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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 April 1, 2022
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 001-09249

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

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

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

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

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

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

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

| Yes | ☒ |  | No | ☐ |

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 | ☒ |  | No | ☐ |

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 | ☐ |  | No | ☒ |

169,226,847 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of April 14, 2022.

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 | 7
| Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15
| Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk | 21
| Item 4. |  | Controls and Procedures | 21
PART II - OTHER INFORMATION |
| Item 1A. |  | Risk Factors | 21
| Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds | 22
| Item 6. |  | Exhibits | 23
SIGNATURES |
EXHIBITS |

2

Table of Contents
PART I Item 1.
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited) (In thousands except per share amounts)

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Sales |  |  |  |  | $ | 494,285 |  |  | $ | 454,129 |
Cost of products sold |  |  |  |  | 239,810 |  |  | 206,795 |
Gross Profit |  |  |  |  | 254,475 |  |  | 247,334 |
Product development |  |  |  |  | 19,078 |  |  | 19,571 |
Selling, marketing and distribution |  |  |  |  | 62,995 |  |  | 62,228 |
General and administrative |  |  |  |  | 44,039 |  |  | 37,249 |
Operating Earnings |  |  |  |  | 128,363 |  |  | 128,286 |
Interest expense |  |  |  |  | 5,287 |  |  | 2,428 |
Other expense, net |  |  |  |  | 153 |  |  | 121 |
Earnings Before Income Taxes |  |  |  |  | 122,923 |  |  | 125,737 |
Income taxes |  |  |  |  | 22,080 |  |  | 20,050 |
Net Earnings |  |  |  |  | $ | 100,843 |  |  | $ | 105,687 |
Net Earnings per Common Share |  |  |  |  |  |  |
Basic |  |  |  |  | $ | 0.59 |  |  | $ | 0.63 |
Diluted |  |  |  |  | $ | 0.58 |  |  | $ | 0.61 |

See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In thousands)

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Earnings |  |  |  |  | $ | 100,843 |  |  | $ | 105,687 |
Components of other comprehensive income (loss) |  |  |  |  |  |  |
Cumulative translation adjustment |  |  |  |  | (2,960) |  |  | (10,470) |
Pension and postretirement medical liability adjustment |  |  |  |  | 894 |  |  | 3,308 |
Income taxes - pension and postretirement medical liability adjustment |  |  |  |  | (194) |  |  | (672) |
Other comprehensive income (loss) |  |  |  |  | (2,260) |  |  | (7,834) |
Comprehensive Income |  |  |  |  | $ | 98,583 |  |  | $ | 97,853 |

See notes to consolidated financial statements.
3

Table of Contents
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)

| April 1, 2022 |  | December 31, 2021
ASSETS |  |  |
Current Assets |  |  |
Cash and cash equivalents | $ | 380,487 |  |  | $ | 624,302 |
Accounts receivable, less allowances of $7,200 and $3,900 | 339,407 |  |  | 325,132 |
Inventories | 436,741 |  |  | 382,301 |
Other current assets | 40,585 |  |  | 31,886 |
Total current assets | 1,197,220 |  |  | 1,363,621 |
Property, Plant and Equipment, net | 487,805 |  |  | 451,061 |
Goodwill | 371,401 |  |  | 356,255 |
Other Intangible Assets, net | 154,006 |  |  | 149,740 |
Operating Lease Assets | 31,228 |  |  | 30,046 |
Deferred Income Taxes | 42,195 |  |  | 55,786 |
Other Assets | 35,590 |  |  | 36,689 |
Total Assets | $ | 2,319,445 |  |  | $ | 2,443,198 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Current Liabilities |  |  |
Notes payable to banks | $ | 40,160 |  |  | $ | 43,489 |
Current portion of long term debt | — |  |  | 75,000 |
Trade accounts payable | 88,108 |  |  | 78,432 |
Salaries and incentives | 47,809 |  |  | 82,941 |
Dividends payable | 35,678 |  |  | 35,771 |
Other current liabilities | 190,558 |  |  | 191,159 |
Total current liabilities | 402,313 |  |  | 506,792 |
Long-term Debt | 75,000 |  |  | 75,000 |
Retirement Benefits and Deferred Compensation | 105,129 |  |  | 106,897 |
Operating Lease Liabilities | 24,209 |  |  | 23,527 |
Deferred Income Taxes | 10,193 |  |  | 10,661 |
Other Non-current Liabilities | 12,345 |  |  | 10,978 |
Shareholders’ Equity |  |  |
Common stock | 169,223 |  |  | 170,308 |
Additional paid-in-capital | 761,959 |  |  | 742,288 |
Retained earnings | 841,503 |  |  | 876,916 |
Accumulated other comprehensive income (loss) | (82,429) |  |  | (80,169) |
Total shareholders’ equity | 1,690,256 |  |  | 1,709,343 |
Total Liabilities and Shareholders’ Equity | $ | 2,319,445 |  |  | $ | 2,443,198 |

