☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 29, 2023
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 001-09249
GRACO INC.
(Exact name of registrant as specified in its charter)
Minnesota
41-0285640
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
88 - 11th Avenue N.E.
Minneapolis,
Minnesota
55413
(Address of principal executive offices)
(Zip Code)
(612)
623-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
GGG
The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
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
☒
168,788,078 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding as of October 11, 2023.
The consolidated balance sheet of Graco Inc. and subsidiaries (the “Company”) as of September 29, 2023 and the related statements of earnings, comprehensive income and shareholders' equity for the three and nine months ended September 29, 2023 and September 30, 2022, and cash flows for the nine months ended September 29, 2023 and September 30, 2022 have been prepared by the Company and have not been audited.
In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 29, 2023, and the results of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Therefore, these statements should be read in conjunction with the financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K.
The results of operations for interim periods are not necessarily indicative of results that will be realized for the full fiscal year.
2.Segment Information
The Company has three reportable segments: Contractor, Industrial and Process. Sales and operating earnings by segment were as follows (in thousands):
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 30, 2022
10,265
$
44.40
7,793
$
37.22
Granted
1,114
71.45
Exercised
(1,191)
30.89
Canceled
(82)
66.15
Outstanding, September 29, 2023
10,106
$
48.79
7,439
$
41.10
The Company recognized year-to-date share-based compensation of $25.5 million in 2023 and $17.9 million in 2022. As of September 29, 2023, there was $20.4 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of 2.6 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:
Nine Months Ended
September 29, 2023
September 30, 2022
Expected life in years
6.7
7.3
Interest rate
4.0
%
1.9
%
Volatility
26.3
%
25.5
%
Dividend yield
1.3
%
1.2
%
Weighted average fair value per share
$
21.76
$
19.06
Under the Company’s Employee Stock Purchase Plan, the Company issued 323,000 shares in 2023 and 316,000 shares in 2022. The fair value of the employees’ purchase rights under this plan was estimated on the date of grant. The benefit of the 15 percentdiscount from the lesser of the fair market value per common share on the first day and the last day of the plan year was added to the fair value of the employees’ purchase rights determined using the Black-Scholes option pricing model with the following assumptions and results:
Amounts related to pension and post-retirement medical adjustments are reclassified to non-service components of pension cost that are included within other non-operating expenses.
7.Receivables and Credit Losses
Accounts receivable include trade receivables of $341 million and other receivables of $12 million as of September 29, 2023 and $334 million and $12 million of trade receivables and other receivables, respectively, as of December 30, 2022.
Allowance for Credit Losses
Following is a summary of activity for credit losses (in thousands):
Three Months Ended
Nine Months Ended
September 29, 2023
September 30, 2022
September 29, 2023
September 30, 2022
Balance, beginning
$
4,199
$
5,689
$
6,130
$
3,254
Additions charged to costs and expenses
366
16
646
3,262
Deductions from reserves (1)
(595)
11
(2,864)
(564)
Other additions (deductions) (2)
(88)
(216)
(30)
(452)
Balance, ending
$
3,882
$
5,500
$
3,882
$
5,500
(1) Represents amounts determined to be uncollectible and charged against reserves, net of collections on accounts previously charged against reserves.
(2) Includes effects of foreign currency translation.
8.Inventories
Major components of inventories were as follows (in thousands):
September 29, 2023
December 30, 2022
Finished products and components
$
233,224
$
222,326
Products and components in various stages of completion
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 September 29, 2023
Cost
$
197,417
$
26,374
$
1,300
$
62,633
$
287,724
Accumulated amortization
(130,424)
(19,751)
(503)
—
(150,678)
Foreign currency translation
(9,647)
(882)
—
(1,693)
(12,222)
Book value
$
57,346
$
5,741
$
797
$
60,940
$
124,824
Weighted average life in years
13
9
6
N/A
As of December 30, 2022
Cost
$
202,103
$
26,374
$
1,300
$
62,633
$
292,410
Accumulated amortization
(123,603)
(18,027)
(330)
—
(141,960)
Foreign currency translation
(10,060)
(894)
—
(1,989)
(12,943)
Book value
$
68,440
$
7,453
$
970
$
60,644
$
137,507
Weighted average life in years
13
10
6
N/A
Amortization of intangibles for the third quarter was $4.4 million in 2023 and $4.8 million in 2022, and for the year to date was $13.2 million in 2023 and $14.1 million in 2022. Estimated annual amortization expense based on the current carrying amount of other intangible assets is as follows (in thousands):
2023 (Remainder)
2024
2025
2026
2027
Thereafter
Estimated Amortization Expense
$
4,166
$
16,155
$
15,739
$
8,982
$
6,358
$
12,484
Changes in the carrying amount of goodwill for each reportable segment were as follows (in thousands):
Contractor
Industrial
Process
Total
Balance, December 30, 2022
$
77,034
$
134,771
$
156,366
$
368,171
Impairment
—
—
(7,800)
(7,800)
Foreign currency translation
(122)
286
180
344
Balance, September 29, 2023
$
76,912
$
135,057
$
148,746
$
360,715
In the third quarter of 2023, the Company recognized a goodwill impairment related to the reorganization of a business acquired in 2020 that is not material to the consolidated financial statements.
