repurchased (260) (904) (10,950) 0 (12,114)
Stock compensation cost 0 8,058 0 0 8,058
Net earnings 0 0 28,832 0 28,832
Dividends declared ($0.175 per share) 0 0 (29,178) 0 (29,178)
Other comprehensive income (loss) 0 0 0 8,648 8,648
Balance, June 26, 2020 $ 166,693 $ 623,803 $ 400,154 $ (163,682) $ 1,026,968

Six Months Ended June 26, 2020
Balance, December 27, 2019 $ 167,287 $ 578,440 $ 448,991 $ (169,787) $ 1,024,931
Shares issued 1,733 39,418 0 0 41,151
Shares repurchased (2,327) (8,047) (91,769) 0 (102,143)
Stock compensation cost 0 13,992 0 0 13,992
Net earnings 0 0 101,650 0 101,650
Dividends declared ($0.350 per share) 0 0 (58,718) 0 (58,718)
Other comprehensive income (loss) 0 0 0 6,105 6,105
Balance, June 26, 2020 $ 166,693 $ 623,803 $ 400,154 $ (163,682) $ 1,026,968



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

Shares issued	1,099		34,453		—		—		35,552

Stock compensation cost	—		12,312		—		—		12,312

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

Other comprehensive income (loss)	—		—		—		(303)		(303)
Balance, June 25, 2021	$	169,667	$	715,635	$	720,429	$	(124,468)	$	1,481,263

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 ~~June 25, 2021~~July 1, 2022 and the related statements of earnings, comprehensive income and shareholders' equity for the three and six months ended July 1, 2022 and June 25, 2021, ~~and June 26, 2020,~~ and cash flows for the six months ended July 1, 2022 and June 25, 2021 ~~and June 26, 2020~~ have been prepared by the Company and have not been audited.

In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of ~~June 25, 2021,~~July 1, 2022, and the results of operations and cash flows for all periods presented.

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

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

2.Segment Information

Effective January 1, 2022, our high performance coatings and foam product offerings previously included within the Applied Fluid Technologies division of the Industrial segment were realigned and are now managed under the Contractor segment. This change aligns the types of products offered and markets served within the segments. Prior year segment information has been restated to conform to the current organizational structure.

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

Three Months Ended Six Months Ended
June 25,
2021 June 26,
2020 June 25,
2021 June 26,
2020
Net Sales
Industrial $ 204,577 $ 133,287 $ 389,309 $ 291,971
Process 97,233 77,759 188,606 163,837
Contractor 205,354 155,846 383,378 284,651
Total $ 507,164 $ 366,892 $ 961,293 $ 740,459
Operating Earnings
Industrial $ 69,368 $ 37,001 $ 134,611 $ 87,234
Process 21,676 11,672 43,409 29,783
Contractor 49,997 41,109 98,163 69,739
Unallocated corporate (expense) (7,198) (10,047) (14,054) (17,209)
Impairment 0 (34,962) 0 (34,962)
Total $ 133,843 $ 44,773 $ 262,129 $ 134,585

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


		June 25, 2021		December 25, 2020			Three Months Ended				Six Months Ended
							July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net Sales						Net Sales
Industrial	Industrial	$	689,675	$	632,165	Industrial	$	158,325	$	144,448	$	302,994	$	274,312
Process	Process	418,473		404,370		Process	124,483		97,232		239,507		188,605
Contractor	Contractor	491,189		438,067		Contractor	265,739		265,484		500,331		498,376
Unallocated corporate		629,868		513,526
Total	Total	$	2,229,205	$	1,988,128	Total	$	548,547	$	507,164	$	1,042,832	$	961,293
Operating Earnings						Operating Earnings
Industrial						Industrial	$	55,201	$	45,709	$	107,831	$	88,067
Process						Process	31,057		21,676		58,545		43,409
Contractor						Contractor	68,244		73,656		127,191		144,707
Unallocated corporate (expense)						Unallocated corporate (expense)	(5,822)		(7,198)		(16,524)		(14,054)

Total						Total	$	148,680	$	133,843	$	277,043	$	262,129

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Assets by segment were as follows (in thousands):


	July 1, 2022		December 31, 2021
Industrial	$	604,654	$	601,843
Process	517,098		436,203
Contractor	658,361		599,726
Unallocated corporate	624,165		805,426
Total	$	2,404,278	$	2,443,198

Geographic information follows (in thousands):


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		June 25, 2021		June 26, 2020		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net Sales (based on customer location)	Net Sales (based on customer location)									Net Sales (based on customer location)
United States	United States	$	263,722	$	205,789	$	495,223	$	404,032	United States	$	296,009	$	263,722	$	551,091	$	495,223
Other countries	Other countries	243,442		161,103		466,070		336,427		Other countries	252,538		243,442		491,741		466,070
Total	Total	$	507,164	$	366,892	$	961,293	$	740,459	Total	$	548,547	$	507,164	$	1,042,832	$	961,293

June 25,
2021 December 25,
2020
Long-lived Assets
United States $ 326,395 $ 301,643
Other countries 61,511 49,107
Total $ 387,906 $ 350,750


	July 1, 2022		December 31, 2021
Long-lived Assets
United States	$	456,238	$	388,835
Other countries	59,918		62,226
Total	$	516,156	$	451,061

3.Earnings per Share

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


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		June 25, 2021		June 26, 2020		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net earnings available to common shareholders	Net earnings available to common shareholders	$	110,118	$	28,832	$	215,805	$	101,650	Net earnings available to common shareholders	$	117,378	$	110,118	$	218,221	$	215,805
Weighted average shares outstanding for basic earnings per share	Weighted average shares outstanding for basic earnings per share	169,594		166,663		169,271		167,320		Weighted average shares outstanding for basic earnings per share	169,128		169,594		169,469		169,271
Dilutive effect of stock options computed using the treasury stock method and the average market price	Dilutive effect of stock options computed using the treasury stock method and the average market price	4,978		3,886		4,939		4,276		Dilutive effect of stock options computed using the treasury stock method and the average market price	3,570		4,978		4,219		4,939
Weighted average shares outstanding for diluted earnings per share	Weighted average shares outstanding for diluted earnings per share	174,572		170,549		174,210		171,596		Weighted average shares outstanding for diluted earnings per share	172,698		174,572		173,688		174,210
Basic earnings per share	Basic earnings per share	$	0.65	$	0.17	$	1.27	$	0.61	Basic earnings per share	$	0.69	$	0.65	$	1.29	$	1.27
Diluted earnings per share	Diluted earnings per share	$	0.63	$	0.17	$	1.24	$	0.59	Diluted earnings per share	$	0.68	$	0.63	$	1.26	$	1.24

Stock options to purchase ~~737,000~~1,632,000 and ~~2,530,000~~737,000 shares were not included in the July 1, 2022 and June 25, 2021 ~~and June 26, 2020~~ computations of diluted earnings per share, respectively, because they would have been anti-dilutive.