See notes to consolidated financial statements.
4

Table of Contents
GRACO INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)

| Three Months Ended
| April 1, 2022 |  | March 26, 2021
Cash Flows From Operating Activities |  |  |
Net Earnings | $ | 100,843 |  |  | $ | 105,687 |
Adjustments to reconcile net earnings to net cash provided by operating activities |  |  |
Depreciation and amortization | 15,570 |  |  | 14,515 |
Deferred income taxes | 10,973 |  |  | 1,842 |
Share-based compensation | 7,088 |  |  | 6,618 |
Change in |  |  |
Accounts receivable | (14,296) |  |  | (10,611) |
Inventories | (52,979) |  |  | (27,541) |
Trade accounts payable | 9,216 |  |  | 9,323 |
Salaries and incentives | (35,341) |  |  | (6,949) |
Retirement benefits and deferred compensation | (136) |  |  | 2,867 |
Other accrued liabilities | (8,690) |  |  | 4,493 |
Other | (923) |  |  | 1,425 |
Net cash provided by operating activities | 31,325 |  |  | 101,669 |
Cash Flows From Investing Activities |  |  |
Property, plant and equipment additions | (47,093) |  |  | (21,415) |
Acquisition of businesses, net of cash acquired | (25,016) |  |  | — |
Other | (134) |  |  | (34) |
Net cash used in investing activities | (72,243) |  |  | (21,449) |
Cash Flows From Financing Activities |  |  |
Borrowings on short-term lines of credit, net | (3,420) |  |  | 9,667 |
Payments on long-term debt | (75,000) |  |  | — |
Payments of debt issuance costs | — |  |  | (1,404) |
Common stock issued | 21,294 |  |  | 26,460 |
Common stock repurchased | (108,706) |  |  | — |
Taxes paid related to net share settlement of equity awards | (1,219) |  |  | — |
Cash dividends paid | (35,801) |  |  | (31,642) |
Net cash used in financing activities | (202,852) |  |  | 3,081 |
Effect of exchange rate changes on cash | (45) |  |  | (1,594) |
Net increase in cash and cash equivalents | (243,815) |  |  | 81,707 |
Cash and Cash Equivalents |  |  |
Beginning of year | 624,302 |  |  | 378,909 |
End of period | $ | 380,487 |  |  | $ | 460,616 |

See notes to consolidated financial statements.
5

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 April 1, 2022 |  |  |  |  |  |  |  |  |
Balance, December 31, 2021 | $ | 170,308 |  |  | $ | 742,288 |  |  | $ | 876,916 |  |  | $ | (80,169) |  |  | $ | 1,709,343 |
Shares issued | 437 |  |  | 19,638 |  |  |  |  |  |  | 20,075 |
Shares repurchased | (1,522) |  |  | (6,636) |  |  | (100,548) |  |  |  |  | (108,706) |
Stock compensation cost |  |  | 6,670 |  |  |  |  |  |  | 6,670 |
Restricted stock canceled (issued) |  |  | (1) |  |  |  |  |  |  | (1) |
Net earnings |  |  |  |  | 100,843 |  |  |  |  | 100,843 |
Dividends declared ($0.210 per share) |  |  |  |  | (35,708) |  |  |  |  | (35,708) |
Other comprehensive income (loss) |  |  |  |  |  |  | (2,260) |  |  | (2,260) |
Balance, April 1, 2022 | $ | 169,223 |  |  | $ | 761,959 |  |  | $ | 841,503 |  |  | $ | (82,429) |  |  | $ | 1,690,256 |

Three Months Ended March 26, 2021 |  |  |  |  |  |  |  |  |
Balance, December 25, 2020 | $ | 168,568 |  |  | $ | 671,206 |  |  | $ | 568,295 |  |  | $ | (124,165) |  |  | $ | 1,283,904 |
Shares issued | 845 |  |  | 25,615 |  |  | — |  |  | — |  |  | 26,460 |
Stock compensation cost | — |  |  | 6,008 |  |  | — |  |  | — |  |  | 6,008 |
Net earnings | — |  |  | — |  |  | 105,687 |  |  | — |  |  | 105,687 |
Dividends declared ($0.188 per share) | — |  |  | — |  |  | (31,723) |  |  | — |  |  | (31,723) |
Other comprehensive income (loss) | — |  |  | — |  |  | — |  |  | (7,834) |  |  | (7,834) |
Balance, March 26, 2021 | $ | 169,413 |  |  | $ | 702,829 |  |  | $ | 642,259 |  |  | $ | (131,999) |  |  | $ | 1,382,502 |

See notes to consolidated financial statements.
6

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 April 1, 2022 and the related statements of earnings, comprehensive income and shareholders' equity for the three months ended April 1, 2022 and March 26, 2021, and cash flows for the three months ended April 1, 2022 and March 26, 2021 have been prepared by the Company and have not been audited.
In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of April 1, 2022, and the results of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 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 three reportable segments: Industrial, Process and Contractor. Sales and operating earnings by segment were as follows (in thousands):

