GRACO INCGGG
GRACO INC Stock Compensation Disclosure
Share-Based Awards, Purchase Plans and Compensation Cost
Stock Option and Award Plan. The Company has a stock incentive plan under which it grants stock options and share awards to directors, officers and other employees. Option price is the market price on the date of grant. Options become exercisable at such time, generally over 3 years or 4 years, and in such installments as set by the Company, and expire 10 years from the date of grant.
Restricted share awards have been made to certain key employees under the plan. The market value of restricted stock at the date of grant is charged to operations over the vesting period. Compensation cost related to restricted shares is not significant.
The Company has a stock appreciation plan that provides for payments of cash to eligible foreign employees based on the change in the market price of the Company’s common stock over a period of time. Compensation cost related to the
stock appreciation plan was an expense of $2 million in 2025 and $2 million in 2024 and a benefit of $2 million in 2023.
Individual nonemployee directors of the Company may elect to receive, either currently or deferred, all or part of their retainer in the form of shares of the Company’s common stock instead of cash. Under this arrangement, the Company issued 8,121 shares in 2025, 9,940 shares in 2024 and 11,150 shares in 2023. The expense related to this arrangement is not significant.
Options on common shares granted and outstanding, as well as the weighted average exercise price, are shown below (in thousands, except exercise prices):
| Option Shares | Weighted Average Exercise Price | Options Exercisable | Weighted Average Exercise Price | ||||||||||||||||||||
| Outstanding, December 30, 2022 | 10,265 | $ | 44.40 | 7,793 | $ | 37.22 | |||||||||||||||||
| Granted | 1,114 | 71.45 | |||||||||||||||||||||
| Exercised | (1,354) | 30.77 | |||||||||||||||||||||
| Canceled | (121) | 62.75 | |||||||||||||||||||||
| Outstanding, December 29, 2023 | 9,904 | 49.09 | 7,274 | 41.46 | |||||||||||||||||||
| Granted | 925 | 89.23 | |||||||||||||||||||||
| Exercised | (1,535) | 32.10 | |||||||||||||||||||||
| Canceled | (155) | 76.03 | |||||||||||||||||||||
| Outstanding, December 27, 2024 | 9,139 | 55.60 | 6,582 | 47.16 | |||||||||||||||||||
| Granted | 1,470 | 84.91 | |||||||||||||||||||||
| Exercised | (705) | 33.63 | |||||||||||||||||||||
| Canceled | (118) | 76.88 | |||||||||||||||||||||
| Outstanding, December 26, 2025 | 9,786 | $ | 61.38 | 7,017 | $ | 52.94 | |||||||||||||||||
The following table summarizes information for options outstanding and exercisable at December 26, 2025 (in thousands, except exercise prices and contractual term amounts):
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||
| Range of Prices | Options Outstanding | Weighted Average Remaining Contractual Term in Years | Weighted Average Exercise Price | Options Exercisable | Weighted Average Exercise Price | |||||||||||||||||||||||||||
| $ 20-40 | 1,476 | 0.9 | $ | 29.02 | 1,476 | $ | 29.02 | |||||||||||||||||||||||||
| $ 40-60 | 3,159 | 3.3 | 48.96 | 3,159 | 48.96 | |||||||||||||||||||||||||||
| $ 60-80 | 2,863 | 6.4 | 71.54 | 2,175 | 71.55 | |||||||||||||||||||||||||||
| $ 80-100 | 2,288 | 9.0 | 86.68 | 207 | 88.73 | |||||||||||||||||||||||||||
| $ 20-100 | 9,786 | 5.2 | $ | 61.38 | 7,017 | $ | 52.94 | |||||||||||||||||||||||||
The aggregate intrinsic value of exercisable option shares was $215 million as of December 26, 2025 with a weighted average contractual term of 3.9 years. There were approximately 9.8 million vested share options and share options expected to vest as of December 26, 2025 with an aggregate intrinsic value of $223 million, a weighted average exercise price of $61.38 and a weighted average contractual term of 5.2 years.
Information related to options exercised as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash received | $ | 23,724 | $ | 49,566 | $ | 40,708 | |||||||||||
| Aggregate intrinsic value | 36,191 | 84,328 | 61,624 | ||||||||||||||
| Tax benefit realized | 7,375 | 17,675 | 12,605 | ||||||||||||||
Employee Stock Purchase Plan. Under the Company’s Employee Stock Purchase Plan, the purchase price of the shares is the lesser of 85 percent of the fair market value on the first day or the last day of the plan year. Under this plan, the Company issued 256,798 shares in 2025, 330,413 shares in 2024 and 322,764 shares in 2023.
Authorized Shares. In April 2019, shareholders of the Company approved the Graco Inc. 2019 Stock Incentive Plan. The Plan provides for issuance of up to 15 million shares of Graco common stock. Shares authorized for issuance under the stock option and purchase plans are shown below (in thousands):
| Total Shares Authorized | Available for Future Issuance as of December 26, 2025 | ||||||||||
| Stock Incentive Plan (2019) | 15,000 | 7,518 | |||||||||
| Employee Stock Purchase Plan (2006) | 21,000 | 10,854 | |||||||||
| Total | 36,000 | 18,372 | |||||||||
Amounts available for future issuance exclude outstanding options. Options outstanding, as of December 26, 2025, include options granted under two plans that were replaced by subsequent plans. No shares are available for future grants under those plans.
Share-based Compensation. The Company recognized share-based compensation cost as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Share-based compensation | $ | 34,333 | $ | 31,892 | $ | 30,229 | |||||||||||
| Tax benefit | 3,689 | 3,295 | 3,177 | ||||||||||||||
| Share-based compensation, net of tax | $ | 30,644 | $ | 28,597 | $ | 27,052 | |||||||||||
As of December 26, 2025, there was $23 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of approximately 2.5 years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results:
| 2025 | 2024 | 2023 | |||||||||||||||
| Expected life in years | 6.1 | 6.6 | 6.7 | ||||||||||||||
| Interest rate | 4.1 | % | 4.2 | % | 4.0 | % | |||||||||||
| Volatility | 25.0 | % | 26.3 | % | 26.3 | % | |||||||||||
| Dividend yield | 1.3 | % | 1.1 | % | 1.3 | % | |||||||||||
| Weighted average fair value per share | $ | 24.21 | $ | 28.03 | $ | 21.76 | |||||||||||
Expected life is estimated based on vesting terms and exercise and termination history. Interest rate is based on the U.S. Treasury rate on zero-coupon issues with a remaining term equal to the expected life of the option. Expected volatility is based on historical volatility over a period commensurate with the expected life of options.
The fair value of employees’ purchase rights under the Employee Stock Purchase Plan was estimated on the date of grant. The benefit of the 15 percent discount from the lesser of the fair market value per common share on the first day and the last day of the plan year was added to the fair value of the employees’ purchase rights determined using the Black-Scholes option-pricing model with the following assumptions and results:
| 2025 | 2024 | 2023 | |||||||||||||||
| Expected life in years | 1.0 | 1.0 | 1.0 | ||||||||||||||
| Interest rate | 4.1 | % | 4.9 | % | 5.1 | % | |||||||||||
| Volatility | 19.6 | % | 24.2 | % | 26.4 | % | |||||||||||
| Dividend yield | 1.3 | % | 1.1 | % | 1.4 | % | |||||||||||
| Weighted average fair value per share | $ | 19.65 | $ | 23.16 | $ | 18.04 | |||||||||||
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 Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.