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4.Share-Based Awards

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


		Option Shares	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price			Option Shares	Weighted Average Exercise Price		Options Exercisable	Weighted Average Exercise Price
Outstanding, December 25, 2020		10,208	$	35.02	6,553	$	28.02
Outstanding, December 31, 2021								Outstanding, December 31, 2021	9,575	$	39.31	7,296	$	33.75
Granted	Granted	841	72.21					Granted	831	71.73
Exercised	Exercised	(674)	22.69					Exercised	(228)	24.62
Canceled	Canceled	(14)	43.06					Canceled	(24)	43.75
Outstanding, June 25, 2021		10,361	$	38.84	7,196	$	31.31
Outstanding, July 1, 2022								Outstanding, July 1, 2022	10,154	$	42.29	7,809	$	36.06

The Company recognized year-to-date share-based compensation of $12.9 million in 2022 and $13.7 million in ~~2021 and $15.4 million in 2020.~~2021. As of ~~June 25, 2021,~~July 1, 2022, there was ~~$17.9~~$14.9 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 3.0 years.

~~Table of Contents~~

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							Six Months Ended
		June 25, 2021			June 26, 2020				July 1, 2022			June 25, 2021
Expected life in years	Expected life in years	7.5			7.5			Expected life in years	7.3			7.5
Interest rate	Interest rate	1.2		%	1.5		%	Interest rate	1.9		%	1.2		%
Volatility	Volatility	25.3		%	22.0		%	Volatility	25.5		%	25.3		%
Dividend yield	Dividend yield	1.0		%	1.3		%	Dividend yield	1.2		%	1.0		%
Weighted average fair value per share	Weighted average fair value per share	$	18.91		$	12.18		Weighted average fair value per share	$	19.06		$	18.91

Under the Company’s Employee Stock Purchase Plan, the Company issued 319,000 shares in 2022 and 416,000 shares in ~~2021 and 400,000 shares in 2020.~~2021. The fair value of the employees’ purchase rights under this Plan was estimated on the date of grant. The benefit of the 15 percent discount from the lesser of the fair market value per common share on the first day and the last day of the plan year was added to the fair value of the employees’ purchase rights determined using the Black-Scholes option-pricing model with the following assumptions and results:


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

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5.Retirement Benefits

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


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		June 25, 2021		June 26, 2020		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Pension Benefits	Pension Benefits									Pension Benefits
Service cost	Service cost	$	2,724	$	2,193	$	5,445	$	4,615	Service cost	$	1,964	$	2,724	$	4,134	$	5,445
Interest cost	Interest cost	2,976		3,227		5,957		6,634		Interest cost	2,766		2,976		5,504		5,957
Expected return on assets	Expected return on assets	(5,131)		(4,651)		(10,261)		(9,401)		Expected return on assets	(4,777)		(5,131)		(9,579)		(10,261)
Amortization and other	Amortization and other	2,555		2,517		5,106		5,238		Amortization and other	1,419		2,555		2,495		5,106
Net periodic benefit cost	Net periodic benefit cost	$	3,124	$	3,286	$	6,247	$	7,086	Net periodic benefit cost	$	1,372	$	3,124	$	2,554	$	6,247
Postretirement Medical	Postretirement Medical									Postretirement Medical
Service cost	Service cost	$	175	$	130	$	350	$	305	Service cost	$	83	$	175	$	258	$	350
Interest cost	Interest cost	250		260		500		508		Interest cost	195		250		420		500
Amortization	Amortization	250		190		500		367		Amortization	(2)		250		173		500
Net periodic benefit cost	Net periodic benefit cost	$	675	$	580	$	1,350	$	1,180	Net periodic benefit cost	$	276	$	675	$	851	$	1,350

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6.Shareholders’ Equity

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

Pension and
Postretirement
Medical Cumulative
Translation
Adjustment Total
Three Months Ended June 25, 2021
Balance, March 26, 2021 $ (111,493) $ (20,506) $ (131,999)
Other comprehensive income (loss) before reclassifications 0 5,693 5,693
Reclassified to pension cost and deferred tax 1,838 0 1,838
Balance, June 25, 2021 $ (109,655) $ (14,813) $ (124,468)


	Pension and Postretirement Medical		Cumulative Translation Adjustment		Total
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)

Six Months Ended June 25, 2021
Balance, December 25, 2020 $ (114,129) $ (10,036) $ (124,165)
Other comprehensive income (loss) before reclassifications 0 (4,777) (4,777)
Reclassified to pension cost and deferred tax 4,474 0 4,474
Balance, June 25, 2021 $ (109,655) $ (14,813) $ (124,468)



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)

Three Months Ended June 26, 2020
Balance, March 27, 2020 $ (111,587) $ (60,743) $ (172,330)
Other comprehensive income (loss) before reclassifications 0 6,756 6,756
Reclassified to pension cost and deferred tax 1,892 0 1,892
Balance, June 26, 2020 $ (109,695) $ (53,987) $ (163,682)



Three Months Ended June 25, 2021
Balance, March 26, 2021	$	(111,493)	$	(20,506)	$	(131,999)
Other comprehensive income (loss) before reclassifications	—		5,693		5,693
Reclassified to pension cost and deferred tax	1,838		—		1,838

Balance, June 25, 2021	$	(109,655)	$	(14,813)	$	(124,468)

Six Months Ended June 26, 2020
Balance, December 27, 2019 $ (113,721) $ (56,066) $ (169,787)
Other comprehensive income (loss) before reclassifications 0 2,079 2,079
Reclassified to pension cost and deferred tax 4,026 0 4,026
Balance, June 26, 2020 $ (109,695) $ (53,987) $ (163,682)



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

Balance, June 25, 2021	$	(109,655)	$	(14,813)	$	(124,468)

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

7.Receivables and Credit Losses

Accounts receivable includes trade receivables of ~~$333~~$361 million and other receivables of ~~$21~~$12 million as of ~~June 25, 2021~~July 1, 2022 and ~~$302~~$315 million and ~~$13~~$10 million, respectively, as of December ~~25, 2020.~~31, 2021.

