GGG 10-K & 10-Q changes, risk factors and insider trading

As a global manufacturer of systems and equipment designed to move, measure, mix, control, dispense and spray fluid and powder materials, our business is subject to various risks and uncertainties. Below are risk factors that could materially and adversely affect our business, financial condition and results of operations.

Economic Environment -– Demand for our products depends on the level of commercial and industrial activity worldwide.

The demand for our products depends, in part, on the general economic conditions of the industries, geographies or economies in which our customers operate. An economic downturn, recession, depression, sustained inflationary pressures or financial market turmoil may depress demand for our equipment in all or some major geographies and markets. Economic uncertainty and volatility in various geographies and industries in which we conduct business may adversely affect our net sales and earnings. If any participant in our distributorssales andchannel, originalincluding equipmentend manufacturersusers, are unable to, or have a diminished ability to, purchase our products because of unavailable credit or unfavorable credit terms, depressed end-user demand, or are simply unwilling to purchase our products, our net sales and earnings will be adversely affected. An economic downturn may have an adverse effect on our results of operations and financial condition and affect our ability to satisfy the financial covenants in the terms of our financing arrangements. We cannot predict the timing, severity or duration of any such downturn, or the timing of any recovery.

Currency -– Changes in currency translation rates could adversely impact our revenue, earnings and the valuation of assets denominated in foreign currencies.

Domestic political instability, including government shut downs,shutdowns, may limit our ability to grow our business. International political instability (including tensions or conflicts between the U.S. and the countries in which we conduct business, rumors or threats of war, terrorism and other hostilities, and geopolitical activity or trade disruptions, such as those caused by the Russia-Ukraine and Israel-Hamas conflicts, or any conflict or threatened conflict between China and Taiwan) may cause economic conditions in the U.S. or abroad to deteriorate. The occurrence of any of these events could result in a prolonged economic slowdown, prevent us or our customers from expanding into certain geographies or limit our ability to grow our business. Civil disturbances may also harm our business.

Global Sourcing -– Risks associated with foreign sourcing, supply interruption, delays in raw material or component delivery, supply shortages and counterfeit components may adversely affect our production or profitability.

Geopolitical instability (including in EuropeEurope, andAsia, the Middle EastEast, and South America), protective tariffs, unpredictable changes in duty rates, and changes in trade policies, agreements, relations and regulations have made and may continue to make certain foreign-sourced parts of limited availability or no longer competitively priced. Long supply chains may be disrupted by environmental events, public health crises, political or other factors. Raw materials may become limited in availability from certain regions. Port labor issues may delay shipments. We source a large volume and a variety of electronic components, which exposes us to an increased risk of counterfeit components entering our supply chain. If counterfeit components unknowingly become part of our products, we may need to stop delivery and rework our products. We may be subject to warranty claims and may need to recall products. While many of our raw materials, parts and components are generally commercially available from a number of sources, some of them are sourced from single suppliers, which has limited, and could continue to limit, their availability when those suppliers are unable or unwilling to meet our production requirements and we are unable to timely source such items from an alternative supplier. In addition, we source some of our materials, parts and components from suppliers located in China. As such, we are exposed to potential disruptions in deliveries from these suppliers due to political tensions, geopolitical risks, government-mandated facility closures due to public health matters or other causes. Shortages, delivery delays and price inflation in a wide variety of raw materials and components (including but not limited to electronic components, castings, engines and motors) and logistical challenges (including but not limited to increased freight costs, shipping container shortages, trucking shortages, ocean, railway and air freight capacity constraints, labor shortages and port delays) have adversely affected production and profitability and may adversely affect production and profitability in the future.

Information Systems -– Interruption of or intrusion into information systems may impact our business.

