UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934

For the quarterly period ended March 28, 2003

Commission File Number: 001-9249

	GRACO INC.
	(Exact name of Registrant as specified in its charter)

Minnesota		41-0285640
(State of incorporation)		(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)

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, and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes X No

45,660,000 common shares were outstanding as of April 25, 2003.

GRACO INC. AND SUBSIDIARIES

INDEX

			Page Number
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Statements of Earnings	3
		Consolidated Balance Sheets	4
		Consolidated Statements of Cash Flows	5
		Notes to Consolidated Financial Statements	6-8

	Item 2.	Management's Discussion and Analysis
		of Financial Condition and
		Results of Operations	9-12

	Item 4.	Controls and Procedures	13

PART II	OTHER INFORMATION

	Item 4.	Submission of Matters to a Vote of Security Holders	14

	Item 6.	Exhibits and Reports on Form 8-K	14

SIGNATURES			15

CERTIFICATIONS			16-18

EXHIBITS

PART I

	GRACO INC. AND SUBSIDIARIES
Item 1.	CONSOLIDATED STATEMENTS OF EARNINGS
	(Unaudited) (In thousands, except per share amounts)

	Thirteen Weeks Ended
	March 28, 2003			March 29, 2002
Net Sales	$	119,660		$	107,857

Cost of products sold		56,657			52,694

Gross Profit		63,003			55,163

Product development		4,473			4,161

Selling, marketing and distribution		22,897			19,792

General and administrative		8,512			7,717

Operating Earnings		27,121			23,493

Interest expense		128			150

Other expense (income), net		(101	)		(3	)

Earnings before Income Taxes		27,094			23,346

Income taxes		8,900			7,800

Net Earnings	$	18,194		$	15,546

Basic Net Earnings per Common Share	$	.39		$	.33

Diluted Net Earnings per Common Share	$	.38		$	.32

Cash Dividends Declared per Common Share	$	.08		$	.07

See notes to consolidated financial statements.

GRACO INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)

	March 28, 2003			Dec. 27, 2002

ASSETS

Current Assets
Cash and cash equivalents	$	58,169		$	103,333
Accounts receivable, less allowances of
$5,200 and $4,500		93,881			93,617
Inventories		35,943			30,311
Deferred income taxes		13,172			12,022
Other current assets		1,331			1,241

Total current assets		202,496			240,524

Property, Plant and Equipment:
Cost		221,215			219,427
Accumulated depreciation		(126,984	)		(124,474	)
		94,231			94,953

Intangible Assets, net		11,449			11,860

Other Assets		7,941			8,513

	$	316,117		$	355,850


LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Notes payable to banks	$	8,149		$	13,204
Trade accounts payable		12,910			13,031
Salaries, wages and commissions		9,426			14,490
Accrued insurance liabilities		10,668			10,251
Accrued warranty and service liabilities		6,331			6,294
Income taxes payable		13,605			5,583
Dividends payable		3,930			3,922
Other current liabilities		10,208			13,439

Total current liabilities		75,227			80,214

Retirement Benefits and Deferred Compensation		28,627			28,578

Deferred Income Taxes		1,814			1,652

Shareholders' Equity
Common stock		45,609			47,533
Additional paid-in capital		73,405			71,277
Retained earnings		92,677			128,125
Other, net		(1,242	)		(1,529	)

Total shareholders' equity		210,449			245,406

	$	316,117		$	355,850

See notes to consolidated financial statements.