Allowance for Credit Losses

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

~~Table of Contents~~


		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021
Balance, beginning	Balance, beginning	$	3,745	$	4,828	Balance, beginning	$	3,254	$	3,745
Additions (reversals) charged to costs and expenses	Additions (reversals) charged to costs and expenses	265		631		Additions (reversals) charged to costs and expenses	3,246		265
Deductions from reserves (1)	Deductions from reserves (1)	(495)		(291)		Deductions from reserves (1)	(575)		(495)
Other additions (deductions) (2)	Other additions (deductions) (2)	(4)		(9)		Other additions (deductions) (2)	(236)		(4)
Balance, ending	Balance, ending	$	3,511	$	5,159	Balance, ending	$	5,688	$	3,511

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

(2) Includes ~~amounts assumed or established in connection with acquisitions and~~ effects of foreign currency translation.

8.Inventories

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


		June 25, 2021		December 25, 2020			July 1, 2022		December 31, 2021
Finished products and components	Finished products and components	$	153,876	$	133,122	Finished products and components	$	197,042	$	166,922
Products and components in various stages of completion	Products and components in various stages of completion	95,695		83,791		Products and components in various stages of completion	137,268		117,063
Raw materials and purchased components	Raw materials and purchased components	152,657		129,319		Raw materials and purchased components	221,746		185,291
Subtotal	Subtotal	402,228		346,232		Subtotal	556,056		469,276
Reduction to LIFO cost	Reduction to LIFO cost	(64,703)		(60,528)		Reduction to LIFO cost	(105,082)		(86,975)
Total	Total	$	337,525	$	285,704	Total	$	450,974	$	382,301

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9.Intangible Assets

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


		Finite Life						Indefinite Life					Finite Life						Indefinite Life
		Customer Relationships		Patents and Proprietary Technology		Trademarks, Trade Names and Other		Trade Names		Total			Customer Relationships		Patents and Proprietary Technology		Trademarks, Trade Names and Other		Trade Names		Total
As of June 25, 2021
As of July 1, 2022												As of July 1, 2022
Cost	Cost	$	194,505	$	26,074	$	900	$	62,633	$	284,112	Cost	$	202,903	$	26,974	$	1,700	$	62,633	$	294,210
Accumulated amortization	Accumulated amortization	(101,173)		(14,312)		(376)		—		(115,861)		Accumulated amortization	(116,312)		(17,176)		(581)		—		(134,069)
Foreign currency translation	Foreign currency translation	(6,757)		(603)		0		(1,030)		(8,390)		Foreign currency translation	(10,815)		(930)		—		(3,195)		(14,940)
Book value	Book value	$	86,575	$	11,159	$	524	$	61,603	$	159,861	Book value	$	75,776	$	8,868	$	1,119	$	59,438	$	145,201
Weighted average life in years	Weighted average life in years	13		10		5		N/A				Weighted average life in years	13		9		5		N/A


As of December 25, 2020
As of December 31, 2021												As of December 31, 2021
Cost	Cost	$	186,073	$	25,187	$	900	$	61,920	$	274,080	Cost	$	194,505	$	26,074	$	900	$	62,633	$	284,112
Accumulated amortization	Accumulated amortization	(93,832)		(12,924)		(301)		—		(107,057)		Accumulated amortization	(108,657)		(15,734)		(452)		—		(124,843)
Foreign currency translation	Foreign currency translation	(6,004)		(538)		0		188		(6,354)		Foreign currency translation	(7,710)		(707)		—		(1,112)		(9,529)
Book value	Book value	$	86,237	$	11,725	$	599	$	62,108	$	160,669	Book value	$	78,138	$	9,633	$	448	$	61,521	$	149,740
Weighted average life in years	Weighted average life in years	13		10		5		N/A				Weighted average life in years	13		10		5		N/A

~~Table of Contents~~

Amortization of intangibles for the quarter was $4.6 million in ~~2021~~2022 and ~~$4.1~~$4.6 million in ~~2020~~2021 and for the year to date was $9.4 million in 2022 and $8.9 million in ~~2021 and $8.2 million in 2020.~~2021. Estimated annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):

2021 (Remainder) 2022 2023 2024 2025 Thereafter
Estimated Amortization Expense $ 9,003 $ 17,964 $ 17,076 $ 15,518 $ 14,946 $ 23,751


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

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


		Industrial		Process		Contractor		Total			Industrial		Process		Contractor		Total
Balance, December 25, 2020		$	186,536	$	141,513	$	19,554	$	347,603
Balance, December 31, 2021										Balance, December 31, 2021	$	185,733	$	141,304	$	29,218	$	356,255
Additions, adjustments from business acquisitions	Additions, adjustments from business acquisitions	13,249		0		0		13,249		Additions, adjustments from business acquisitions	—		16,994		—		16,994
Foreign currency translation	Foreign currency translation	(2,835)		432		0		(2,403)		Foreign currency translation	(5,977)		(1,781)		—		(7,758)
Balance, June 25, 2021		$	196,950	$	141,945	$	19,554	$	358,449
Balance, July 1, 2022										Balance, July 1, 2022	$	179,756	$	156,517	$	29,218	$	365,491

In the ~~second~~first quarter, the Company completed ~~the~~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):


		June 25, 2021		December 25, 2020			July 1, 2022		December 31, 2021
Accrued self-insurance retentions	Accrued self-insurance retentions	$	8,209	$	8,041	Accrued self-insurance retentions	$	9,553	$	9,303
Accrued warranty and service liabilities	Accrued warranty and service liabilities	13,748		13,082		Accrued warranty and service liabilities	14,188		14,463
Accrued trade promotions	Accrued trade promotions	12,699		12,140		Accrued trade promotions	12,762		15,872
Payable for employee stock purchases	Payable for employee stock purchases	7,126		14,554		Payable for employee stock purchases	8,767		15,746
Customer advances and deferred revenue	Customer advances and deferred revenue	57,884		41,689		Customer advances and deferred revenue	69,222		60,554
Income taxes payable	Income taxes payable	11,871		8,564		Income taxes payable	12,975		5,200
Right of return refund liability	Right of return refund liability	18,072		16,303		Right of return refund liability	18,556		18,614
Operating lease liabilities, current	Operating lease liabilities, current	9,760		11,178		Operating lease liabilities, current	9,384		9,096