We rely on information systems and networks to conduct and support our business. Some of these systems and networks are managed, hosted and provided by third parties. We use these systems and networks to record, process, summarize, transmit and store electronic information, and to manage or support our business processes and activities. We may experience interruptions, delays and outages in service and availability from time to time, including infrastructure changes, human or software errors, upgrade disruptions and capacity constraints. We also face the risk that the measures we have implemented to secure our information systems and networks and prevent unauthorized access to or loss of sensitive data are not effective and our information systems, networks, and those of our third-party service providers may be exposed to risks, including unauthorized access, operational errors, fraudulent activities, system failures, poor password management, and other potential irregularities. Our employees, customers and others may be the subject of social engineering attacks and induced to disclose confidential, proprietary or other sensitive information, including their network credentials, to cybercriminals, who may then gain access to our and our customers’ information, data and information technology systems. Cybersecurity threats are increasing in frequency, sophistication and severity. We have experienced and expect to continue to experience cybersecurity threats and attacks on our systems and networks and those of our third-party service providers. To date, none of the cybersecurity threats and attacks we have experienced have hadmaterially aaffected, materialor adverseare impactreasonably onlikely to materially affect, our results of operations, business strategy or financial condition.

The tactics and capabilities of cybercriminals are growing increasingly sophisticated, and itthey will continue to evolve in their sophistication as artificial intelligence is leveraged to perpetrate cyberattacks. It is virtually impossible for any organization, including us, to completely eliminate the risk of cyberattacks. Security breaches or intrusion into our information systems or networks or the information systems or networks of the third parties with whom we do business pose a risk to the confidentiality, availability and integrity of our data and of our customers, suppliers and employees, and could lead to any one or more of the following: the compromising of confidential information; manipulation, unauthorized use, theft or destruction of data; product defects or malfunctions; production downtimes and operations disruptions; litigation; regulatory action; reputational harm, including loss of confidence by our customers, suppliers and employees in our ability to adequately protect their information; fines; ransoms; and other costs and adverse consequences. As a manufacturer, our operating technology assets and systems are susceptible to disruption through cyberattacks. We anticipate that meaningful investments in our operating technology infrastructure will be necessary as we continue to assess our operating technology posture and respond to the increasingly-pronounced risks posed by third-party cyber actors. The occurrence of a security breach or an intrusion into an information system or a network, or the breakdown, interruption or inadequate upgrading or maintenance of our information processing software, hardware or networks or the internet, may adversely affect our business, reputation, results of operations and financial condition. We do not currently maintain specific cyber insurance coverage. Any insurance coverage we do have may be inadequate to compensate for losses arising from any security breach or cybersecurity incident, and may in the future not be available to us on economically reasonable terms, or at all.

Intellectual Property -– Demand for our products may be affected by new entrants who copy our products or infringe on our intellectual property. Competitors may allege that our products infringe the intellectual property of others.

While we believe theThe development and adoption of generative AI technologies are inrapidly theirevolving, early stages,and the increased use of these technologies in the conduct of our business poses risks which, if they materialize, could adversely impact our business, financial condition, results of operation and reputation. The deployment of generative AI tools creates opportunities for the potential loss or misuse of personal data, the inadvertent dissemination of our confidential or proprietary information, or the unintentional use of third parties’ intellectual property. In addition, the content, analyses, recommendations or other output that generative AI tools produce could be deficient, inaccurate or biased or be based on flawed or insufficient datasets. The Company’s ability to execute its strategic objectives could be adversely affected if it is unable to successfully integrate new technologies, including artificial intelligence, in a timely, cost‑effective, compliant, and appropriate manner, or if the processes and methods used to develop, deploy, or otherwise utilize such technologies are determined to be inconsistent with evolving or newly enacted regulatory requirements.

Foreign Operations -– Conducting business internationally exposes our Company to risks that could harm our business.

Catastrophic Events -– Our operations are at risk of damage, destruction or disruption by natural disasters and other unexpected events.

Personnel -– Our success may be affected if we are not able to attract, develop and retain qualified personnel.

Public health crises,– Crises, such as an epidemic or pandemic, could have a material and adverse effect on our business, results of operations and financial condition.

Growth Strategies and Acquisitions -– Our growth strategies may not provide the return on investment desired if we are not successful in implementation of these strategies.

Impairment -– If acquired businesses do not meet performance expectations, acquired assets could be subject to impairment.

Competition -– Our success depends upon our ability to develop or acquire, and market and sell, new products that meet our customers’ evolving needs and desires, and anticipate industry and market changes.

