ADT 2012 Annual Report Download - page 184

11. Share Plans
Incentive Equity Awards Converted from Tyco Awards
Prior to the Separation, all employee incentive equity awards were granted by Tyco. On September 28,
2012, substantially all of Tyco’s outstanding awards were converted into like-kind awards of the Company, Tyco
and Pentair. The ADT incentive equity awards issued and the related weighted-average grant-date fair values are
as follows:
Shares
Weighted-Average
Grant-Date
Fair Value
Stock options ............................. 7,837,941 $ 7.78
Restricted stock units ....................... 3,169,241 20.86
The conversion of existing Tyco equity awards into ADT equity awards was considered a modification of an
award in accordance with the authoritative guidance for share-based payments and affected all employees. As a
result, the Company compared the fair value of the award immediately prior to the Separation to the fair value
immediately after the Separation to measure incremental compensation cost. The conversion resulted in an
increase in the fair value of the awards and, accordingly, the Company recorded non-cash compensation expense,
the amount of which was immaterial.
Stock Compensation Plans
Prior to the Separation, the Company adopted the ADT Corporation 2012 Stock Incentive Plan (the “Plan”).
The Plan provides for the award of stock options, stock appreciation rights, annual performance bonuses, long-
term performance awards, restricted units, restricted stock, deferred stock units, promissory stock and other
stock-based awards (collectively, “Awards”). The Plan provides for a maximum of 8 million common shares to
be issued as Awards, subject to adjustment as provided under the terms of the Plan.
Total share-based compensation cost recognized during 2012, 2011 and 2010 was $7 million, $9 million and
$8 million, respectively, all of which is included in selling, general and administrative expenses. The tax benefit
associated with the Company’s share-based compensation arrangements during 2012, 2011 and 2010 was not
material.
Stock Options—Options are granted to purchase common shares at prices that are equal to the fair market
value of the common shares on the date the option is granted. Conditions of vesting are determined at the time of
grant under the Plan. Options granted under the Plan generally vest in equal annual installments over a period of
four years and generally expire 10 years after the date of grant. The grant-date fair value of each option grant is
estimated using the Black-Scholes option pricing model and amortized on a straight-line basis over the requisite
service period of the awards, which is generally the vesting period. The compensation expense recognized is net
of estimated forfeitures. Forfeitures are estimated based on voluntary termination behavior, as well as an analysis
of actual option forfeitures.
Details related to the Company’s stock options as of September 28, 2012 are presented below:
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
($ in millions)
Outstanding as of September 28,
2012 .......................... 7,837,941 $26.97 5.7 $72
Exercisable as of September 28,
2012 ....................... 4,491,004 $28.78 4.1 $33
92