Other	Other	36,780		31,709		Other	38,685		42,311
Total	Total	$	176,149	$	157,260	Total	$	194,092	$	191,159

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


Balance, December ~~25, 2020~~31, 2021	$	~~13,082~~14,463
Assumed in business acquisition	2438
Charged to expense	~~5,271~~3,807
Margin on parts sales reversed	~~1,741~~1,335
Reductions for claims settled	~~(6,370)~~(5,455)
Balance, ~~June 25, 2021~~July 1, 2022	$	~~13,748~~14,188

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. ~~The balance~~During the three and six months ended July 1, 2022, we recognized $18.3 million and $40.8 million, respectively, that was included in ~~the~~ deferred revenue

~~Table of Contents~~

at December 31, 2021. During the three and ~~customer advances was $57.9 million as of~~six months ended June 25, 2021, we recognized $6.6 million and ~~$41.7~~$24.0 million, ~~as of~~respectively, that was included in deferred revenue at December 25, 2020. ~~Net sales for the year to date included $24.0 million in 2021 and $14.2 million in 2020 that related to deferred revenue as of the beginning of each period.~~

11.~~Debt~~

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

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

In addition to paying interest on the outstanding loans, the Company is required to pay a facility fee on the unused amount of the loan commitments at a rate per annum ranging from 0.125% to 0.25%, depending on the Company’s cash flow leverage ratio.

The Amended and Restated Credit Agreement contains customary provisions for the replacement of the LIBOR-based rate as that rate is phased out in the lending market. The Amended and Restated Credit Agreement contains customary representations, warranties, covenants and events of default, including but not limited to covenants restricting the Company’s and its subsidiaries’ ability to (i) merge or consolidate with another entity, (ii) sell, transfer, lease or convey their assets, (iii) make any material change in the nature of the core business of the Company, (iv) make certain investments, or (v) incur secured indebtedness. The Credit Agreement also requires the Company to maintain a cash flow leverage ratio of not more than 3.50 to 1.00 (unless a significant acquisition has been consummated, in which case, not more than 4.00 to 1.00 during the four fiscal quarter period beginning with the quarter in which such acquisition occurs) and an interest coverage ratio of not less than 3.00 to 1.00 (unless a significant acquisition has been consummated, in which case, not less than 2.50 to 1.00 during the four fiscal quarter period beginning with the quarter in which such acquisition occurs). A change in control of the Company will constitute an event of default under the Credit Agreement.

~~12.~~Fair Value

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


		Level	June 25, 2021		December 25, 2020			Level	July 1, 2022		December 31, 2021
Assets	Assets						Assets
Cash surrender value of life insurance	Cash surrender value of life insurance	2	$	22,486	$	19,887	Cash surrender value of life insurance	2	$	18,872	$	23,147
Forward exchange contracts	Forward exchange contracts	2	33		16		Forward exchange contracts	2	145		—
Total assets at fair value	Total assets at fair value		$	22,519	$	19,903	Total assets at fair value		$	19,017	$	23,147
Liabilities	Liabilities						Liabilities
Contingent consideration	Contingent consideration	3	$	10,884	$	9,454	Contingent consideration	3	$	13,697	$	12,274
Deferred compensation	Deferred compensation	2	5,689		5,099		Deferred compensation	2	5,537		5,962

Forward exchange contracts							Forward exchange contracts	2	—		111
Total liabilities at fair value	Total liabilities at fair value		$	16,573	$	14,553	Total liabilities at fair value		$	19,234	$	18,347

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

~~Table of Contents~~

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

Contingent consideration liability represents the estimated value (using a probability-weighted expected return approach) of future payments to be made to previous owners of certain acquired businesses based on future revenues.

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

Table of Contents

Item 2. GRACO INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Industrial, Process and Contractor. Key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channel and technologies.

The ongoing global COVID-19 pandemic and related governmental, business and ~~business~~societal responses continue to have an impact on our operations, supply chains, distribution channels, and end-user customers. The timing, duration, and extent of the ~~financial~~ impact from the pandemic in our major geographies is still uncertain and we cannot predict the magnitude of the impact to the results of our operations or financial position. ~~While we~~

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 ~~been able~~experienced the effects of price inflation related to ~~meet current demand in our businesses, our manufacturing~~raw materials, purchased components, and ~~purchasing operations may experience~~freight and transportation costs. The supply chain disruptions ~~that constrain~~and associated effects of inflation have adversely impacted profitability in the near-term and limited our ability to ~~meet~~satisfy strengthening customer demand, especially within our high-volume Contractor segment. We expect these challenges to continue through the remainder of 2022.

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

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

Table of Contents

Consolidated Results

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


		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
		Jun 25, 2021		Jun 26, 2020		% Change		June 25, 2021		June 26, 2020		% Change			Jul 1, 2022		Jun 25, 2021		% Change		Jul 1, 2022		Jun 25, 2021		% Change
Net Sales	Net Sales	$	507.2	$	366.9	38	%	$	961.3	$	740.5	30	%	Net Sales	$	548.5	$	507.2	8	%	$	1,042.8	$	961.3	8	%
Operating Earnings	Operating Earnings	133.8		44.8		199	%	262.1		134.6		95	%	Operating Earnings	148.7		133.8		11	%	277.0		262.1		6	%
Operating Earnings, adjusted (1)		133.8		79.8		68	%	262.1		169.6		55	%

Net Earnings	Net Earnings	110.1		28.8		282	%	215.8		101.7		112	%	Net Earnings	117.4		110.1		7	%	218.2		215.8		1	%
Net Earnings, adjusted (1)	Net Earnings, adjusted (1)	108.0		62.3		73	%	209.6		127.5		65	%	Net Earnings, adjusted (1)	117.0		108.0		8	%	216.3		209.6		3	%
Diluted Net Earnings per Common Share	Diluted Net Earnings per Common Share	$	0.63	$	0.17	271	%	$	1.24	$	0.59	110	%	Diluted Net Earnings per Common Share	$	0.68	$	0.63	8	%	$	1.26	$	1.24	2	%
Diluted Net Earnings per Common Share, adjusted (1)	Diluted Net Earnings per Common Share, adjusted (1)	$	0.62	$	0.37	68	%	$	1.20	$	0.74	62	%	Diluted Net Earnings per Common Share, adjusted (1)	$	0.68	$	0.62	10	%	$	1.25	$	1.20	4	%

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

~~All segments and regions experienced double-digit percentage organic net sales growth~~Sales increased 8 percent for both the quarter and year to ~~date.~~date, with increases in all segments. Changes in currency translation rates ~~increased~~reduced worldwide sales by ~~$12~~$15 million (4 percentage points) for the quarter and $23 million (3 percentage points) for the year to date. Sales from acquired operations contributed approximately $3 million (1 percentage point) for the quarter and $5 million for the year to date.