Major Customers -– Our Contractor segment depends on a few large customers for a significant portion of its sales. Significant declines in the level of purchases by these customers could reduce our sales and impact segment profitability.

Cyclical Industries -– Our success may be affected by variations in the construction, automotive, electronics, aerospace, semiconductor, and agriculture and construction equipment industries.

Laws and Regulations -– Changes in laws and regulations, and the imposition of new or additional laws and regulations, may impact how we can do business and the cost of doing business around the world.

Anti-Corruption and Trade Laws -– We may incur costs and suffer damages if our employees, agents, distributors or suppliers violate anti-bribery, anti-corruption or trade laws and regulations.

Tax Rates and New Tax Legislation -– Changes in tax rates or the adoption of new tax legislation may affect our results of operations, cash flows and financial condition.

The Company is subject to taxes in the U.S. and a number of foreign jurisdictions where it conducts business. The Company’s effective tax rate has been and may continue to be affected by changes in the mix of earnings in jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws or their interpretation, such as the 15% global minimum tax under the Organization for Economic Cooperation and Development ("OECD") Pillar Two, Global Anti-Base Erosion Rules. In addition, the U.S. government could adopt changes to international trade agreements, tariffs, taxes and other related regulations. If the Company’s effective tax rate were to increase, or if the ultimate determination of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s results of operations, cash flows and financial condition could be adversely affected.

Legal Proceedings -– Costs associated with claims, litigation, administrative proceedings and regulatory reviews, and potentially adverse outcomes, may affect our profitability.

Graco designs, manufactures and markets systems and equipment used to move, measure, mix, control, dispense and spray a wide variety of fluid and powder materials. The Company specializes in equipment for applications that involve difficult-to-handle materials with high viscosities, materials with abrasive or corrosive properties and multiple-component materials that require precise ratio control. Graco sells primarily through independent third-party distributors worldwide to industrial and contractor end users. Graco’s business is classified by management into three reportable segments: Contractor, Industrial and Process.Expansion Markets. Each segment is responsible for product development, manufacturing, marketing and sales of their products.

Graco’s 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 channels and technologies. Long-term financial growth targets accompany these strategies, including our objectives of 10 percent revenue growth and 12 percent consolidated net earnings growth per annum. We continue to develop new products in each operating divisionsegment that are expected to drive incremental sales growth, as well as continued refreshes and upgrades of existing product lines. Graco has made a number of strategic acquisitions that expand and complement organically developed products and provide new market and channel opportunities.

(1) Excludes impactsthe impact of business reorganization charges, excess tax benefits from stock option exercises, impairment charges, contingent consideration fair value adjustments, pension settlement losses and certain non-recurring tax provision adjustments.adjustments and prior year business reorganization charges. See Financial Results Adjusted for Comparability below for a reconciliation of adjusted non-GAAP financial measures to GAAP.

Certain events in the last two years caused fluctuations in financial results. Excess tax benefits related to stock option exercises reduced income taxes by $6 million in 2025 and $15 million in 2024 and $10 million in 2023. Business reorganization charges reduced operating earnings in 2024 by $8 million.2024. Other expensenon-recurring fortax 2023provision included a $42 million non-cash pension settlement loss. In 2023, the Company recorded a goodwill impairment and contingent consideration adjustment related to an acquisition that was not material to the financial statements. Other benefitsadjustments from tax planning activities further reduced income taxes by $3 million in 2023.2025. Operating earnings were increased by contingent consideration fair value adjustments of $14 million in 2025 and reduced by business reorganization charges of $8 million in 2024. Excluding the impacts of those items presents a more consistent basis for comparison of financial results.results, which management believes is useful information to help investors and others evaluate the Company's performance relative to other similarly-situated companies. A calculation of the non-GAAP adjusted measurements of 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):

Total operating expenses increaseddecreased $38$4 million (71 percent) for 20242025 compared to 2023.2024. Operating expenses for 20242025 included $13 million in incremental litigation costs associated with a trial that concluded in December of 2024, $13 million of investments in new product development and other growth initiatives, $7 million of business reorganization costs and $7$36 million of expenses from acquired operations. Reductions in volumeoperations and earnings-basedwere expensesmostly ofoffset by a $14 million fornon-cash gain from the yearreduction partially offsetin the increasefair value of acquisition-related contingent consideration recognized in operatingthe expenses.current year and $21 million of litigation and business reorganization costs from the prior year that did not repeat. Investment in new product development in 20242025 was $87$82 million, approximately 4 percent of sales.