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Sales |  |  |  |  |  |  |
Industrial |  |  |  |  | $ | 144,669 |  |  | $ | 129,864 |
Process |  |  |  |  | 115,024 |  |  | 91,373 |
Contractor |  |  |  |  | 234,592 |  |  | 232,892 |
Total |  |  |  |  | $ | 494,285 |  |  | $ | 454,129 |
Operating Earnings |  |  |  |  |  |  |
Industrial |  |  |  |  | $ | 52,630 |  |  | $ | 42,358 |
Process |  |  |  |  | 27,488 |  |  | 21,733 |
Contractor |  |  |  |  | 58,947 |  |  | 71,051 |
Unallocated corporate (expense) |  |  |  |  | (10,702) |  |  | (6,856) |
Total |  |  |  |  | $ | 128,363 |  |  | $ | 128,286 |

7

Table of Contents
Assets by segment were as follows (in thousands):

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

Geographic information follows (in thousands):

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Sales (based on customer location) |  |  |  |  |  |  |
United States |  |  |  |  | $ | 255,082 |  |  | $ | 231,501 |
Other countries |  |  |  |  | 239,203 |  |  | 222,628 |
Total |  |  |  |  | $ | 494,285 |  |  | $ | 454,129 |

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

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

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net earnings available to common shareholders |  |  |  |  | $ | 100,843 |  |  | $ | 105,687 |
Weighted average shares outstanding for basic earnings per share |  |  |  |  | 169,809 |  |  | 168,948 |
Dilutive effect of stock options computed using the treasury stock method and the average market price |  |  |  |  | 4,869 |  |  | 4,900 |
Weighted average shares outstanding for diluted earnings per share |  |  |  |  | 174,678 |  |  | 173,848 |
Basic earnings per share |  |  |  |  | $ | 0.59 |  |  | $ | 0.63 |
Diluted earnings per share |  |  |  |  | $ | 0.58 |  |  | $ | 0.61 |

Stock options to purchase 1,250,000 and 700,000 shares were not included in the April 1, 2022 and March 26, 2021 computations of diluted earnings per share, respectively, because they would have been anti-dilutive.
8

Table of Contents
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 31, 2021 | 9,575 |  |  | $ | 39.31 |  |  | 7,296 |  |  | $ | 33.75 |
Granted | 831 |  |  | 71.73 |  |  |  |  |
Exercised | (162) |  |  | 22.90 |  |  |  |  |
Canceled | (19) |  |  | 43.06 |  |  |  |  |
Outstanding, April 1, 2022 | 10,225 |  |  | $ | 42.20 |  |  | 7,751 |  |  | $ | 35.67 |

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

| Three Months Ended
| April 1, 2022 |  | March 26, 2021
Expected life in years | 7.3 |  | 7.5
Interest rate | 1.9 | % |  | 0.9 | %
Volatility | 25.5 | % |  | 25.2 | %
Dividend yield | 1.2 | % |  | 1.0 | %
Weighted average fair value per share | $ | 19.06 |  |  | $ | 17.66 |

Under the Company’s Employee Stock Purchase Plan, the Company issued 298,000 shares in 2022 and 416,000 shares in 2021. 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:

| Three Months Ended
| April 1, 2022 |  | March 26, 2021
Expected life in years | 1.0 |  | 1.0
Interest rate | 0.9 | % |  | 0.1 | %
Volatility | 20.5 | % |  | 40.1 | %
Dividend yield | 1.2 | % |  | 1.1 | %
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
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Pension Benefits |  |  |  |  |  |  |
Service cost |  |  |  |  | $ | 2,170 |  |  | $ | 2,721 |
Interest cost |  |  |  |  | 2,738 |  |  | 2,981 |
Expected return on assets |  |  |  |  | (4,802) |  |  | (5,130) |
Amortization and other |  |  |  |  | 1,076 |  |  | 2,551 |
Net periodic benefit cost |  |  |  |  | $ | 1,182 |  |  | $ | 3,123 |
Postretirement Medical |  |  |  |  |  |  |
Service cost |  |  |  |  | $ | 175 |  |  | $ | 175 |
Interest cost |  |  |  |  | 225 |  |  | 250 |
Amortization |  |  |  |  | 175 |  |  | 250 |
Net periodic benefit cost |  |  |  |  | $ | 575 |  |  | $ | 675 |

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 April 1, 2022 |  |  |  |  |
Balance, December 31, 2021 | $ | (60,107) |  |  | $ | (20,062) |  |  | $ | (80,169) |
Other comprehensive income (loss) before reclassifications | — |  |  | (2,960) |  |  | (2,960) |
Reclassified to pension cost and deferred tax | 700 |  |  | — |  |  | 700 |
Balance, April 1, 2022 | $ | (59,407) |  |  | $ | (23,022) |  |  | $ | (82,429) |