Components of other current liabilities were as follows (in thousands):
September 29, 2023
December 30, 2022
Accrued self-insurance retentions
$
9,395
$
9,338
Accrued warranty and service liabilities
15,044
14,674
Accrued trade promotions
14,196
13,799
Payable for employee stock purchases
12,061
16,497
Customer advances and deferred revenue
60,332
50,747
Income taxes payable
13,891
15,987
Tax payable, other
8,816
9,614
Right of return refund liability
17,965
18,449
Operating lease liabilities, current
8,888
9,555
Other
29,001
32,133
Total
$
189,589
$
190,793
A liability is established for estimated future warranty and service claims that relate to current and prior period sales. The Company estimates warranty costs based on historical claim experience and other factors, including evaluating specific product warranty issues. Following is a summary of activity in accrued warranty and service liabilities (in thousands):
Balance, December 30, 2022
$
14,674
Charged to expense
7,842
Margin on parts sales reversed
2,819
Reductions for claims settled
(10,291)
Balance, September 29, 2023
$
15,044
Customer Advances and Deferred Revenue
Revenue is deferred when cash payments are received or due in advance of performance, including amounts which are refundable. This is also the case for services associated with certain product sales. During the three and nine months ended September 29, 2023, we recognized $6.7 million and $43.3 million, respectively, that was included in deferred revenue at December 30, 2022. During the three and nine months ended September 30, 2022, we recognized $11.2 million and $52.0 million, respectively, that was included in deferred revenue at December 31, 2021.
11.Debt
On May 23, 2023 and June 8, 2023, the Company executed amendments to its amended and restated credit agreement that amended, superseded and restated in its entirety the Company's existing credit agreement with U.S. Bank National Association, as administrative agent and a lender, and the other lenders that are parties thereto. The first amendment removed references to LIBOR for calculating rates and replaced them with SOFR and its equivalent benchmark rates such as EURIBOR, TIBOR and RFR loans.
The second amendment increased, from $500 million to $750 million, the amount of availability under an unsecured revolving credit facility, as well as increased, from $200 million to $375 million, the maximum amount of outstanding loans in currencies other than U.S. Dollars. The amendment also increased, from $250 million to $375 million, the amount by which the size of the credit facility may be increased upon exercise of an accordion feature. The accordion feature may be exercised by means of an increase in the revolving commitments or the addition of term loans.
In addition, the second amendment increased the applicable margin percentages used for purposes of calculating the interest rates applicable to base rate loans and non-base rate loans (e.g., SOFR, EURIBOR, TIBOR and RFR loans). Under the amendment, the applicable margin percentages for base rate loans (which ranged from 0.000% to 0.750% under the prior credit agreement) range from 0.125% to 0.875%, and the applicable margin percentages for non-base rate loans (which ranged from 1.000% to 1.750% under the prior credit agreement) range from 1.125% to 1.875%.
Assets and liabilities measured at fair value on a recurring basis and fair value measurement level were as follows (in thousands):
Level
September 29, 2023
December 30, 2022
Assets
Cash surrender value of life insurance
2
$
20,207
$
19,192
Forward exchange contracts
2
233
—
Total assets at fair value
$
20,440
$
19,192
Liabilities
Contingent consideration
3
$
1,375
$
14,914
Deferred compensation
2
6,325
5,842
Forward exchange contracts
2
—
520
Total liabilities at fair value
$
7,700
$
21,276
Contracts insuring the lives of certain employees who are eligible to participate in certain non-qualified pension and deferred compensation plans are held in trust. Cash surrender value of the contracts is based on performance measurement funds that shadow the deferral investment allocations made by participants in certain deferred compensation plans. The deferred compensation liability balances are valued based on amounts allocated by participants to the underlying performance measurement funds.