Sales declinesgrowth and increaseddecreased operating expenses led to a 1210 percent decreaseincrease in operating earnings. Operating earnings expressed as a percentage of sales in 20242025 decreasedincreased approximately 31 percentage pointspoint compared to 20232024 asprimarily lowerdue sales,to highera product$14 costsmillion andnon-cash highergain expenses impacted profitability forfrom the year.reduction in the fair value of acquisition-related contingent consideration in 2025.

Interest & Other (Income) Expense

The effective income tax rate for 20242025 was 1819 percent, up 1 percentage point from 2023.2024. The increase in 20242025 was largely due to non-recurring tax benefits in 2023, variations in excess tax benefits from stock option exercises and the unfavorable effects of foreign earnings taxed at higher rates than the U.S.exercises.

The Company has fivefour operating segments which are aggregated into three reportable segments: Contractor, Industrial and Process.Expansion Markets. Refer to Part I Item 1. Business, for a description of the Company’s three reportable segments. Management assesses the performance of segments by reference to operating earnings excluding unallocated corporate expenses and asset impairments.

Contractor segment net sales ingrowth 2024for werethe flatyear comparedincluded to$100 2023. Incremental salesmillion from acquired operations, increasedwhich salesmore ofthan protectiveoffset coatingscontinued equipmentsoftness in worldwide residential and favorable response to new product offerings offset declines in North Americannon-residential construction markets. The operating margin rate for this segment in 2025 was 2 percentage points lower than last2024 yearas dueprice realization and 2024 litigation costs that did not repeat were unable to offset higher product costs onfrom lowerincreased salestariffs volumes,and the unfavorable effects of lower margin rates of acquired operations and litigation costs associated with a trial that concluded in December of 2024.operations.

Sales in the Americas represent the majority of sales for the Contractor segment.segment, although an acquisition completed in 2024 expanded this segment's global geographic presence. Management regularly reviews economic and financial indicators for North America, including levels of residential, commercial and institutional construction, remodeling rates and interest rates. Management also reviews gross domestic product for the regions and the level of the U.S. dollar versus the euro and other currencies.

ProcessExpansion Markets Segment

The following table presents net sales and operating earnings as a percentage of sales for the ProcessExpansion Markets segment (dollars in millions):

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

Although the Americas represent the majority of sales for the ProcessExpansion Markets segment, management monitors indicators such as levels of gross domestic product, capital investment, industrial production,production and oil and natural gas markets and mining activity worldwide.markets.

HigherLower cash and cash equivalent balances primarily drove increasesdecreases in working capital in 2024.2025, Decreasedin addition to increases in trade accounts payable and sales and earnings-based accruals. Changes in receivables fromwere lowerconsistent with higher sales activitylevels. were more than offset by the incremental effect of acquired operations. An effortReductions to reduce inventory levels in 20242025 moreas thanthe result of an inventory reduction program were offset by the effect of acquired inventory.inventory Ason working capital, but improved inventory purchasesturnover decreased,in trade accounts payable decreased.2025. The current ratio increaseddecreased in 20242025 in line with the changes in working capital.

Cash Flows From Operating Activities. Net cash provided by operating activities was $622$684 million in 2024,2025, downup $29$62 million compared to 2023,2024, due primarily to lowerhigher net earnings. Fewer inventory purchases in 20242025 as part of an inventory reduction program, as well as other decreases in working capital partiallyfurther offsetcontributed to the effectsincrease of lower net earnings onin cash provided by operating activities.

Cash Flows Used in Investing Activities. Cash flows used in investing activities totaled $173 million in 2025, including $135 million for business acquisitions and $46 million for capital additions. Cash flows used in investing activities totaled $343 million in 2024, including $242 million for business acquisitions and $107 million for capital additions. Cash flows used in investing activities totaled $185 million in 2023, including $185 million for capital additions.