~~Increased production volume, favorable product and channel mix and favorable changes in currency translation rates offset higher product costs and drove the gross~~Gross profit margin ~~rate~~rates for the quarter and year to date ~~approximately 2~~decreased 3 percentage points ~~higher than the comparable periods last year.~~ as realized pricing was unable to offset continued increases in products costs due to ongoing supply chain and inflationary challenges.

Total operating expenses ~~increased 26 percent~~decreased $10 million (7 percentage points) for the quarter and ~~18 percent~~$3 million (1 percentage point) for the year to date primarily due to ~~increases in~~lower sales and earnings-based expenses.

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

~~Table of Contents~~

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

Three Months Ended Six Months Ended
June 25,
2021 June 26,
2020 June 25,
2021 June 26,
2020
Operating earnings, as reported $ 133.8 $ 44.8 $ 262.1 $ 134.6
Impairment — 35.0 — 35.0
Operating earnings, adjusted $ 133.8 $ 79.8 $ 262.1 $ 169.6
Earnings before income taxes $ 131.7 $ 42.0 $ 257.5 $ 124.1
Impairment — 35.0 — 35.0
Earnings before income taxes, adjusted $ 131.7 $ 77.0 $ 257.5 $ 159.1
Income taxes, as reported $ 21.6 $ 13.2 $ 41.7 $ 22.5
Impairment tax benefit — 1.2 — 1.2
Excess tax benefit from option exercises 2.1 0.3 6.2 8.0
Income taxes, adjusted $ 23.7 $ 14.7 $ 47.9 $ 31.7
Effective income tax rate
   As reported 16.4 % 31.4 % 16.2 % 18.1 %
   Adjusted 18.0 % 19.1 % 18.6 % 19.9 %
Net Earnings, as reported $ 110.1 $ 28.8 $ 215.8 $ 101.7
Impairment, net — 33.8 — 33.8
Excess tax benefit from option exercises (2.1) (0.3) (6.2) (8.0)
Net Earnings, adjusted $ 108.0 $ 62.3 $ 209.6 $ 127.5
Weighted Average Diluted Shares 174.6 170.5 174.2 171.6
Diluted Earnings per Share
   As reported $ 0.63 $ 0.17 $ 1.24 $ 0.59
   Adjusted $ 0.62 $ 0.37 $ 1.20 $ 0.74


	Three Months Ended						Six Months Ended
	July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021






Earnings before income taxes	$	146.3		$	131.7		$	269.3		$	257.5

Income taxes, as reported	$	29.0		$	21.6		$	51.1		$	41.7

Excess tax benefit from option exercises	0.4			2.1			1.9			6.2

Income taxes, adjusted	$	29.4		$	23.7		$	53.0		$	47.9

Effective income tax rate
As reported	19.8		%	16.4		%	19.0		%	16.2		%
Adjusted	20.0		%	18.0		%	19.7		%	18.6		%

Net Earnings, as reported	$	117.4		$	110.1		$	218.2		$	215.8

Excess tax benefit from option exercises	(0.4)			(2.1)			(1.9)			(6.2)

Net Earnings, adjusted	$	117.0		$	108.0		$	216.3		$	209.6

Weighted Average Diluted Shares	172.7			174.6			173.7			174.2
Diluted Earnings per Share
As reported	$	0.68		$	0.63		$	1.26		$	1.24
Adjusted	$	0.68		$	0.62		$	1.25		$	1.20

Table of Contents

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


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		June 25, 2021		June 26, 2020		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Net Sales	Net Sales	100.0	%	100.0	%	100.0	%	100.0	%	Net Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of products sold	Cost of products sold	48.0		50.2		46.8		48.5		Cost of products sold	51.0		48.0		49.8		46.8
Gross Profit	Gross Profit	52.0		49.8		53.2		51.5		Gross Profit	49.0		52.0		50.2		53.2
Product development	Product development	4.2		4.9		4.3		4.7		Product development	3.6		4.2		3.7		4.3
Selling, marketing and distribution	Selling, marketing and distribution	13.6		13.3		13.7		14.4		Selling, marketing and distribution	11.3		13.6		12.0		13.7
General and administrative	General and administrative	7.8		9.8		8.0		9.5		General and administrative	7.0		7.8		7.9		8.0
Impairment		—		9.6		—		4.7

Operating Earnings	Operating Earnings	26.4		12.2		27.2		18.2		Operating Earnings	27.1		26.4		26.6		27.2
Interest expense	Interest expense	0.5		0.9		0.5		0.8		Interest expense	0.3		0.5		0.7		0.5

Other expense, net	Other expense, net	(0.1)		(0.2)		—		0.6		Other expense, net	0.1		(0.1)		0.1		—
Earnings Before Income Taxes	Earnings Before Income Taxes	26.0		11.5		26.8		16.8		Earnings Before Income Taxes	26.7		26.0		25.8		26.8
Income taxes	Income taxes	4.3		3.6		4.3		3.1		Income taxes	5.3		4.3		4.9		4.3
Net Earnings	Net Earnings	21.7	%	7.9	%	22.4	%	13.7	%	Net Earnings	21.4	%	21.7	%	20.9	%	22.4	%