Three Months Ended March 26, 2021 |  |  |  |  |
Balance, December 25, 2020 | $ | (114,129) |  |  | $ | (10,036) |  |  | $ | (124,165) |
Other comprehensive income (loss) before reclassifications | — |  |  | (10,470) |  |  | (10,470) |
Reclassified to pension cost and deferred tax | 2,636 |  |  | — |  |  | 2,636 |
Balance, March 26, 2021 | $ | (111,493) |  |  | $ | (20,506) |  |  | $ | (131,999) |

Amounts related to pension and postretirement medical adjustments are reclassified to non-service components of pension cost that are included within other non-operating expenses.
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7.Receivables and Credit Losses
Accounts receivable includes trade receivables of $330 million and other receivables of $9 million as of April 1, 2022 and $315 million and $10 million, respectively, as of December 31, 2021.
Allowance for Credit Losses
Following is a summary of activity in the year to date allowance for credit losses (in thousands):

| April 1, 2022 |  | March 26, 2021
Balance, beginning | $ | 3,254 |  |  | $ | 3,745 |
Additions (reversals) charged to costs and expenses | 3,220 |  |  | 158 |
Deductions from reserves (1) | (33) |  |  | (104) |
Other additions (deductions) (2) | 33 |  |  | (75) |
Balance, ending | $ | 6,474 |  |  | $ | 3,724 |

(1) Represents amounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves.
(2) Includes amounts assumed or established in connection with acquisitions and effects of foreign currency translation.
8.Inventories
Major components of inventories were as follows (in thousands):

| April 1, 2022 |  | December 31, 2021
Finished products and components | $ | 194,563 |  |  | $ | 166,922 |
Products and components in various stages of completion | 126,214 |  |  | 117,063 |
Raw materials and purchased components | 205,893 |  |  | 185,291 |
Subtotal | 526,670 |  |  | 469,276 |
Reduction to LIFO cost | (89,929) |  |  | (86,975) |
Total | $ | 436,741 |  |  | $ | 382,301 |

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9.Intangible Assets
Components of other intangible assets were as follows (dollars in thousands):

| Finite Life |  | Indefinite Life |  |
| Customer Relationships |  | Patents and Proprietary Technology |  | Trademarks, Trade Names and Other |  | Trade Names |  | Total
As of April 1, 2022 |  |  |  |  |  |  |  |  |
Cost | $ | 202,903 |  |  | $ | 26,974 |  |  | $ | 1,700 |  |  | $ | 62,633 |  |  | $ | 294,210 |
Accumulated amortization | (112,499) |  |  | (16,454) |  |  | (503) |  |  | — |  |  | (129,456) |
Foreign currency translation | (8,410) |  |  | (761) |  |  | — |  |  | (1,577) |  |  | (10,748) |
Book value | $ | 81,994 |  |  | $ | 9,759 |  |  | $ | 1,197 |  |  | $ | 61,056 |  |  | $ | 154,006 |
Weighted average life in years | 13 |  | 10 |  | 5 |  | N/A |  |

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

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

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

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

| Industrial |  | Process |  | Contractor |  | Total
Balance, December 31, 2021 | $ | 185,733 |  |  | $ | 141,304 |  |  | $ | 29,218 |  |  | $ | 356,255 |
Additions, adjustments from business acquisitions | — |  |  | 16,862 |  |  | — |  |  | 16,862 |
Foreign currency translation | (1,246) |  |  | (470) |  |  | — |  |  | (1,716) |
Balance, April 1, 2022 | $ | 184,487 |  |  | $ | 157,696 |  |  | $ | 29,218 |  |  | $ | 371,401 |

In the first quarter the Company completed the acquisition of a business that is not material to the consolidated financial statements.
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10.Other Current Liabilities
Components of other current liabilities were as follows (in thousands):

| April 1, 2022 |  | December 31, 2021
Accrued self-insurance retentions | $ | 11,576 |  |  | $ | 9,303 |
Accrued warranty and service liabilities | 14,560 |  |  | 14,463 |
Accrued trade promotions | 10,141 |  |  | 15,872 |
Payable for employee stock purchases | 3,921 |  |  | 15,746 |
Customer advances and deferred revenue | 66,668 |  |  | 60,554 |
Income taxes payable | 12,481 |  |  | 5,200 |
Right of return refund liability | 18,713 |  |  | 18,614 |
Operating lease liabilities, current | 9,449 |  |  | 9,096 |
Other | 43,049 |  |  | 42,311 |
Total | $ | 190,558 |  |  | $ | 191,159 |

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

Balance, December 31, 2021 | $ | 14,463 |
Assumed in business acquisition | 38 |
Charged to expense | 2,043 |
Margin on parts sales reversed | 791 |
Reductions for claims settled | (2,775) |
Balance, April 1, 2022 | $ | 14,560 |