Cash Flows Used in Financing Activities. Cash flows used in financing activities totaled $576 million in 2025 and included dividends of $183 million and share repurchases of $423 million, partially offset by net proceeds from share issuances of $37 million. Cash flows used in financing activities totaled $140 million in 2024 and included dividends of $172 million and share repurchases of $31 million, partially offset by net proceeds from share issuances of $66 million.

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. On December 5, 2025, the Board of Directors authorized the Company to purchase up to an additional 15 million shares of its outstanding stock. The authorizationauthorizations isare for an indefinite period of time or until terminated by the Board. As of December 27,26, 2024,2025, approximately 1323 million shares remain available for purchase under the authorization.

The Company prepares its consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The Company’s most significant accounting policies are disclosed in Note A1 (Summary of Significant Accounting Policies) to the consolidated financial statements. The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts will differ from those estimates. The Company considers the following policies to involve the most judgment in the preparation of the Company’s consolidated financial statements.

We completed our annual impairment test of goodwill and other intangible assets in the fourth quarter of 2024.2025. No impairment charges were recorded as a result of that review. In 2023, the Company recognized a goodwill impairment related to the reorganization of a business acquired in 2020 that was not material to the consolidated financial statements.

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 consolidated financial statements and the accompanying notes to the consolidated financial statements.

Net sales for the firstsecond quarter increased 23 percent, with 53 percentage points of sales growth from acquired operations and 31 percentage pointspoint of sales growth from the effects of favorable changes in currency translation rates. Sales growth for the quarter was partially offset by a 61 percentage point organic decline.decline related to the timing of finishing system sales and other project activity in the Industrial segment.

NetOperating earnings decreasedincreased 511 percent for the firstsecond quarter. Adjusted netoperating earnings decreasedincreased 711 percent, due primarily to a higher gross margin rate driven by lower operating earningsexpenses and a prior year gain from the salereceipt of a$9 former manufacturing and distribution facilitymillion in Switzerlandtariff thatrefunds, didnet notof repeat.related surcharges.

Excluding the impact of acquisition costs, amortization of acquired intangible assets, the related income tax effects of these items and excess tax benefits from stock option exercises presents a more consistent basis for comparison of financial results. A calculation of the non-GAAP adjusted measurements of operating earnings, earnings before income taxes, income taxes, effective income tax rate, net earnings and diluted earnings per share follows (in millions except per share amounts):

Other non-operating income increased by $6 million in the second quarter and $1 million for the firstyear quarterto decreaseddate from the comparable periods last year, primarily due to lower foreign exchange losses on net assets of foreign operations of $5 million comparedand $6 million, respectively. The year to thedate sameincrease periodin lastother yearnon-operating dueincome towas partially offset by a prior year gain of $5 million from the sale of a former manufacturing and distribution facility in Switzerland that did not repeat.

Net cash provided by operating activities of $120$298 million in the first quartersix months of 2026 decreased $5by $10 million compared to the same period last year,year. mostlyIncreases duein toaccounts higherreceivable performance-basedand incentiveaccounts payouts.payable reflect growth in business activity in the second quarter of 2026. Significant uses of cash in the first three monthshalf of 2026 included share repurchases of $331 million (partially offset by $43 million of net proceeds from shares issued), dividend payments of $49$98 million and plant and equipment additions of $12$29 million. Net proceeds from shares issued in 2026 totaled $40 million, which was partially offset by share repurchases of $12 million.

For the first three monthshalf of 2025, significant uses of cash included share repurchases of $238$361 million (partially offset by $28$25 million from shares issued) and dividend payments of $47$92 million and plant and equipment additions of $30 million.

As of MarchJune 27,26, 2026, the Company had available liquidity of $1,485$1,279 million, including cash and cash equivalents of $712$508 million, of which $223$174 million was held outside of the U.S., and available credit under existing committed credit facilities of $773$771 million.

Incoming order activity and end market demand trends support the Company's 2026 outlook of low single-digit sales growth on an organic constant-currency basis and mid-single-digit growth including the expected incremental sales from acquisitions. The Company estimates third quarter total company sales of $580 million to $600 million, excluding the impact of the Company's announced acquisition of Valco Melton, which is expected to close in the third quarter.