GRACO INC

Previous wording

On February 20, 2026, the U.S. Supreme Court issued a decision invalidating certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). The U.S. Court of International Trade subsequently issued orders directing the U.S. Customs and Border Protection to refund previously collected IEEPA tariffs. The situation continues to evolve, and further legislative, regulatory, or judicial developments may affect the ultimate outcome and the availability or timing of any refunds. Given the significant uncertainty involved, the Company determined to only recognize IEEPA tariff refunds upon receipt. The Company began receiving IEEPA tariff refunds during the second quarter of 2026. Through the three and six months ended June 26, 2026, the Company received $9 million in refunds, net of related surcharges.

Current wording

On February 20, 2026, the U.S. Supreme Court issued a decision invalidating certain tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). The U.S. Court of International Trade subsequently issued orders directing the U.S. Customs and Border Protection to refund previously collected IEEPA tariffs. Given the significant uncertainty involved, the Company determined to only recognize IEEPA tariff refunds upon receipt. The Company began receiving IEEPA tariff refunds during the second quarter of 2026. Through the nine months ended September 25, 2026, the Company received $9 million in refunds, net of related surcharges.

Previous wording

(1) Adjusted operating earnings, adjusted net earnings and adjusted diluted net earnings per common share reflect the Company's updated non-GAAP methodology. See below for additional information.

Current wording

(1) The adjusted measures of operating earnings, net earnings and diluted net earnings per common share reflect the Company's updated non-GAAP methodology introduced in the second quarter of 2026. See below for a reconciliation of GAAP to non-GAAP measurements.

Previous wording

The gross profit margin rate increased approximately 1 percentage point for the second quarter and was flat for the year to date from the comparable periods last year. For the quarter, price realization and the receipt of $9 million in tariff refunds, net of related surcharges, more than offset the unfavorable effects of lower margin rates from acquired operations. For the year to date, price realization and $9 million in tariff refunds, net of related surcharges, more than offset $6 million of incremental tariff costs, unfavorable product and channel mix and lower margin rates of acquired operations.

Current wording

The gross profit margin rate decreased approximately 3 percentage points for the third quarter compared to the same period last year, primarily driven by higher product costs, the unfavorable effects of lower margin rates of acquired operations and unfavorable product and channel mix. Tariff refunds and changes in tariff costs were not significant for the third quarter. The gross profit margin rate decreased 1 percentage point for the year to date, as the unfavorable effects of lower margin rates of acquired operations and unfavorable product and channel mix were partially offset by tariff refunds, net of related surcharges.

Previous wording

Other non-operating income increased by $6 million in the second quarter and $1 million for the year to date from the comparable periods last year, primarily due to lower foreign exchange losses on net assets of foreign operations of $5 million and $6 million, respectively. The year to date increase in other non-operating income was 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.

Current wording

Other non-operating income increased by $1 million in both the third quarter and the year to date from the comparable periods last year, primarily due to lower foreign exchange losses on net assets of foreign operations. The year to date increase in other non-operating income was 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.

Previous wording

The effective income tax rate was 20 percent for the second quarter and 18 percent for the year to date. Adjusted to exclude the impacts of certain non-recurring items (see Consolidated Results for Comparability), the adjusted effective income tax rate of 20 percent for both the quarter and year to date was comparable to the respective periods last year.

Current wording

The effective income tax rate was 20 percent for the third quarter and 19 percent for the year to date. Adjusted to exclude the impacts of certain non-GAAP adjustments (see reconciliation of GAAP to non-GAAP measurements), the adjusted effective income tax rate of 20 percent for both the third quarter and year to date was comparable to the respective periods last year.

Previous wording

Contractor segment net sales growth for the second quarter and year to date included $7 million and $14 million, respectively, from acquired operations. Organic sales growth in the Americas for the second quarter and year to date was broad-based, and included growth in protective coating and spray foam product categories as well as within the professional paint and home center channels. The operating margin rate for this segment increased 4 percentage points for the quarter and 2 percentage points for the year to date, primarily due to lower operating expenses and the net impact of tariff refunds and related surcharges of $5 million.

Current wording

Contractor segment incremental sales from acquired operations for the third quarter and year to date included $7 million and $20 million, respectively. Organic sales growth in the Americas for the third quarter was primarily driven by growth within the professional paint channel. For the year to date, sales growth was broad-based with growth in the protective coating and spray foam product categories as well as within the professional paint and home center channels. The operating margin rate for this segment was flat for the quarter and increased 2 percentage points for the year to date, primarily driven by the net impact of tariff refunds and related surcharges.

Previous wording

Expansion Markets net sales increased 3% for the second quarter and decreased 1% year to date compared to the same periods last year. Improved order rates in the semiconductor product application drove most of the second quarter sales growth. The segment's operating margin rate increased 1 percentage point for the quarter due primarily to lower expenses. The year to date operating margin rate was flat, as lower expenses offset the impact of lower sales volume.

Current wording

Expansion Markets net sales increased $3 million for both the third quarter and year to date compared to the same periods last year due to improved sales volume in the semiconductor and environmental product applications. The segment's operating margin rate for the third quarter decreased 1 percentage point, primarily due to upfront license fees related to the electric motor product application in the prior year that did not recur. The year to date operating margin rate was flat.

Previous wording

Net cash provided by operating activities of $298 million in the first six months of 2026 decreased by $10 million compared to the same period last year. Increases in accounts receivable and accounts payable reflect growth in business activity in the second quarter of 2026. Significant uses of cash in the first half of 2026 included share repurchases of $331 million (partially offset by $43 million of net proceeds from shares issued), dividend payments of $98 million and plant and equipment additions of $29 million.

Current wording

Net cash provided by operating activities of $463 million in the first nine months of 2026 decreased by $24 million compared to the same period last year. Increases in accounts receivable and accounts payable reflect growth in business activity in the third quarter of 2026. Significant uses of cash in the first nine months of 2026 included business acquisitions of $436 million, share repurchases of $463 million (partially offset by $45 million of net proceeds from shares issued), dividend payments of $145 million and plant and equipment additions of $48 million.

Previous wording

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

Current wording

For the first nine months of 2025, significant uses of cash included share repurchases of $361 million (partially offset by $32 million from shares issued) and dividend payments of $138 million, business acquisitions totaling $70 million and plant and equipment additions of $34 million.

Previous wording

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

Current wording

As of September 25, 2026, the Company had available liquidity of $808 million, including cash and cash equivalents of $140 million, of which $122 million was held outside of the U.S., and available credit under existing committed credit facilities of $668 million.

Previous wording

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, potential future acquisitions and operating requirements. Capital expenditures for 2026 are expected to be approximately $100 million. The Company may make opportunistic share repurchases going forward.

Current wording

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, potential future acquisitions and operating requirements. Capital expenditures for 2026 are expected to be approximately $80 million. The Company may make opportunistic share repurchases going forward.