Net Sales

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


		Three Months Ended				Six Months Ended					Three Months Ended				Six Months Ended
		June 25, 2021		June 26, 2020		June 25, 2021		June 26, 2020			July 1, 2022		June 25, 2021		July 1, 2022		June 25, 2021
Americas(1)	Americas(1)	$	302.0	$	227.7	$	566.9	$	452.5	Americas(1)	$	338.1	$	302.0	$	631.3	$	566.9
EMEA(2)	EMEA(2)	113.8		71.1		224.0		158.9		EMEA(2)	108.3		113.8		214.5		224.0
Asia Pacific	Asia Pacific	91.4		68.1		170.4		129.1		Asia Pacific	102.1		91.4		197.0		170.4
Consolidated	Consolidated	$	507.2	$	366.9	$	961.3	$	740.5	Consolidated	$	548.5	$	507.2	$	1,042.8	$	961.3

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

(2) Europe, Middle East and Africa

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


		Three Months				Six Months					Three Months				Six Months
		Volume and Price	Acquisitions and Divestitures	Currency	Total	Volume and Price	Acquisitions and Divestitures	Currency	Total		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total
Americas	Americas	32%	0%	1%	33%	25%	0%	0%	25%	Americas	11%	1%	0%	12%	11%	1%	(1)%	11%
EMEA	EMEA	49%	0%	11%	60%	32%	(1)%	10%	41%	EMEA	5%	0%	(10)%	(5)%	3%	1%	(8)%	(4)%
Asia Pacific	Asia Pacific	31%	(6)%	9%	34%	28%	(4)%	8%	32%	Asia Pacific	16%	0%	(4)%	12%	19%	0%	(3)%	16%
Consolidated	Consolidated	35%	(1)%	4%	38%	27%	(1)%	4%	30%	Consolidated	11%	1%	(4)%	8%	11%	0%	(3)%	8%

Gross Profit

Gross profit margin ~~rates improved approximately 2 percentage points~~rate for the quarter and year to ~~date. Increased production volume, favorable product~~date decreased 3 percentage points. Realized pricing was unable to offset continued increases in products costs due to ongoing supply chain and ~~channel mix~~inflationary challenges. Currency translation also adversely affected margin rates for the quarter and ~~favorable changes in currency translation rates offset higher product costs.~~year to date.

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Operating Expenses

Total operating expenses ~~increased $27~~decreased $10 million ~~(26~~(7 percentage points) for the quarter and ~~$37~~$3 million ~~(18~~(1 percentage ~~points)~~point) for the year to date mostly due to ~~increases~~decreases in sales and earnings-based expenses. Decreases in operating expenses ~~and product development spending.~~for the year to date were partially offset by $3 million (1 percentage point) of allowances for credit losses on customer receivables in Russia. Changes in currency translation rates ~~increased~~reduced operating expenses by $3 million (2(3 percentage points) for the quarter and $5 million (2 percentage points) for the year to date.

~~Other~~Interest Expense

~~Other non-operating expenses were comparable for the quarter and decreased $5~~Interest expense increased $3 million for the year to date ~~mostly due~~and includes a $3.5 million fee related to ~~favorable market valuation changes on investments held to fund certain retirement benefits liabilities.~~the prepayment of private placement debt in the first quarter of 2022.

Income Taxes

The effective income tax rate was 20 percent for the quarter and 19 percent for the year to date, ~~was 16 percent, down 15~~up 4 percentage points and 23 percentage points, respectively, from the comparable periods last ~~year, respectively.~~year. The ~~decreases in effective tax rates were~~increase was primarily due to ~~non-deductible impairment charges in the prior year, partially offset by changes~~decreases in excess tax benefits ~~for~~from stock option ~~exercises.~~exercises and the unfavorable effects of foreign earnings taxed at higher rates than the U.S.

Segment Results

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

Industrial Segment

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

(dollars in millions):


		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
		June 25, 2021			June 26, 2020			June 25, 2021			June 26, 2020				July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	87.1		$	58.4		$	167.1		$	132.8		Americas	$	61.5		$	51.9		$	115.8		$	98.2
EMEA	EMEA	60.0			34.8			116.7			81.0			EMEA	45.6			45.5			93.5			90.6
Asia Pacific	Asia Pacific	57.5			40.0			105.5			78.1			Asia Pacific	51.2			47.1			93.7			85.6
Total	Total	$	204.6		$	133.2		$	389.3		$	291.9		Total	$	158.3		$	144.5		$	303.0		$	274.4
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	34		%	28		%	35		%	30		%	Operating earnings as a percentage of net sales	35		%	32		%	36		%	32		%

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


		Three Months				Six 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	48%	0%	1%	49%	25%	0%	1%	26%	Americas	19%	0%	0%	19%	18%	0%	0%	18%
EMEA	EMEA	55%	5%	12%	72%	32%	2%	10%	44%	EMEA	12%	0%	(12)%	0%	13%	0%	(10)%	3%
Asia Pacific	Asia Pacific	35%	0%	8%	43%	27%	0%	8%	35%	Asia Pacific	13%	0%	(4)%	9%	12%	0%	(3)%	9%
Segment Total	Segment Total	46%	1%	6%	53%	28%	0%	5%	33%	Segment Total	15%	0%	(5)%	10%	15%	0%	(5)%	10%

~~Industrial segment sales for~~For the quarter and year to date, Industrial segment sales increased ~~sharply in all regions~~double-digits. The operating margin rate increased for both the quarter and year to date as ~~end markets strengthened from last year. Operating margin rates increased mostly due to higher production volume~~strong realized pricing and expense ~~leverage.~~leverage more than offset higher product costs and the adverse impacts of currency translation.

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Process Segment

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

(dollars in millions):


		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
		June 25, 2021			June 26, 2020			June 25, 2021			June 26, 2020				July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	59.7		$	45.9		$	116.5		$	101.0		Americas	$	77.0		$	59.7		$	145.4		$	116.5
EMEA	EMEA	15.8			13.2			30.6			29.0			EMEA	17.6			15.8			34.7			30.6
Asia Pacific	Asia Pacific	21.7			18.6			41.5			33.8			Asia Pacific	29.9			21.7			59.4			41.5
Total	Total	$	97.2		$	77.7		$	188.6		$	163.8		Total	$	124.5		$	97.2		$	239.5		$	188.6
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	22		%	15		%	23		%	18		%	Operating earnings as a percentage of net sales	25		%	22		%	24		%	23		%

