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 2024. Decreased receivables from lower sales activity were more than offset by the incremental effect of acquired operations. An effort to reduce inventory levels in 2024 more than offset the effect of acquired inventory. As inventory purchases decreased, trade accounts payable decreased. The current ratio increased in 2024 in line with the changes in working capital.

Capital Structure. At December 27, 2024, the Company’s capital structure included current notes payable of $29 million and shareholders’ equity of $2,584 million. At December 29, 2023, the Company’s capital structure included current notes payable of $30 million and shareholders’ equity of $2,224 million.

Shareholders’ equity increased by $360 million in 2024. The increase provided by current year earnings of $486 million was primarily offset by dividends of $176 million and share repurchases of $31 million. Other increases in shareholders' equity included share issuances, stock compensation and other comprehensive income of $81 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 27, 2024, the Company had available liquidity of $1,453 million, including cash held in deposit accounts of $675 million, of which $144 million was held outside of the U.S., and available credit under existing committed credit facilities of $778 million.

Internally generated funds and unused financing sources are expected to provide the Company with the flexibility to meet its liquidity needs in 2025, including its capital expenditure plan of approximately $60 million, planned dividends estimated at $186 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 2024, the Board of Directors increased the Company’s regular quarterly dividend from $0.255 to $0.275 per share, an increase of 8 percent.

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

Cash Flows From Operating Activities. Net cash provided by operating activities was $622 million in 2024, down $29 million compared to 2023, due primarily to lower net earnings. Fewer inventory purchases in 2024 as part of an inventory reduction program, as well as other decreases in working capital partially offset the effects of lower net earnings on cash provided by operating activities.

Cash Flows Used in Investing Activities. 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 $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.

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.

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 27, 2024, approximately 13 million shares remain available for purchase under the authorization.

The Company repurchased and retired 0.4 million shares in 2024, 1.4 million shares in 2023 and 3.6 million shares in 2022. The Company has made and may continue to make opportunistic share repurchases in 2025 via open market transactions or short-dated accelerated share repurchase programs.