Deferred Revenue
Revenue is deferred when cash payments are received or due in advance of performance, including amounts which are refundable. This is also the case for services associated with certain product sales. The balance in the deferred revenue and customer advances was $66.7 million as of April 1, 2022 and $60.6 million as of December 31, 2021. Net sales for the year to date included $22.5 million in 2022 and $40.9 million in 2021 that related to deferred revenue as of the beginning of each period.
11.Fair Value
Assets and liabilities measured at fair value on a recurring basis and fair value measurement level were as follows (in thousands):

| Level |  | April 1, 2022 |  | December 31, 2021
Assets |  |  |  |  |
Cash surrender value of life insurance | 2 |  | $ | 22,052 |  |  | $ | 23,147 |
Liabilities |  |  |  |  |
Contingent consideration | 3 |  | $ | 15,924 |  |  | $ | 12,274 |
Deferred compensation | 2 |  | 5,795 |  |  | 5,962 |
Forward exchange contracts | 2 |  | 173 |  |  | 111 |
Total liabilities at fair value |  |  | $ | 21,892 |  |  | $ | 18,347 |

Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred
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compensation plans. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.
Contingent consideration liability represents the estimated value (using a probability-weighted expected return approach) of future payments to be made to previous owners of certain acquired businesses based on future revenues.
Long-term notes payable with fixed interest rates had a carrying amount of $75 million and estimated fair value of $80 million as of April 1, 2022. As of December 31, 2021, the long- term notes had a carrying amount of $150 million and estimated fair value of $165 million. The fair value of variable rate borrowings approximates carrying value. The Company uses significant other observable inputs to estimate fair value (level 2 of the fair value hierarchy) based on the present value of future cash flows and rates that would be available for issuance of debt with similar terms and remaining maturities.
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Item 2. GRACO INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Industrial, Process and Contractor. Key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channel and technologies.
The ongoing global COVID-19 pandemic and related governmental, business and societal responses continue to have an impact on our operations, supply chains, distribution channels, and end-user customers. The timing, duration, and extent of the impact from the pandemic in our major geographies is still uncertain and we cannot predict the magnitude of the impact to the results of our operations or financial position.
The Company continues to experience logistical and production constraints associated with raw materials and purchased components. These constraints were due to limited raw material and component availability, reduced freight capacity, shipping delays, and labor shortages as a result of responses to the COVID-19 pandemic and other supply chain disruptions. We also experienced the effects of price inflation related to raw materials, purchased components, and freight and transportation costs. The supply chain disruptions and associated effects of inflation have adversely impacted profitability in the near-term and limited our ability to satisfy strengthening customer demand, especially within our high-volume Contractor segment. We expect these challenges to continue into at least the first half of 2022.
The Company also has historically sold products to customers located in or associated with Russia and Belarus. In response to Russia's invasion of Ukraine, the United States, the United Kingdom, the European Union, Switzerland and others have initiated sanctions and export controls targeting Russia and Belarus and entities associated with those countries, which significantly limits our ability to sell certain products, serve certain customers and collect on our outstanding receivables. As a result, we have decided to suspend sales into Russian and Belarus for the time being. Sales to Russia and Belarus accounted for approximately 1.5% of our 2021 net sales and were not material for the first quarter of 2022.
The duration and extent to which the pandemic and trade sanctions against Russia and Belarus affect the Company's business will depend on future developments which still remain uncertain.
The following Management’s Discussion and Analysis reviews significant factors affecting the Company’s results of operations and financial condition. This discussion should be read in conjunction with the financial statements and the accompanying notes to the financial statements.
Consolidated Results
A summary of financial results follows (in millions except per share amounts):

|  |  | Three Months Ended
|  |  |  |  |  |  | Apr 1, 2022 |  | Mar 26, 2021 |  | % Change
Net Sales |  |  |  |  |  |  | $ | 494.3 |  |  | $ | 454.1 |  |  | 9 | %
Operating Earnings |  |  |  |  |  |  | 128.4 |  |  | 128.3 |  |  | — | %
Net Earnings |  |  |  |  |  |  | 100.8 |  |  | 105.7 |  |  | (5) | %
Net Earnings, adjusted (1) |  |  |  |  |  |  | 99.3 |  |  | 101.6 |  |  | (2) | %
Diluted Net Earnings per Common Share |  |  |  |  |  |  | $ | 0.58 |  |  | $ | 0.61 |  |  | (5) | %
Diluted Net Earnings per Common Share, adjusted (1) |  |  |  |  |  |  | $ | 0.57 |  |  | $ | 0.58 |  |  | (2) | %