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


		Three Months				Six Months					Three Months				Six Months
		Volume and Price	Acquisitions and Divestitures	Currency	Total	Volume and Price	Acquisitions and Divestitures	Currency	Total		Volume and Price	Acquisitions	Currency	Total	Volume and Price	Acquisitions	Currency	Total
Americas	Americas	30%	(1)%	1%	30%	15%	0%	0%	15%	Americas	25%	4%	0%	29%	22%	3%	0%	25%
EMEA	EMEA	22%	(9)%	6%	19%	8%	(8)%	5%	5%	EMEA	18%	1%	(7)%	12%	18%	0%	(4)%	14%
Asia Pacific	Asia Pacific	30%	(21)%	8%	17%	34%	(18)%	7%	23%	Asia Pacific	42%	1%	(5)%	38%	46%	0%	(3)%	43%
Segment Total	Segment Total	29%	(7)%	3%	25%	17%	(5)%	3%	15%	Segment Total	27%	3%	(2)%	28%	27%	2%	(2)%	27%

The Process segment had ~~organic~~broad-based sales growth in all product applications for the quarter and year to date. ~~Higher production volume, the impact of divested operations and expense leverage combined to increase the~~The operating margin rate for this segment increased 3 percentage points for the quarter and 1 percentage point for the year to ~~date.~~date as increased volume and expense leverage offset higher product costs, unfavorable product and channel mix and the adverse impacts of currency translation.

Contractor Segment

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

(dollars in millions):


		Three Months Ended						Six Months Ended							Three Months Ended						Six Months Ended
		June 25, 2021			June 26, 2020			June 25, 2021			June 26, 2020				July 1, 2022			June 25, 2021			July 1, 2022			June 25, 2021
Net Sales	Net Sales													Net Sales
Americas	Americas	$	155.2		$	123.3		$	283.3		$	218.6		Americas	$	199.7		$	190.4		$	370.2		$	352.3
EMEA	EMEA	38.0			23.0			76.7			48.8			EMEA	45.0			52.6			86.2			102.8
Asia Pacific	Asia Pacific	12.2			9.5			23.4			17.2			Asia Pacific	21.0			22.5			43.9			43.2
Total	Total	$	205.4		$	155.8		$	383.4		$	284.6		Total	$	265.7		$	265.5		$	500.3		$	498.3
Operating earnings as a percentage of net sales	Operating earnings as a percentage of net sales	24		%	26		%	26		%	24		%	Operating earnings as a percentage of net sales	26		%	28		%	25		%	29		%

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Table of Contents

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


		Three Months				Six Months					Three Months				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	25%	0%	1%	26%	29%	0%	1%	30%	Americas	5%	0%	0%	5%	5%	0%	0%	5%
EMEA	EMEA	52%	0%	13%	65%	45%	0%	12%	57%	EMEA	(5)%	0%	(9)%	(14)%	(11)%	2%	(7)%	(16)%
Asia Pacific	Asia Pacific	17%	0%	12%	29%	25%	0%	12%	37%	Asia Pacific	(2)%	0%	(5)%	(7)%	6%	0%	(5)%	1%
Segment Total	Segment Total	29%	0%	3%	32%	32%	0%	3%	35%	Segment Total	3%	0%	(3)%	0%	2%	0%	(2)%	0%

Contractor segment sales ~~increased by double-digit percentages in all regions~~were flat for the quarter and year to date as ~~construction markets remain robust.~~growth in the Americas was mostly offset by decreases in Asia Pacific due to pandemic-related shutdowns and in EMEA due to weakened economic conditions. The operating margin rate ~~for the quarter~~ decreased 2 percentage points for the quarter and 4 percentage points for the year to date as ~~increased~~price realization and lower sales ~~volume~~ and ~~favorable changes in currency translation rates~~earnings-based expenses were unable to offset ~~the adverse impacts of~~ higher ~~material~~product costs ~~increased factory spending~~ and ~~higher sales and earnings-based expenses. Increased sales volume and favorable changes in~~unfavorable currency translation ~~rates drove the operating margin rate 1 percentage point higher for the year to date.~~rates.

Liquidity and Capital Resources

Net cash provided by operating activities of ~~$220~~$135 million ~~increased $77~~decreased $85 million from the ~~first half of~~comparable period last year, mostly driven by ~~the increase in net earnings, partially offset by increases in~~increased salary and incentive payments, increased inventory purchases to meet demand levels and higher accounts receivable ~~and inventories~~ that reflect growth in business activity in the first half of ~~2021.~~ 2022. Significant uses of cash in 2022 included share repurchases of $120 million, plant and equipment additions of $89 million, long-term debt payments of $75 million, dividend payments of $71 million, and $25 million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in 2022 totaled $23 million.

Significant uses of cash in 2021 included dividend payments of $63 million, property, plant and equipment additions of $55 million and ~~business acquisitions of~~ $19 ~~million.~~million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in ~~the first half of~~ 2021 totaled $33 million. ~~Although the Company did not repurchase any shares in the first half of 2021, it may make opportunistic purchases going forward.~~

~~At June 25, 2021,~~As of July 1, 2022, the Company had ~~various lines~~available liquidity of ~~credit totaling $596~~$929 million, including cash held in deposit accounts of $413 million, of which ~~$586~~$218 million was ~~unused. In addition to its lines~~held outside of the U.S., and available credit under ~~the terms~~existing committed credit facilities of a master note agreement with a sole lender expiring in January 2023, the Company may issue up to $200 million of senior notes. Interest on the notes will be determined at the time of issuance, at a fixed or LIBOR-based floating rate at the option of the Company, provided that the maximum aggregate principal amount of notes bearing interest at a floating rate may not exceed $100 million. Fixed rate notes issued under the agreement will mature no longer than 12 years from date of issuance and variable rate notes will mature no longer than 10 years from date of issuance.

Significant uses of cash in 2020 included purchases of Company common stock totaling $102 million, which were partially offset by net proceeds from shares issued totaling $42 million. Other significant uses of cash in 2020 included dividend payments of $58 million, property, plant and equipment additions of $33 million and business acquisitions of $27$516 million.

Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in ~~2021,~~2022, including its capital expenditure plan, planned dividends, share repurchases, acquisitions and operating requirements. Capital expenditures for 2022 are expected to be approximately $215 million, including $140 million in facility expansion projects. The Company may make opportunistic share repurchases going forward.

