ADT 2014 Annual Report Download - page 157

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FORM 10-K
correspond to a number of funds in the Company’s 401(k) plans and the account balance fluctuates with the
investment returns on those funds. Following the Separation, the Company maintains its own standalone SSRP
for eligible employees. Deferred compensation liabilities were $17 million and $16 million as of September 26,
2014 and September 27, 2013, respectively. Deferred compensation expense was not material for fiscal years
2014, 2013 and 2012.
9. 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 ADT, Tyco and
Pentair. The conversion of existing Tyco equity awards into ADT equity awards was considered a modification
of an award (“2012 Award Modification”) in accordance with the authoritative guidance for share-based
payments and affected all holders of Tyco incentive equity awards. As a result, the Company compared the fair
value of the awards immediately prior to the Separation to the fair value immediately after the Separation to
measure incremental compensation cost. Fair value immediately before the modification was measured based on
the assumptions of Tyco whereas the fair value of ADT options immediately after the modification, and from
there on, was representative of ADT as a standalone company. 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. The following table provides details on the ADT incentive equity awards issued in
conjunction with the 2012 Award Modification:
Shares
Weighted-Average
Grant-Date
Fair Value
Stock options ............................. 7,837,941 $ 7.78
Restricted stock units ....................... 3,169,241 20.86
The assumptions used in the Black-Scholes pricing model to calculate the fair value of the options converted
on September 28, 2012 were as follows:
2012
Risk-free interest rate ............................ 1.01 –1.21%
Expected life of options (years) .................... 5.50 – 6.50
Expected annual dividend yield .................... 1.42%
Expected stock price volatility ..................... 33%
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”). In addition to the incentive equity awards converted from Tyco
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.
Stock-based compensation expense is included in selling, general and administrative expenses in the
Consolidated and Combined Statements of Operations. The stock-based compensation expense recognized and
the associated tax benefit for fiscal years 2014, 2013 and 2012 are as follows:
2014 2013 2012
Stock-based compensation expense recognized .................. $20 $19 $7
Tax benefit associated with stock-based compensation ............. 8 7 3
91