(1) See below for a reconciliation of adjusted non-GAAP financial measures to GAAP.
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Sales increased 9 percent compared to last year led by double-digit growth in the Industrial and Process segments. Changes in currency translation rates reduced worldwide sales by $7 million (2 percentage points). Sales from acquired operations contributed approximately $2 million (1 percentage point).
Gross profit margin rate for the quarter weakened mainly due to higher product costs.Total operating expenses for the quarter increased $7 million (6 percent) compared to prior year. Operating expenses as a percentage of sales decreased approximately one percentage point compared to prior year.
Excluding the impact of 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
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Earnings before income taxes |  |  |  |  | $ | 122.9 |  |  | $ | 125.7 |
Income taxes, as reported |  |  |  |  | $ | 22.1 |  |  | $ | 20.0 |
Excess tax benefit from option exercises |  |  |  |  | 1.5 |  |  | 4.1 |
Income taxes, adjusted |  |  |  |  | $ | 23.6 |  |  | $ | 24.1 |
Effective income tax rate |  |  |  |  |  |  |
As reported |  |  |  |  | 18.0 | % |  | 15.9 | %
Adjusted |  |  |  |  | 19.2 | % |  | 19.2 | %
Net Earnings, as reported |  |  |  |  | $ | 100.8 |  |  | $ | 105.7 |
Excess tax benefit from option exercises |  |  |  |  | (1.5) |  |  | (4.1) |
Net Earnings, adjusted |  |  |  |  | $ | 99.3 |  |  | $ | 101.6 |
Weighted Average Diluted Shares |  |  |  |  | 174.7 |  |  | 173.8 |
Diluted Earnings per Share |  |  |  |  |  |  |
As reported |  |  |  |  | $ | 0.58 |  |  | $ | 0.61 |
Adjusted |  |  |  |  | $ | 0.57 |  |  | $ | 0.58 |

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

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Sales |  |  |  |  | 100.0 | % |  | 100.0 | %
Cost of products sold |  |  |  |  | 48.5 |  |  | 45.5 |
Gross Profit |  |  |  |  | 51.5 |  |  | 54.5 |
Product development |  |  |  |  | 3.9 |  |  | 4.3 |
Selling, marketing and distribution |  |  |  |  | 12.7 |  |  | 13.7 |
General and administrative |  |  |  |  | 8.9 |  |  | 8.2 |
Operating Earnings |  |  |  |  | 26.0 |  |  | 28.2 |
Interest expense |  |  |  |  | 1.1 |  |  | 0.5 |
Other expense, net |  |  |  |  | — |  |  | — |
Earnings Before Income Taxes |  |  |  |  | 24.9 |  |  | 27.7 |
Income taxes |  |  |  |  | 4.5 |  |  | 4.4 |
Net Earnings |  |  |  |  | 20.4 | % |  | 23.3 | %

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

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Americas(1) |  |  |  |  | $ | 293.2 |  |  | $ | 264.9 |
EMEA(2) |  |  |  |  | 106.2 |  |  | 110.2 |
Asia Pacific |  |  |  |  | 94.9 |  |  | 79.0 |
Consolidated |  |  |  |  | $ | 494.3 |  |  | $ | 454.1 |

(1) North, South and Central America, including the United States
(2) Europe, Middle East and Africa
The following table presents the components of net sales change by geographic region:

|  |  | Three Months
|  |  |  |  |  |  |  |  | Volume and Price |  | Acquisitions |  | Currency |  | Total
Americas |  |  |  |  |  |  |  |  | 11% |  | 0% |  | 0% |  | 11%
EMEA |  |  |  |  |  |  |  |  | 0% |  | 2% |  | (6)% |  | (4)%
Asia Pacific |  |  |  |  |  |  |  |  | 22% |  | 0% |  | (2)% |  | 20%
Consolidated |  |  |  |  |  |  |  |  | 10% |  | 1% |  | (2)% |  | 9%

Gross Profit
Gross profit margin rate decreased 3 percentage points compared to last year. Realized pricing was unable to offset higher product costs caused by ongoing supply chain and inflationary challenges and the adverse impacts of changes in currency translation rates. The full impact of price changes implemented in the first quarter will be realized as the year progresses.
Operating Expenses
Total operating expenses for the quarter increased $7 million (6 percent) compared to last year. The increase includes $3 million (3 percentage points) of allowances for credit losses on customer receivables in Russia and Belarus. Operating expenses expressed as a percentage of sales decreased approximately one percentage point compared to last year.
Other Expense
Other non-operating expenses increased $3 million for the quarter due to interest expense which included a $3.5 million fee related to the prepayment of private placement debt.
Income Taxes
The effective income tax rate for the quarter was 18 percent, up 2 percentage points from the prior year quarter. The increase in the effective tax rate was primarily due to decreases in excess tax benefits for stock option exercises.
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Segment Results
Certain measurements of segment operations compared to last year are summarized below:
Industrial Segment
The following table presents net sales and operating earnings as a percentage of sales for the Industrial segment
(dollars in millions):

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Sales |  |  |  |  |  |  |
Americas |  |  |  |  | $ | 54.3 |  |  | $ | 46.3 |
EMEA |  |  |  |  | 47.9 |  |  | 45.1 |
Asia Pacific |  |  |  |  | 42.5 |  |  | 38.5 |
Total |  |  |  |  | $ | 144.7 |  |  | $ | 129.9 |
Operating earnings as a percentage of net sales |  |  |  |  | 36 | % |  | 33 | %

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

|  |  | Three Months
|  |  |  |  |  |  |  |  | Volume and Price |  | Acquisitions |  | Currency |  | Total
Americas |  |  |  |  |  |  |  |  | 17% |  | 0% |  | 0% |  | 17%
EMEA |  |  |  |  |  |  |  |  | 13% |  | 0% |  | (7)% |  | 6%
Asia Pacific |  |  |  |  |  |  |  |  | 11% |  | 0% |  | 0% |  | 11%
Segment Total |  |  |  |  |  |  |  |  | 14% |  | 0% |  | (3)% |  | 11%