Outlook

~~We are initiating an outlook for~~For the full-year ~~2021 of mid-to-high teen~~2022, the Company continues to target high single-digit sales growth on an organic, constant currency ~~basis, with growth expected in every region and reportable segment.~~basis. Demand ~~levels~~ in the ~~Industrial and Process segments remain~~Americas remains strong, ~~across major~~but end markets ~~and product categories. Our outlook~~in EMEA slowed during the quarter as a result of unfavorable macroeconomic conditions, which are expected to continue to impact the Company for the ~~Contractor segment remains positive as favorable conditions continue, however comparisons~~remainder of the year. Pandemic-related shutdowns in the Asia Pacific region also affected incoming order rates, however, once lifted, these rates significantly improved. Commodity prices and component costs have increased significantly since the Company implemented its annual price increase in January 2022. To offset these pressures, the Company is implementing a second ~~half will be challenging.~~round of global price increases starting in August.

Cautionary Statement Regarding Forward-Looking Statements

The Company desires to take advantage of the “safe harbor” provisions regarding forward-looking statements of the Private Securities Litigation Reform Act of 1995 and is filing this Cautionary Statement in order to do so. From time to time various forms filed by our Company with the Securities and Exchange Commission, including our Form 10-K, Form 10-Qs and Form 8-Ks, and other disclosures, including our ~~2020~~2021 Overview report, press releases, earnings releases, analyst briefings, conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,”

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~~“believe,~~ “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations

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concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ materially from those expressed in these statements. The Company undertakes no obligation to update these statements in light of new information or future events.

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

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

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.Controls and Procedures

Evaluation of disclosure controls and procedures

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

Changes in internal controls

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

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PART IIOTHER INFORMATION

Item 1A.Risk Factors

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

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

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

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

Issuer Purchases of Equity Securities

On April 24, 2015, the Board of Directors authorized the Company to purchase up to 18 million shares of its outstanding common stock, primarily through open-market transactions. There were approximately 3.3 million shares remaining under the authorization on December 7, 2018, when the Board of Directors authorized the purchase of up to an additional 18 million shares. The authorizations are for an indefinite period of time or until terminated by the Board. Shares available for purchase under the April 2015 authorization were exhausted in the first quarter of 2022. Therefore, the Company will no longer purchase shares under the April 2015 authorization, and all purchases during the second quarter of 2022 were made under the December 2018 authorization.

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

Information on issuer purchases of equity securities follows:

~~Period~~

Total Number
of Shares Purchased

Average Price
Paid per Share

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

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

~~March 27, 2021 - April 23, 2021~~

—

~~18,517,834~~

~~April 24, 2021 - May 21, 2021~~

—

~~18,517,834~~

~~May 22, 2021 - June 25, 2021~~

—

~~18,517,834~~


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (at end of period)
April 2, 2022 - April 29, 2022	121,461	$	63.90	—	16,879,173
April 30, 2022 - May 27, 2022	56,881	$	62.50	—	16,822,292
May 28, 2022 - July 1, 2022	—	$	—	—	16,822,292

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Item 6.Exhibits


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

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

~~10.1~~						Key Employee Agreement. Form of agreement offered to the Company’s CEO, CFO and each other executive officer in June of 2021, and to be offered to all other persons hired or promoted to be executive officers of the Company after April 22, 2021. (~~Incorporated by reference~~ ~~to Exhibit 10.1 to the Company’s Report on Form 8-K filed April 27, 2021~~.)

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

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

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

99.1						Press Release Reporting Second Quarter Earnings dated July ~~21, 2021.~~27, 2022.

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

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

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SIGNATURES

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

GRACO INC.

Date:

July ~~21, 2021~~27, 2022

By:

/s/ Mark W. Sheahan

Mark W. Sheahan

President and Chief Executive Officer

(Principal Executive Officer)

Date:

July ~~21, 2021~~27, 2022

By:

/s/ David M. Lowe

David M. Lowe

Chief Financial Officer and Treasurer

(Principal Financial Officer)

Date:

July ~~21, 2021~~27, 2022

By:

/s/ Kathryn L. Schoenrock

Kathryn L. Schoenrock

Executive Vice President, Corporate Controller and Information Systems

(Principal Accounting Officer)



Three Months Ended June 26, 2020
Balance, March 27, 2020	$	166,840	$	612,698	$	411,450	$	(172,330)	$	1,018,658

Shares issued	113		3,951		0		0		4,064
Shares repurchased	(260)		(904)		(10,950)		0		(12,114)
Stock compensation cost	0		8,058		0		0		8,058


Net earnings	0		0		28,832		0		28,832
Dividends declared ($0.175 per share)	0		0		(29,178)		0		(29,178)

Other comprehensive income (loss)	0		0		0		8,648		8,648
Balance, June 26, 2020	$	166,693	$	623,803	$	400,154	$	(163,682)	$	1,026,968



Six Months Ended June 26, 2020
Balance, December 27, 2019	$	167,287	$	578,440	$	448,991	$	(169,787)	$	1,024,931

Shares issued	1,733		39,418		0		0		41,151
Shares repurchased	(2,327)		(8,047)		(91,769)		0		(102,143)
Stock compensation cost	0		13,992		0		0		13,992


Net earnings	0		0		101,650		0		101,650
Dividends declared ($0.350 per share)	0		0		(58,718)		0		(58,718)

Other comprehensive income (loss)	0		0		0		6,105		6,105
Balance, June 26, 2020	$	166,693	$	623,803	$	400,154	$	(163,682)	$	1,026,968



Three Months Ended June 26, 2020
Balance, March 27, 2020	$	(111,587)	$	(60,743)	$	(172,330)
Other comprehensive income (loss) before reclassifications	0		6,756		6,756
Reclassified to pension cost and deferred tax	1,892		0		1,892

Balance, June 26, 2020	$	(109,695)	$	(53,987)	$	(163,682)



Six Months Ended June 26, 2020
Balance, December 27, 2019	$	(113,721)	$	(56,066)	$	(169,787)
Other comprehensive income (loss) before reclassifications	0		2,079		2,079
Reclassified to pension cost and deferred tax	4,026		0		4,026

Balance, June 26, 2020	$	(109,695)	$	(53,987)	$	(163,682)


	2021 (Remainder)		2022		2023		2024		2025		Thereafter
Estimated Amortization Expense	$	9,003	$	17,964	$	17,076	$	15,518	$	14,946	$	23,751