GRACO INC

Working Capital. The following table highlights several key measures of asset performance (dollars in millions):

Higher cash and cash equivalent balances primarily drove increases in working capital in 2023. Changes in receivables were consistent with higher sales levels. Inventories decreased as supply chain disruptions eased and the associated effects of inflation subsided. As inventory purchases decreased, trade accounts payable decreased. The current ratio increased in 2023 in line with the changes in working capital.

Capital Structure. At December 29, 2023, the Company’s capital structure included current notes payable of $30 million and shareholders’ equity of $2,224 million. At December 30, 2022, the Company’s capital structure included current notes payable of $21 million, long-term debt of $75 million and shareholders’ equity of $1,860 million.

Shareholders’ equity increased by $365 million in 2023. The increase provided by current year earnings of $507 million was primarily offset by dividends of $161 million and share repurchases of $102 million. Other increases in shareholders' equity included share issuances, stock compensation and other comprehensive income of $122 million.

Liquidity and Capital Resources. The Company evaluates liquidity as its ability to generate cash to fund its operating, investing and financing activities. Historically the Company has funded cash requirements for working capital, capital expenditures, businesses acquisitions, repayment of debt obligations, retirement plans, dividends, and common stock repurchases, all as applicable, through cash provided by its operations. The Company's other primary source of liquidity includes funds available through various debt financing arrangements.

As of December 29, 2023, the Company had available liquidity of $1,313 million, including cash held in deposit accounts of $538 million, of which $129 million was held outside of the U.S., and available credit under existing committed credit facilities of $775 million.

Internally generated funds and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2024, including its capital expenditure plan of approximately $120 million, including $60 million for building projects to expand production capacity, planned dividends estimated at $171 million, share repurchases and acquisitions. If acquisition opportunities increase, the Company believes that reasonable financing alternatives are available for the Company to execute on those opportunities. The Company has no significant off-balance sheet debt or other unrecorded obligations. The Company believes it has the ability to meet its long-term cash requirements by using available cash and internally generated funds and to borrow under its committed and uncommitted credit facilities.

In December 2023, the Board of Directors increased the Company’s regular quarterly dividend from $0.235 to $0.255 per share, an increase of 9 percent.

Cash Flow. A summary of cash flow follows (in millions):

Cash Flows From Operating Activities. Net cash provided by operating activities was $651 million in 2023, up $274 million compared to 2022, due primarily to higher net earnings and fewer inventory purchases in 2023. Other decreases in working capital further contributed to the increase in cash provided by operating activities in 2023.

Cash Flows Used in Investing Activities. Cash flows used in investing activities totaled $185 million in 2023, including $185 million for capital additions. Cash flows used in investing activities totaled $227 million in 2022 including $201 million for capital additions and $25 million for business acquisitions.

Cash Flows Used in Financing Activities. Cash flows used in financing activities totaled $268 million in 2023 and included share repurchases of $102 million (partially offset by net proceeds from share issuances of $60 million), dividends of $158 million, and net payments on long-term debt and outstanding lines of credit of $65 million.

Cash flows used in financing activities totaled $434 million in 2022 and included dividends of $142 million and net proceeds from share issuances totaling $36 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. The authorization is for an indefinite period of time or until terminated by the Board. As of December 29, 2023, approximately 14 million shares remain available for purchase under the authorization.

The Company repurchased and retired 1.4 million shares in 2023 and 3.6 million shares in 2022. The Company did not repurchase and retire shares in 2021. The Company has made and may continue to make opportunistic share repurchases in 2024 via open market transactions or short-dated accelerated share repurchase (“ASR”) programs.