The Company’s equity compensation plans are designed to assist the Company in attracting, retaining, motivating and rewarding key employees, directors or consultants, and promoting the creation of long-term value for stockholders by closely aligning the interests of these individuals with those of the Company’s stockholders. The Company’s equity compensation plans provide for the granting of stock options.

Non-cash stock compensation expense recognized by the Company during the fiscal years ended September 30, 2026, 2025 and 2024 was $146 million, $152 million and $188 million, respectively. Of the total non-cash stock compensation expense recorded in fiscal 2026, 2025 and 2024, $15 million, $15 million and $18 million, respectively, was recorded as a component of cost of sales and $131 million, $137 million and $170 million, respectively, was recorded as a component of selling and administrative expenses on the consolidated statements of income. The related tax benefit for the fiscal years ended September 30, 2026, 2025 and 2024 was $28 million, $24 million and $24 million, respectively. Of the total non-cash stock compensation expense recorded in fiscal 2026, 2025 and 2024, $170 million, $150 million and $134 million was recorded as a component of additional paid-in capital and $(24) million, less than $2 million and $54 million was recorded as a component of other non-current liabilities (as further discussed below).

The liability awards relate to (1) stock options granted between fiscal 2017 and fiscal 2020 from the 2014 stock option plan and (2) stock options that the Company expects to grant in fiscal 2027 from the 2019 stock option plan, for which compensation cost is being accrued during fiscal 2026 because the service period began before the grant date. Until the options are granted, the Company recognizes compensation cost for the service rendered based on the fair value of the expected awards, remeasured at the end of each reporting period. Upon grant, the liability will be remeasured to fair value on the grant date. In each case, the options are provided to certain employees in lieu of these individuals receiving salary and/or bonus compensation paid in cash. The vesting of the stock options is subject to the achievement of the same operating performance goals as other grants. The liability is remeasured each reporting period based on the results of the Black-Scholes option-pricing model on the last day of the reported period. The fiscal 2026 amount includes a $24 million benefit from the remeasurement of liability awards. The liability for these awards, included in other non-current liabilities, was $67 million and $102 million as of September 30, 2026 and 2025, respectively.

The weighted-average grant date fair value of options granted during the fiscal years ended September 30, 2026, 2025 and 2024 was $519.89, $549.03 and $397.31, respectively. The total fair value of options vested during fiscal years ended September 30, 2026, 2025 and 2024 was $136 million, $107 million and $97 million, respectively. Cash proceeds received from exercises of stock options for the fiscal years ended September 30, 2026, 2025 and 2024 were $155 million, $166 million and $245 million, respectively.

Compensation expense is recognized based upon probability assessments of awards that are expected to vest in future periods, adjusted for expected forfeitures. Such probability assessments are subject to revision and, therefore, unrecognized compensation expense is subject to future changes in estimate. As of September 30, 2026, there was approximately $265 million of total unrecognized compensation expense related to non-vested awards expected to vest, which is expected to be recognized over a weighted-average period of 1.8 years.

The risk-free interest rate is based upon the U.S. Treasury bond rates with a term similar to the expected life of the award as of the grant date. The average expected life of stock-based awards is based on the Company’s actual historical exercise experience. The Company uses actual historical changes in the market value of its stock to calculate the volatility assumption as it is management’s belief that this is the best indicator of future volatility. The Company estimates stock option forfeitures based on historical data. The total number of stock options expected to vest is adjusted by actual and estimated forfeitures. Changes to the actual and estimated forfeitures will result in a cumulative adjustment in the period of change. Notwithstanding the special dividends declared and paid from time to time, the Company historically has not declared and paid regular cash dividends and does not anticipate doing so in future periods. No dividend yield is assumed because dividend equivalents are paid on vested options and accrue on unvested options, so option holders are not disadvantaged by dividends declared on the underlying shares. Accordingly, the Black-Scholes fair value is not reduced for expected dividends.