Contingent consideration liabilities represent 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. In the third quarter of 2023, the Company recognized an $8.6 million gain from the reduction in fair value of contingent consideration related to the reorganization of a business acquired in 2020 that is not material to the consolidated financial statements. Contingent consideration liabilities were further reduced $4.9 million in 2023 by payments made to previous owners of those businesses.
Long-term notes payable with fixed interest rates had a carrying amount of $75 million and an estimated fair value of $75 million as of December 30, 2022. These notes were repaid as of July 12, 2023. 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.
The Company supplies technology and expertise for the management of fluids and coatings in both industrial and commercial applications. It designs, manufactures and markets systems and equipment to move, measure, control, dispense and spray fluid and coating materials. Management classifies the Company’s business into three reportable segments: Contractor, Industrial and Process. Key strategies include developing and marketing new products, leveraging products and technologies into additional, growing end-user markets, expanding distribution globally and completing strategic acquisitions that provide additional channel and technologies.
The Company continued to experience supply chain disruptions and the associated effects of inflation through the third quarter of 2023; however, the impact was not as significant as compared to the same period in the prior year. Pricing actions implemented have generally mitigated the effects of increased costs and expenses. The Company expects isolated supply chain disruptions and an overall inflationary environment to continue through the remainder of 2023.
The following Management’s Discussion and Analysis reviews significant factors affecting the Company’s results of operations and financial condition. This discussion should be read in conjunction with the financial statements and the accompanying notes to the financial statements.
Consolidated Results
A summary of financial results follows (in millions except per share amounts):
Three Months Ended
Nine Months Ended
Sep 29, 2023
Sep 30, 2022
% Change
Sep 29, 2023
Sep 30, 2022
% Change
Net Sales
$
539.7
$
545.6
(1)
%
$
1,629.0
$
1,588.5
3
%
Operating Earnings
163.2
143.1
14
%
476.9
420.2
13
%
Operating Earnings, adjusted (1)
162.4
143.1
13
%
476.1
420.2
13
%
Net Earnings
133.1
116.2
15
%
396.6
334.5
19
%
Net Earnings, adjusted (1)
131.5
114.8
15
%
386.9
331.3
17
%
Diluted Net Earnings per Common Share
$
0.77
$
0.67
15
%
$
2.30
$
1.93
19
%
Diluted Net Earnings per Common Share, adjusted (1)
$
0.76
$
0.66
15
%
$
2.24
$
1.91
17
%
(1) See below for a reconciliation of adjusted non-GAAP financial measures to GAAP.
Net sales decreased 1 percent for the quarter from the comparable period last year. Sales growth in the Process segment was more than offset by a decline in sales in the Contractor segment. Sales were flat in the Americas and decreased in EMEA and Asia Pacific. Changes in currency translation rates increased sales and net earnings by approximately $5 million and $2 million, respectively, for the quarter.
Gross profit margin rate for the quarter was 5 percentage points higher than the comparable period last year due to realized pricing and lower product costs.
Total operating expenses increased 3 percent and increased as a percentage of net sales by 1 percentage point.
Excluding the impacts of contingent consideration fair value adjustments, impairment charges 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 operating earnings, earnings before income taxes, income taxes, effective income tax rates, net earnings and diluted earnings per share follows (in millions except per share amounts):
The following table presents an overview of components of net earnings as a percentage of net sales:
Three Months Ended
Nine Months Ended
September 29, 2023
September 30, 2022
September 29, 2023
September 30, 2022
Net Sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of products sold
47.3
52.2
47.1
50.6
Gross Profit
52.7
47.8
52.9
49.4
Product development
3.7
3.6
3.8
3.7
Selling, marketing and distribution
11.2
11.3
11.9
11.7
General and administrative
7.7
6.8
7.9
7.5
Contingent consideration
(1.6)
—
(0.5)
—
Impairment
1.5
—
0.5
—
Operating Earnings
30.2
26.2
29.3
26.5
Interest expense
0.3
0.3
0.3
0.5
Other (income) expense, net
(0.5)
(0.2)
(0.5)
—
Earnings Before Income Taxes
30.4
26.1
29.5
25.9
Income taxes
5.7
4.8
5.2
4.9
Net Earnings
24.7
%
21.3
%
24.3
%
21.1
%
Net Sales
The following table presents net sales by geographic region (in millions):
Three Months Ended
Nine Months Ended
September 29, 2023
September 30, 2022
September 29, 2023
September 30, 2022
Americas(1)
$
332.7
$
333.4
$
1,010.5
$
964.8
EMEA(2)
107.1
111.3
331.7
325.8
Asia Pacific
99.9
100.9
286.8
297.9
Consolidated
$
539.7
$
545.6
$
1,629.0
$
1,588.5
(1) North, South and Central America, including the United States
(2)Europe, Middle East and Africa
The following table presents the components of net sales change by geographic region:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
0%
0%
0%
0%
5%
0%
0%
5%
EMEA
(10)%
0%
6%
(4)%
0%
0%
2%
2%
Asia Pacific
2%
0%
(3)%
(1)%
0%
0%
(4)%
(4)%
Consolidated
(2)%
0%
1%
(1)%
3%
0%
0%
3%
Gross Profit
Gross profit margin rates for the quarter and year to date increased from the comparable periods last year mainly due to realized pricing. The impact of lower product costs further increased the gross profit margin rate in the quarter from the comparable period last year.