GRACO INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

	Thirteen Weeks Ended
	March 28, 2003			March 29, 2002
Cash Flows from Operating Activities

Net Earnings	$	18,194		$	15,546
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization		4,401			4,592
Deferred income taxes		(966	)		(332	)
Tax benefit related to stock options exercised		500			2,500
Change in:
Accounts receivable		388			(6,015	)
Inventories		(5,561	)		(1,319	)
Trade accounts payable		(142	)		(19	)
Salaries, wages and commissions		(5,142	)		(3,029	)
Retirement benefits and deferred compensation		640			(9	)
Other accrued liabilities		5,124			403
Other		30			40

		17,466			12,358

Cash Flows from Investing Activities

Property, plant and equipment additions		(3,276	)		(1,639	)
Proceeds from sale of property, plant and equipment		76			13

		(3,200	)		(1,626	)

Cash Flows from Financing Activities

Borrowings on notes payable and lines of credit		5,826			8,512
Payments on notes payable and lines of credit		(10,977	)		(6,632	)
Payments on long-term debt		--			(50	)
Common stock issued		5,216			9,151
Common stock retired		(55,258	)		(686	)
Cash dividends paid		(3,922	)		(3,424	)

		(59,115	)		6,871

Effect of exchange rate changes on cash		(315	)		92

Net increase (decrease) in cash and cash equivalents		(45,164	)		17,695

Cash and cash equivalents
Beginning of year		103,333			26,531

End of period	$	58,169		$	44,226

See notes to consolidated financial statements.

GRACO INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.	The consolidated balance sheet of Graco Inc. and Subsidiaries (the Company) as of March 28, 2003 and the related statements of earnings and cash flows for the thirteen weeks then ended have been prepared by the Company without being audited.

In the opinion of management, these consolidated statements reflect all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of Graco Inc. and Subsidiaries as of March 28, 2003, 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 2002 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.

The Company accounts for its stock option and purchase plans using the intrinsic value method and has adopted the “disclosure only” provisions of Statement of Financial Accounting Standards (SFAS) No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” No compensation cost has been recognized for the Employee Stock Purchase Plan and stock options granted under the various stock incentive plans.

Had compensation cost been determined based upon fair value (using the Black-Scholes option-pricing method) at the grant date for awards under these plans, the Company’s net earnings and earnings per share would have been reduced as follows (in thousands, except per share amounts):

	Thirteen Weeks Ended
	March 28, 2003	March 29, 2002
Net earnings

As reported	$18,194	$15,546
Stock-based compensation, net of related tax effects	1,037	1,058

Pro forma	$17,157	$14,488

Net earnings per common share

Basic as reported	$ .39	$ .33
Basic pro forma	.36	.31
Diluted as reported	.38	.32
Diluted pro forma	.36	.30

3.	Total comprehensive income for the quarter was $18.4 million in 2003 and $15.6 million in 2002. There have been no significant changes to the components of comprehensive income from those noted on the 2002 Form 10-K.

4.	The Company has three reportable segments; Industrial/Automotive, Contractor and Lubrication. The Company does not identify assets by segment. Sales and operating earnings by segment for the thirteen weeks ended March 28, 2003 and March 29, 2002 were as follows (in thousands):

	Thirteen Weeks Ended
	March 28, 2003			March 29, 2002

Net Sales

Industrial/Automotive	$	52,417		$	46,103
Contractor		54,838			51,135
Lubrication		12,405			10,619

Consolidated	$	119,660		$	107,857

Operating Earnings

Industrial/Automotive	$	13,988		$	11,737
Contractor		10,757			10,865
Lubrication		3,147			2,392
Unallocated corporate expenses		(771	)		(1,501	)

Consolidated	$	27,121		$	23,493

5.	Major components of inventories were as follows (in thousands):

	March 28, 2003			Dec. 27, 2002

Finished products and components	$	31,766		$	26,199

Products and components in various stages of completion		17,327			17,219

Raw materials and purchased components		17,788			18,021
		66,881			61,439

Reduction to LIFO cost		(30,938	)		( 31,128	)

	$	35,943		$	30,311

6.	Components of intangible assets were (in thousands):

	March 28, 2003		Dec. 27, 2002

Goodwill	$	7,939	$	7,939

Other identifiable intangibles, net of accumulated
amortization of $6,500 and $6,100		3,510		3,921


	$	11,449	$	11,860

Amortization of intangibles during the first quarter of 2003 was $411,000. Estimated annual amortization is as follows: $1,600,000 in 2003, $900,000 in 2004, $400,000 in 2005, $300,000 in 2006 and $200,000 in 2007.