In August 2019, the Board of Directors of TD Group adopted a new stock option plan, which was subsequently approved by stockholders on October 3, 2019. The 2019 stock option plan permits TD Group to award stock options to our key employees, directors or consultants. The total number of shares of TD Group common stock reserved for issuance or delivery under the 2019 stock option plan is 4,000,000, subject to adjustment in the event of any stock dividend or split, reorganization, recapitalization, merger, share exchange or any other similar corporate transaction or event. Options granted under this plan may be outstanding for a maximum of 10 years from the date of grant. The Company will issue new shares upon exercise of the stock options.

Performance Vested Stock Options – Generally all of the options granted through September 30, 2026 under the 2019 stock option plan have been pursuant to an equity incentive program adopted by the Company in 2008. Under the 2008 equity incentive program, generally all of the options granted will vest based on the Company’s achievement of established operating performance goals, typically over a five year period. The following table summarizes the activity, pricing and other information for the Company’s performance vested stock-based award activity during the fiscal year ended September 30, 2026:


	Number of Options	Weighted-Average Exercise Price Per Option		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2025	759,608	$	1,020.20
Granted	631,757	1,256.82
Exercised	(19,970)	729.42
Forfeited	(127,777)	1,153.67
Expired	(2,394)	1,305.54
Outstanding at September 30, 2026	1,241,224	$	1,131.02	8.3 years	$	111,598,907
Expected to vest	747,635	$	1,170.62	8.6 years	$	41,596,994
Exercisable at September 30, 2026	174,374	$	866.87	6.8 years	$	47,466,690

In July 2014, the Board of Directors of TD Group adopted the 2014 stock option plan, which was subsequently approved by stockholders on October 2, 2014. The 2014 stock option plan permitted TD Group to award stock options to our key employees, directors or consultants. The total number of shares of TD Group common stock reserved for issuance or delivery under the 2014 stock option plan was 5,000,000, subject to adjustment in the event of any stock dividend or split, reorganization, recapitalization, merger, share exchange or any other similar corporate transaction or event. The 2014 stock option plan expired on July 24, 2024 and no further shares may be granted under the plan thereafter. Options granted under this plan may be outstanding for a maximum of 10 years from the date of grant. The Company will issue new shares upon exercise of the stock options.

Performance Vested Stock Options – Generally all of the options granted through September 30, 2026 under the 2014 stock option plan have been pursuant to an equity incentive program adopted by the Company in 2008. Under the 2008 equity incentive program, generally all of the options granted will vest based on the Company’s achievement of established operating performance goals, typically over a five year period. The following table summarizes the activity, pricing and other information for the Company’s performance vested stock-based award activity during the fiscal year ended September 30, 2026:


	Number of Options	Weighted-Average Exercise Price Per Option		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2025	3,230,926	$	487.45
Granted	—	—
Exercised	(495,226)	281.30
Forfeited	(73,165)	616.14
Expired	—	—
Outstanding at September 30, 2026	2,662,535	$	522.25	3.5 years	$	1,676,206,812
Expected to vest	191,041	$	670.36	6.4 years	$	79,803,044
Exercisable at September 30, 2026	2,207,899	$	422.39	3.0 years	$	1,459,127,942

Pursuant to the Amended and Restated 2014 Stock Option Plan Dividend Equivalent Plan and the 2019 Stock Option Plan Dividend Equivalent Plan, all of the vested options granted under the existing stock option plans, except for grants to the members of the Board of Directors, are entitled to dividend equivalent payments in the event of the declaration of a dividend by the Company. No dividends were declared in fiscal 2026.

Dividend equivalent payments are made during the Company’s first fiscal quarter each year and also upon payment of any dividends declared. Total dividend equivalent payments were $59 million, $208 million and $233 million during the fiscal years ended September 30, 2026, 2025 and 2024, respectively. At September 30, 2026, there was $54 million recorded in accrued and other current liabilities and $52 million recorded in other non-current liabilities on the consolidated balance sheets related to future dividend equivalent payments.