Total operating expenses for the quarter and year to date included a non-cash goodwill impairment charge of $8 million and a $9 million gain from the reduction in fair value of contingent consideration related to the reorganization of a business acquired in 2020. Excluding these items, total operating expenses increased $4 million (4 percent) for the quarter and $21 million (6 percent) for the year to date from the comparable periods last year due to volume and rate-related increases and incremental share-based compensation.
Interest and Other (Income) Expense
Interest expense was flat for the quarter and decreased $4 million for the year to date as private placement debt was repaid in the first quarter last year and in the third quarter of the current year. Other non-operating income increased $2 million for the quarter and $9 million for the year to date mostly due to increased interest income.
Income Taxes
The effective income tax rate increased 1 percentage point to 19 percent for the quarter and decreased 1 percentage point to 18 percent for the year to date from the comparable periods last year due to variations in excess tax benefits from stock option exercises.
Segment Results
Certain measurements of segment operations compared to last year are summarized below:
Contractor Segment
The following table presents net sales and operating earnings as a percentage of sales for the Contractor segment
(dollars in millions):
Three Months Ended
Nine Months Ended
September 29, 2023
September 30, 2022
September 29, 2023
September 30, 2022
Net Sales
Americas
$
185.7
$
196.7
$
558.2
$
566.9
EMEA
41.2
46.6
131.8
132.8
Asia Pacific
18.4
20.8
56.9
64.7
Total
$
245.3
$
264.1
$
746.9
$
764.4
Operating earnings as a percentage of net sales
30
%
25
%
29
%
25
%
The following table presents the components of net sales change by geographic region for the Contractor segment:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
(5)%
0%
(1)%
(6)%
(1)%
0%
(1)%
(2)%
EMEA
(17)%
0%
6%
(11)%
(2)%
0%
1%
(1)%
Asia Pacific
(9)%
0%
(3)%
(12)%
(8)%
0%
(4)%
(12)%
Segment Total
(8)%
0%
1%
(7)%
(2)%
0%
0%
(2)%
Contractor segment sales decreased for the quarter and year to date as favorable response to new product offerings and improved product availability were unable to offset reduced demand from slower economic activity in worldwide construction markets. Strong realized pricing and lower product costs drove the operating margin rate for this segment 5 percentage points higher for the quarter. Realized pricing offset higher product costs and drove an increase of 4 percentage points in the operating margin rate for the year to date.
The following table presents net sales and operating earnings as a percentage of sales for the Industrial segment
(dollars in millions):
Three Months Ended
Nine Months Ended
September 29, 2023
September 30, 2022
September 29, 2023
September 30, 2022
Net Sales
Americas
$
61.5
$
60.1
$
190.5
$
175.9
EMEA
46.2
48.1
143.4
141.6
Asia Pacific
49.4
47.9
136.9
141.7
Total
$
157.1
$
156.1
$
470.8
$
459.2
Operating earnings as a percentage of net sales
35
%
35
%
35
%
35
%
The following table presents the components of net sales change by geographic region for the Industrial segment:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
1%
0%
1%
2%
8%
0%
0%
8%
EMEA
(11)%
0%
7%
(4)%
0%
0%
1%
1%
Asia Pacific
6%
0%
(3)%
3%
1%
0%
(4)%
(3)%
Segment Total
(1)%
0%
2%
1%
3%
0%
0%
3%
Industrial segment sales increased 1 percent for the quarter as improved project activity in Asia Pacific was mostly offset by declines in finishing system sales in EMEA. Underlying end market strength in the Americas drove Industrial segment sales higher for the year to date. The operating margin rate for this segment was flat for the quarter and year to date.
