GRACO INCGGG
GRACO INC Income Taxes Disclosure
Income Taxes
Earnings before income tax expense consist of (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | 512,686 | $ | 484,088 | $ | 450,806 | |||||||||||
| Foreign | 128,514 | 105,195 | 157,996 | ||||||||||||||
| Total | $ | 641,200 | $ | 589,283 | $ | 608,802 | |||||||||||
Income tax expense consists of (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 81,064 | $ | 62,402 | $ | 79,732 | |||||||||||
| State and local | 7,177 | 6,256 | 7,282 | ||||||||||||||
| Foreign | 35,656 | 28,481 | 23,779 | ||||||||||||||
| Current income tax expense | 123,897 | 97,139 | 110,793 | ||||||||||||||
| Deferred | |||||||||||||||||
| Domestic | 4,459 | 8,344 | (6,919) | ||||||||||||||
| Foreign | (8,995) | (2,284) | (1,583) | ||||||||||||||
| Deferred income tax (benefit) expense | (4,536) | 6,060 | (8,502) | ||||||||||||||
| Total | $ | 119,361 | $ | 103,199 | $ | 102,291 | |||||||||||
In the current year, we adopted a new income tax disclosure accounting standard. The disclosure was retrospectively applied to all periods presented.
Income taxes paid were as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 76,000 | $ | 68,000 | $ | 65,000 | |||||||||||
| State | 5,921 | 6,665 | 7,112 | ||||||||||||||
| Foreign | 29,370 | 29,569 | 39,174 | ||||||||||||||
| Total | $ | 111,291 | $ | 104,234 | $ | 111,286 | |||||||||||
Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:
| Foreign | 2025 | 2024 | 2023 | ||||||||||||||
| Belgium | * | * | $ | 8,732 | |||||||||||||
| China | * | * | $ | 7,806 | |||||||||||||
| Switzerland | * | * | $ | 6,230 | |||||||||||||
*Jurisdiction below the threshold for the period presented.
A reconciliation between the U.S. federal statutory tax rate and the effective tax rate follows (dollars in thousands):
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||
| Statutory tax rate | $ | 134,652 | 21.0 | % | $ | 123,750 | 21.0 | % | $ | 127,848 | 21.0 | % | ||||||||||||||
| State taxes, net of federal effect | 6,285 | 1.0 | 5,756 | 1.0 | 5,897 | 1.0 | ||||||||||||||||||||
| Tax effect of international operations | (326) | (0.1) | 4,106 | 0.7 | (5,204) | (0.9) | ||||||||||||||||||||
| Cross-border tax law effects | ||||||||||||||||||||||||||
| Foreign-derived intangible income | (10,842) | (1.7) | (10,523) | (1.8) | (13,068) | (2.1) | ||||||||||||||||||||
| Other | 996 | 0.2 | 1,589 | 0.3 | (523) | (0.1) | ||||||||||||||||||||
| Tax credits | (4,150) | (0.7) | (4,972) | (0.8) | (4,781) | (0.8) | ||||||||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||||||||
| Share-based payment awards | (6,068) | (0.9) | (14,888) | (2.5) | (10,315) | (1.7) | ||||||||||||||||||||
| Other | (1,186) | (0.2) | (1,619) | (0.4) | 2,437 | 0.4 | ||||||||||||||||||||
| Effective tax rate | $ | 119,361 | 18.6 | % | $ | 103,199 | 17.5 | % | $ | 102,291 | 16.8 | % | ||||||||||||||
Deferred income taxes are provided for temporary differences between the financial reporting and the tax basis of assets and liabilities. The deferred tax (liabilities) assets resulting from these differences were as follows (in thousands):
| 2025 | 2024 | ||||||||||
| Inventory valuations | $ | 5,605 | $ | 3,456 | |||||||
| Accrued self-insurance retentions | 1,712 | 1,187 | |||||||||
| Accrued warranty and service liabilities | 3,545 | 2,392 | |||||||||
| Vacation accruals | 3,718 | 3,409 | |||||||||
| Customer allowances | 6,496 | 4,080 | |||||||||
| Excess of tax over book depreciation and amortization | (101,010) | (79,728) | |||||||||
| Pension benefit obligation | 87 | 915 | |||||||||
| Postretirement medical benefit obligation | 5,001 | 5,002 | |||||||||
| Acquisition costs | 810 | 442 | |||||||||
| Stock compensation | 14,823 | 12,634 | |||||||||
| Deferred compensation | 2,911 | 5,305 | |||||||||
| Net operating loss carryforward | 3,511 | — | |||||||||
| Deferred revenue | 7,073 | 927 | |||||||||
| Interest expenses | 5,132 | — | |||||||||
| Research and development | 34,985 | 31,543 | |||||||||
| Prepayments from foreign subsidiaries | — | 13,872 | |||||||||
| Other | 4,868 | 3,652 | |||||||||
| Net deferred tax (liabilities) assets | $ | (733) | $ | 9,088 | |||||||
Total deferred tax assets were $36 million and $47 million, and total deferred tax liabilities were $37 million and $38 million on December 26, 2025 and December 27, 2024, respectively. The difference between the deferred income tax provision and the change in net deferred income taxes is due to the changes in other comprehensive income (loss) items and acquisition purchase accounting.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2019.
The Company continues to assert that it will indefinitely reinvest earnings of foreign subsidiaries to support the expansion of its international business. No additional income or withholding taxes have been provided for any remaining undistributed foreign earnings, as these amounts continue to be indefinitely reinvested in foreign operations. As of December 26, 2025, the amount of cash held outside the U.S. was not significant to the Company’s liquidity and was available to fund investments abroad.
The Company records penalties and accrued interest related to uncertain tax positions in income tax expense. Total reserves for uncertain tax positions were not material.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Feb 21, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 16, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 16, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.