Subsequent Event: On March 31, 2003, the Company purchased certain assets and assumed certain liabilities of Sharpe Manufacturing Company for approximately $13 million cash. The purchase price will be allocated to assets acquired based on the results of an independent appraisal. Sharpe manufactures spray guns and related parts and accessories for the automotive refinishing market. Sharpe had sales of approximately $11 million in 2002.

	GRACO INC. AND SUBSIDIARIES
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

The following table sets forth items from the Company’s Consolidated Statements of Earnings as percentages of net sales:

	Thirteen Weeks Ended
	March 28, 2003			March 29, 2002

Net Sales		100.0	%		100.0	%

Cost of products sold		47.3			48.9

Product development		3.8			3.9

Selling, marketing and distribution		19.1			18.3

General and administrative		7.1			7.1

Operating Earnings		22.7			21.8

Interest expense		0.1			0.2

Other (income) expense, net		(0.1	)		0.0

Earnings Before Income Taxes		22.7			21.6

Income taxes		7.5			7.2

Net Earnings		15.2	%		14.4	%

Net Sales

Sales by segment and geographic area were as follows (in thousands):

	Thirteen Weeks Ended
	March 28, 2003	March 29, 2002
By Segment

Industrial/Automotive	$ 52,417	$ 46,103
Contractor	54,838	51,135
Lubrication	12,405	10,619

Consolidated	$119,660	$107,857

By Geographic Area

Americas	$ 82,191	$ 78,578
Europe	23,564	19,802
Asia Pacific	13,905	9,477

Consolidated	$119,660	$107,857

Currency exchange rates had a significant effect on first quarter sales. Sales increased 7 percent in local currencies; 11 percent when translated to U.S. dollars. Most of the translation effect came from Europe, where sales were flat in local currencies but increased by 19 percent when translated to U.S. dollars. In Asia Pacific, sales increased 40 percent in local currencies; 47 percent when translated to U.S. dollars. Most of the translation effect is reflected in the Industrial/Automotive segment, which has more sales in Europe and Asia Pacific than the Contractor and Lubrication segments.

Strong demand for the Company's products resulted in higher sales in Asia Pacific. All regions in Asia Pacific except for Japan had sales gains, with the largest increase in China. The Company's investment in additional sales personnel, marketing programs, and expenditures to obtain new distributors have contributed to increased sales.

Contractor segment sales were higher than last year in all regions. In the Americas, sales were higher in the professional paint store channel and slightly lower in the home center channel. Successful new product launches in the paint store channel more than offset the impact of poor weather conditions and a weak commercial construction market in the United States.

Lubrication segment sales increased by 17% primarily due to successful new product introductions and a February sales promotion.

Gross Profit

Gross profit percentage of sales increased to 52.7 percent from 51.1 percent primarily due to favorable currency translation rates. Changes in exchange rates have less impact on the cost of products sold than on sales because most product costs are incurred in U.S. dollars, which had the effect of increasing gross profit rate in the first quarter of 2003 when compared to the same period last year.

Operating Expenses

Increases in operating expenses resulted from higher spending levels required to generate profitable sales growth. First quarter expenses are consistent with the level of spending in the fourth quarter of 2002 but are higher than first quarter of 2002, when spending was restricted due to uncertainties following September 11. Much of the increase from first quarter of 2002 is from payroll-related costs (salaries, incentives and benefits) and also includes higher sales meeting, travel and product introduction expenses. Changes in exchange rates used to translate expenses incurred in foreign currencies also had the effect of increasing expenses as reported in U.S. dollars. General and administrative expenses in 2002 included a $700,000 contribution to the Graco Foundation - no contribution was made in the first quarter of 2003.

Liquidity and Capital Resources

In March 2003, the Company repurchased 2.2 million shares of its common stock for $54.8 million from David A. Koch, a current Board member, and former Chairman and Chief Executive Officer of the Company, his wife, and a family trust and family foundation. The Company used available cash balances to fund the repurchase.