Process Segment
The following table presents net sales and operating earnings as a percentage of sales for the Process segment
The following table presents the components of net sales change by geographic region for the Process segment:
Three Months
Nine Months
Volume and Price
Acquisitions
Currency
Total
Volume and Price
Acquisitions
Currency
Total
Americas
12%
0%
0%
12%
17%
1%
0%
18%
EMEA
14%
0%
4%
18%
9%
0%
1%
10%
Asia Pacific
2%
0%
(2)%
0%
4%
0%
(2)%
2%
Segment Total
9%
0%
1%
10%
13%
1%
(1)%
13%
Process segment sales increased double digits for the quarter and year to date, although the rate of growth slowed in the third quarter. The operating margin rate for this segment increased 7 percentage points for both the quarter and year to date from the comparable periods last year primarily due to price realization and expense leverage.
Liquidity and Capital Resources
Net cash provided by operating activities of $491 million for the first nine months of 2023 increased $220 million from the comparable period in 2022, mostly driven by higher net earnings, decreased inventory purchases and lower accounts receivable due to continued cash collections. Inventory purchases were lower for the first nine months of 2023 compared to the same period last year as logistical and production constraints from disruptions in the supply chain improved. Significant uses of cash in 2023 included plant and equipment additions of $146 million, dividend payments of $119 million and long-term debt payments of $75 million. Net proceeds from shares issued in 2023 totaled $54 million, which were partially offset by share repurchases of $27 million.
For the first nine months of 2022, significant uses of cash included share repurchases of $155 million, plant and equipment additions of $147 million, long-term debt payments of $75 million, dividend payments of $107 million, and $25 million to acquire businesses that were not material to the consolidated financial statements. Proceeds from shares issued in 2022 totaled $27 million.
As of September 29, 2023, the Company had available liquidity of $1,305 million, including cash and cash equivalents of $526 million, of which $267 million was held outside of the U.S., and available credit under existing committed credit facilities of $779 million.
Cash balances and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs for the next 12 months and beyond, including its capital expenditure plan, planned dividends, share repurchases, acquisitions and operating requirements. Capital expenditures for 2023 are expected to be approximately $200 million, including $130 million in facility expansion projects. The Company may make opportunistic share repurchases going forward.
Outlook
The Company's results reflect underlying business trends that were in line with expectations of revenue growth for the full year of low single-digits on an organic, constant currency basis.
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 2022 Overview report, press releases, earnings releases, analyst briefings, conference calls and other written documents or oral statements released by our Company, may contain forward-looking statements. Forward-looking statements generally use words such as “expect,” “foresee,” “anticipate,” “believe,” “project,” “should,” “estimate,” “will,” and similar expressions, and reflect our Company’s expectations concerning the future. All forecasts and projections are forward-looking statements. Forward-looking statements are based upon currently available information, but various risks and uncertainties may cause our Company’s actual results to differ
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, electronics, aerospace, semiconductor, and agriculture and construction equipment 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 2022 and Item 1A of this Form 10-Q for a more comprehensive discussion of these and other risk factors. These reports are available on the Company’s website at www.graco.com and the Securities and Exchange Commission’s website at www.sec.gov. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.
Investors should realize that factors other than those identified above and in Item 1A might prove important to the Company’s future results. It is not possible for management to identify each and every factor that may have an impact on the Company’s operations in the future as new factors can develop from time to time.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes related to market risk from the disclosures made in the Company’s 2022 Annual Report on Form 10-K.
Item 4.Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the fiscal quarter covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. This evaluation was done under the supervision and with the participation of the Company’s President and Chief Executive Officer and the Chief Financial Officer and Treasurer. Based upon that evaluation, the Company's President and Chief Executive Officer and the Chief Financial Officer and Treasurer concluded that the Company’s disclosure controls and procedures are effective.
Changes in internal controls
During the quarter, there was no change in the Company’s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.
Item 2.Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Issuer Purchases of Equity Securities
On December 7, 2018, the Board of Directors authorized the purchase of up to 18 million shares of common stock, primarily through open market transactions. The authorization is for an indefinite period of time or until terminated by the Board.
In addition to shares purchased under the Board authorization, the Company purchases shares of common stock held by employees who wish to tender owned shares to satisfy the exercise price or tax due upon exercise of options or vesting of restricted stock.
Information on issuer purchases of equity securities follows:
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (at end of period)
During the three months ended September 29, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act of 1933).
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.
