ADT 2014 Annual Report Download - page 158

FORM 10-K
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 expected termination behavior, as well as an analysis
of actual option forfeitures.
Use of a valuation model requires management to make certain assumptions with respect to selected model
inputs. Expected volatility is calculated based on an analysis of historic and implied volatility measures for a set
of peer companies. The average expected life is based on the contractual term of the option and expected
employee exercise and post-vesting employment termination behavior. The risk-free interest rate is based on U.S.
Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The
assumptions used in the Black-Scholes option pricing model for fiscal years 2014 and 2013 are as follows:
2014 2013
Risk-free interest rate ......................... 1.73 – 2.10% 0.81 – 1.62%
Expected life of options (years) ................. 6 5.75 – 6.00
Expected annual dividend yield ................. 1.95% 1.09%
Expected stock price volatility .................. 41% 33%
The weighted-average grant-date fair value of options granted during fiscal years 2014 and 2013 was $14.20
and $13.06, respectively, and the intrinsic value of options exercised during fiscal years 2014 and 2013 was $8
million and $59 million, respectively.
The following table summarizes the stock option activity for fiscal year 2014:
Shares
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
($ in millions)
Outstanding as of September 27, 2013 ..... 5,296,060 $30.34
Granted ............................. 627,540 41.76
Exercised ........................... 798,354 27.36
Canceled ............................ 304,282 39.11
Outstanding as of September 26, 2014 ..... 4,820,964 31.77 5.44 $32
Options vested and expected to vest as of
September 26, 2014 ................. 4,568,630 31.49 5.37 31
Exercisable as of September 26, 2014 ..... 3,169,681 28.22 4.06 27
As of September 26, 2014, there was approximately $12 million of total unrecognized compensation
expense related to non-vested stock options granted under the Company’s share option plan. This expense, net of
forfeitures, is expected to be recognized over a weighted-average period of approximately 2 years.
Restricted Stock Units—Restricted stock units are granted subject to certain restrictions. Conditions of
vesting are determined at the time of grant under the Plan. Restrictions on the award generally lapse upon normal
retirement, if more than twelve months from the grant date, and death or disability of the employee. Recipients of
restricted stock units have no voting rights and receive dividend equivalent units. Dividend equivalent units are
subject to forfeiture if the underlying awards do not vest.
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