Graco Inc.

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SEC Filings

10-K
GRACO INC filed this Form 10-K on 02/16/2016
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Information related to options exercised follows (in thousands):
 
2015
 
2014
 
2013
Cash received
$
7,720

 
$
20,343

 
$
33,630

Aggregate intrinsic value
11,851

 
25,284

 
33,028

Tax benefit realized
3,600

 
8,200

 
11,200


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 165,897 shares in 2015, 193,084 shares in 2014 and 196,913 shares in 2013.

Authorized Shares. In April 2015, shareholders of the Company approved the Graco Inc. 2015 Stock Incentive Plan. The plan provides for issuance of up to 3.5 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 25, 2015
Stock Incentive Plan (2015)
3,500

 
3,450

Employee Stock Purchase Plan (2006)
7,000

 
4,928

Total
10,500

 
8,378


Amounts available for future issuance exclude outstanding options. Options outstanding as of December 25, 2015, include options granted under three 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 of $19.2 million in 2015, $17.2 million in 2014 and $16.5 million in 2013, which reduced net income by $13.8 million, or $0.23 per weighted diluted common share in 2015, $12.8 million, or $0.21 per weighted diluted common share in 2014 and $12.6 million, or $0.20 per weighted diluted common share in 2013. As of December 25, 2015, there was $10.8 million of unrecognized compensation cost related to unvested options, expected to be recognized over a weighted average period of approximately 1.8 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:
 
2015
 
2014
 
2013
Expected life in years
6.5

 
6.5

 
5.9

Interest rate
1.7
%
 
2.0
%
 
1.3
%
Volatility
35.0
%
 
36.1
%
 
35.4
%
Dividend yield
1.6
%
 
1.5
%
 
1.6
%
Weighted average fair value per share
$
23.18

 
$
24.83

 
$
19.44


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:
 
2015
 
2014
 
2013
Expected life in years
1.0

 
1.0

 
1.0

Interest rate
0.2
%
 
0.1
%
 
0.2
%
Volatility
18.9
%
 
21.4
%
 
26.0
%
Dividend yield
1.6
%
 
1.4
%
 
1.7
%
Weighted average fair value per share
$
16.51

 
$
17.81

 
$
14.16



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