The Company had unused lines of credit available at March 28, 2003 totaling $55 million. Cash balances of $58 million at March 28, 2003, internally generated funds and unused financing sources provide the Company with the financial flexibility to meet liquidity needs, including approximately $13 million cash used in fiscal April 2003 for the acquisition of Sharpe Manufacturing operations.

Outlook

While management believes that 2003 will be a year of modest underlying growth for the major industrialized countries, the Company is aggressively pursuing its growth strategies to increase its revenues and earnings at a faster rate. New products, distribution initiatives, new market activities and strategic acquisitions should add revenues and earnings for the balance of this year.

SAFE HARBOR CAUTIONARY STATEMENT

A forward-looking statement is any statement made in this report and other reports that the Company files periodically with the Securities and Exchange Commission, as well as in press or earnings releases, analyst briefings and conference calls, which reflects the Company's current thinking on market trends and the Company's future financial performance at the time they are made. All forecasts and projections are forward-looking statements.

The Company desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 by making cautionary statements concerning any forward-looking statements made by or on behalf of the Company. The Company cannot give any assurance that the results forecasted in any forward-looking statement will actually be achieved. 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: economic conditions in the United States and other major world economies, currency fluctuations, political instability, changes in laws and regulations, and changes in product demand. Please refer to Exhibit 99 to the Company's Annual Report on Form 10-K for fiscal year 2002 for a more comprehensive discussion of these and other risk factors.

Item 4.	CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of the Company's President and Chief Executive Officer, Vice President and Controller, Vice President and Treasurer, and Vice President, General Counsel and Secretary. Based upon that evaluation, they concluded that the Company's disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Company's disclosure obligations under the Exchange Act.

Changes in internal controls

There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls.

PART II

Item 4.	Submission of Matters to a Vote of Security Holders

	None

Item 6.	Exhibits and Reports on Form 8-K

	(a)	Exhibits

		10.1	2003 Corporate & SBU Bonus Plan

		10.2	Stock Option Agreement. Form of agreement used for award of non-incentive stock options to executive officers under the Graco Inc. Stock Incentive Plan with schedule of awards current as of March 28, 2003

		10.3	Executive Long Term Incentive Agreement. Form of agreement used for award of restricted stock to one executive officer, dated January 6, 2003

		10.4	Stock Purchase Agreement dated March 13, 2003, between Graco Inc. and David A. Koch, Barbara Koch, Paul M. Torgerson and U.S. Bank Trust National Association SD, as Trustees of the Trust administered pursuant to Article V of the Last Will and Testament and Codicil thereto of Clarissa L. Gray deceased, and Greycoach Foundation (Incorporated by reference to Exhibit 10.1 to the Company's Report on Form 8-K dated March 20, 2003)

		11	Computation of Net Earnings per Common Share

		99	Certification of President and Chief Executive Officer, Vice President and Controller, and Vice President and Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	(b)	Reports on Form 8-K

		The following Current Report on Form 8-K was filed during the quarter ended March 28, 2003:

		On March 20, 2003, Graco Inc. filed a current report on Form 8-K to disclose a stock repurchase.

SIGNATURES

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.

		GRACO INC.

Date: April 29, 2003	By:	/s/David A. Roberts
		David A. Roberts President & Chief Executive Officer



Date: May 1, 2003	By:	/s/James A. Graner
		James A. Graner Vice President & Controller Chief Account Officer



Date: April 29, 2003	By:	/s/Mark W. Sheahan
		Mark W. Sheahan Vice President & Treasurer Principal Financial Officer

CERTIFICATIONS

I, David A. Roberts, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Graco Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared.

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	April 29, 2003		/s/David A. Roberts
			David A. Roberts President and Chief Executive Officer

CERTIFICATIONS

I, James A. Graner, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Graco Inc.;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date:	May 1, 2003		/s/James A. Graner
			James A. Graner Vice President and Controller

CERTIFICATIONS

I, Mark W. Sheahan, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Graco Inc.;

3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date:	April 29, 2003		/s/Mark W. Sheahan
			Mark W. Sheahan Vice President and Treasurer