Continued economic strength in the Americas, project activity in EMEA and increased economic activity in Asia Pacific contributed to the increase in Industrial segment sales. The operating margin rate increased 3 percentage points as realized pricing and expense leverage more than offset higher product costs and the adverse impacts of currency translation.
Process Segment
The following table presents net sales and operating earnings as a percentage of sales for the Process segment
(dollars in millions):

|  |  | Three Months Ended
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Sales |  |  |  |  |  |  |
Americas |  |  |  |  | $ | 68.4 |  |  | $ | 56.8 |
EMEA |  |  |  |  | 17.1 |  |  | 14.8 |
Asia Pacific |  |  |  |  | 29.5 |  |  | 19.8 |
Total |  |  |  |  | $ | 115.0 |  |  | $ | 91.4 |
Operating earnings as a percentage of net sales |  |  |  |  | 24 | % |  | 24 | %

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

|  |  | Three Months
|  |  |  |  |  |  |  |  | Volume and Price |  | Acquisitions |  | Currency |  | Total
Americas |  |  |  |  |  |  |  |  | 20% |  | 0% |  | 0% |  | 20%
EMEA |  |  |  |  |  |  |  |  | 19% |  | 0% |  | (3)% |  | 16%
Asia Pacific |  |  |  |  |  |  |  |  | 51% |  | 0% |  | (2)% |  | 49%
Segment Total |  |  |  |  |  |  |  |  | 26% |  | 0% |  | 0% |  | 26%

The Process segment had sales growth in all product applications. The operating margin rate for this segment was flat compared to last year. Expense leverage offset higher product costs, unfavorable product and channel mix and the 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
|  |  |  |  | April 1, 2022 |  | March 26, 2021
Net Sales |  |  |  |  |  |  |
Americas |  |  |  |  | $ | 170.5 |  |  | $ | 161.9 |
EMEA |  |  |  |  | 41.2 |  |  | 50.2 |
Asia Pacific |  |  |  |  | 22.9 |  |  | 20.7 |
Total |  |  |  |  | $ | 234.6 |  |  | $ | 232.8 |
Operating earnings as a percentage of net sales |  |  |  |  | 25 | % |  | 31 | %

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

|  |  | Three Months
|  |  |  |  |  |  |  |  | Volume and Price |  | Acquisitions |  | Currency |  | Total
Americas |  |  |  |  |  |  |  |  | 5% |  | 0% |  | 0% |  | 5%
EMEA |  |  |  |  |  |  |  |  | (17)% |  | 4% |  | (5)% |  | (18)%
Asia Pacific |  |  |  |  |  |  |  |  | 14% |  | 0% |  | (3)% |  | 11%
Segment Total |  |  |  |  |  |  |  |  | 1% |  | 1% |  | (1)% |  | 1%

Contractor segment sales increased modestly as continued stability in North American construction markets and improved demand in Asia Pacific offset weakness in EMEA due to product availability. Higher product costs, unfavorable product and channel mix and the adverse impacts of currency translation drove a 6 percentage point decrease in the operating margin rate.
Liquidity and Capital Resources
Net cash provided by operating activities of $31 million decreased $70 million from the comparable period last year, mostly driven by increased salary and incentive payments and inventory purchases to meet demand levels. Significant uses of cash in 2022 included share repurchases of $109 million, long-term debt payments of $75 million, property, plant and equipment additions of $47 million, dividend payments of $36 million, and $25 million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in 2022 totaled $21 million.
Significant uses of cash in 2021 included dividend payments of $32 million, property, plant and equipment additions of $21 million partially offset by proceeds from shares issued of $26 million.
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As of April 1, 2022, the Company had available liquidity of $908 million, including cash held in deposit accounts of $380 million, of which $152 million was held outside of the U.S., and available credit under existing committed credit facilities of $528 million.
Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2022, including its capital expenditure plan, planned dividends, share repurchases, acquisitions and operating requirements. Capital expenditures for 2022 are expected to be approximately $190 million, including $140 million in facility expansion projects. The Company may make opportunistic share repurchases going forward.
Outlook
For the full-year 2022, the Company is targeting high single digit sales growth on an organic, constant currency basis. Underlying demand in key end markets and geographies remains solid, however, the Company is keeping a close eye on how economic and geopolitical conditions may impact the balance of the year, especially in EMEA. While the Company is starting the second quarter with a strong backlog, the Company’s backlog is not a good indicator of future long-term business levels. In addition to economic growth, the successful launch of new products and expanded distribution coverage, the sales outlook is dependent on many factors, including realization of price increases and stable foreign currency exchange rates.
Cautionary Statement Regarding Forward-Looking Statements
The Company desires to take advantage of the “safe harbor” provisions regarding forward-looking statements of the Private Securities Litigation Reform Act of 1995 and is filing this Cautionary Statement in order to do so. From time to time various forms filed by our Company with the Securities and Exchange Commission, including our Form 10-K, Form 10-Qs and Form 8-Ks, and other disclosures, including our 2021 Overview report, press releases, earnings releases, analyst briefings, conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ 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 2021 and Item 1A of this Form 10-Q for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com and the Securities and Exchange Commission’s website at www.sec.gov. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.
Investors should realize that factors other than those identified above and in Item 1A might prove important to the Company’s future results. It is not possible for management to identify each and every factor that may have an impact on the Company’s operations in the future as new factors can develop from time to time.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes related to market risk from the disclosures made in the Company’s 2021 Annual Report on Form 10-K.
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the fiscal quarter covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was done under the supervision and with the participation of the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer. Based upon that evaluation, the Company's President and Chief Executive Officer and the Chief Financial Officer and Treasurer concluded that the Company’s disclosure controls and procedures are effective.
Changes in internal controls
During the quarter, there was no change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
Item 1A.Risk Factors
Except as noted below, there have been no material changes to the Company’s risk factors from those disclosed in the Company’s 2021 Annual Report on Form 10-K.
Russian Invasion of Ukraine – Russia’s invasion of Ukraine, and the sanctions and actions taken against Russia and Belarus in response to the invasion, could adversely impact our business.
While our sales into Russia and Belarus are not material to our overall business, and we do not have any physical operations in Russia or Belarus or source raw materials or components directly from either country, the Russian invasion of Ukraine and the resulting sanctions and actions taken against Russia and Belarus by the United States, the United Kingdom, the European Union, Switzerland and others have considerably depressed demand for our products in Russia and Belarus and restricted our ability to sell certain products in those countries. As a result, we have decided to suspend sales into Russia and Belarus for the time being. We expect demand for our products in Russia and Belarus to remain depressed, and our ability to sell certain products in Russia and Belarus to continue to be restricted, for the foreseeable future. A significant escalation or expansion of the conflict beyond its current geographic, political and economic scope and scale could have a material adverse effect on our business, results of operations and financial condition, and could exacerbate other risks discussed in our 2021 Annual Report on Form 10-K. Such risks include, but are not limited to: an increase in the frequency and severity of the cybersecurity threats we and various third parties with whom we do business experience; unfavorable changes in exchange rates; further shortages, delivery delays and price inflation in a wide variety of raw materials and components; widespread reductions in end-user demand; and increased logistical challenges.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On April 24, 2015, the Board of Directors authorized the Company to purchase up to 18 million shares of its outstanding common stock, primarily through open-market transactions. There were approximately 3.3 million shares remaining under the authorization on December 7, 2018, when the Board of Directors authorized the purchase of up to an additional 18 million shares. The authorizations are for an indefinite period of time or until terminated by the Board.
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)
January 1, 2022 - January 28, 2022 |  | 17,200 |  |  | $ | 69.69 |  |  | — |  |  | 18,500,634 |
January 29, 2022 - February 25, 2022 |  | 1,117,639 |  |  | $ | 71.44 |  |  | — |  |  | 17,382,995 |
February 26, 2022 - April 1, 2022 |  | 382,361 |  |  | $ | 71.37 |  |  | — |  |  | 17,000,634 |

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Item 6.Exhibits

3.1 |  |  | Restated Articles of Incorporation as amended December 8, 2017. (Incorporated by reference to Exhibit 3.1 to the Company's Report on Form 8-K filed December 8, 2017.)
3.2 |  |  | Restated Bylaws as amended February 14, 2014. (Incorporated by reference to Exhibit 3.2 to the Company’s 2013 Annual Report on Form 10-K.)
31.1 |  | Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 |  | Certification of Chief Financial Officer and Treasurer pursuant to Rule 13a-14(a).
32 |  | Certification of President and Chief Executive Officer and Chief Financial Officer and Treasurer pursuant to Section 1350 of Title 18, U.S.C.
99.1 |  | Press Release Reporting First Quarter Earnings dated April 27, 2022.
101 |  |  | Interactive data files pursuant to Rule 405 of Regulation S-T formatted in iXBRL (Inline eXtensible Business Reporting Language).
104 |  |  | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).

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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: |  | April 27, 2022 |  | By: |  | /s/ Mark W. Sheahan
|  |  |  |  |  | Mark W. Sheahan
|  |  |  |  |  | President and Chief Executive Officer
|  |  |  |  |  | (Principal Executive Officer)
Date: |  | April 27, 2022 |  | By: |  | /s/ David M. Lowe
|  |  |  |  |  | David M. Lowe
|  |  |  |  |  | Chief Financial Officer and Treasurer
|  |  |  |  |  | (Principal Financial Officer)
Date: |  | April 27, 2022 |  | By: |  | /s/ Kathryn L. Schoenrock
|  |  |  |  |  | Kathryn L. Schoenrock
|  |  |  |  |  | Executive Vice President, Corporate Controller and Information Systems
|  |  |  |  |  | (Principal Accounting Officer)