Black & Decker 2015 Annual Report Download - page 93

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and may be redeemed by the Company at a price of $0.01 per right at any time prior to the tenth day following the public
announcement that a person has acquired beneficial ownership of 15% or more of the outstanding shares of common stock. In
the event that the Company is acquired in a merger or other business combination transaction, provision shall be made so that
each holder of a right (other than a holder who is a 14.9%-or-more shareowner) shall have the right to receive, upon exercise
thereof, that number of shares of common stock of the surviving Company having a market value equal to two times the
exercise price of the right. Similarly, if anyone becomes the beneficial owner of more than 15% of the then outstanding shares
of common stock (except pursuant to an offer for all outstanding shares of common stock which the independent directors have
deemed to be fair and in the best interest of the Company), provision will be made so that each holder of a right (other than a
holder who is a 14.9%-or-more shareowner) shall thereafter have the right to receive, upon exercise thereof, common stock (or,
in certain circumstances, cash, property or other securities of the Company) having a market value equal to two times the
exercise price of the right. At January 2, 2016, there were 148,694,959 outstanding rights.
STOCK-BASED COMPENSATION PLANS — The Company has stock-based compensation plans for salaried employees
and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted
stock units and other stock-based awards.
The plans are generally administered by the Compensation and Organization Committee of the Board of Directors, consisting
of non-employee directors.
Stock Option Valuation Assumptions: Stock options are granted at the fair market value of the Company’s stock on the date
of grant and have a 10-year term. Generally, stock option grants vest ratably over 4 years from the date of grant.
The following describes how certain assumptions affecting the estimated fair value of stock options are determined: the
dividend yield is computed as the annualized dividend rate at the date of grant divided by the strike price of the stock option;
expected volatility is based on an average of the market implied volatility and historical volatility for the 5.25 year expected
life; the risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option; and a
seven percent forfeiture rate is assumed. The Company uses historical data in order to estimate forfeitures and holding period
behavior for valuation purposes.
The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The
following weighted average assumptions were used to value grants made in 2015, 2014 and 2013.
2015 2014 2013
Average expected volatility.................................................................. 25.0% 27.0% 35.0%
Dividend yield ...................................................................................... 2.0% 2.2% 2.5%
Risk-free interest rate............................................................................ 1.9% 1.8% 1.6%
Expected term....................................................................................... 5.3 years 5.3 years 5.3 years
Fair value per option............................................................................. $ 21.94 $ 19.98 $ 20.70
Weighted average vesting period.......................................................... 2.8 years 2.8 years 2.8 years
Stock Options:
The number of stock options and weighted-average exercise prices are as follows:
2015 2014 2013
Options Price Options Price Options Price
Outstanding, beginning of year............... 7,324,081 $ 67.01 7,429,262 $ 61.69 9,056,493 $ 56.90
Granted ................................................... 996,250 109.23 983,750 95.18 961,250 79.72
Exercised................................................. (2,154,372) 56.70 (953,940) 54.02 (2,414,697) 50.75
Forfeited.................................................. (123,120) 100.99 (134,991) 85.01 (173,784) 80.97
Outstanding, end of year......................... 6,042,839 $ 77.36 7,324,081 $ 67.01 7,429,262 $ 61.69
Exercisable, end of year.......................... 3,774,248 $ 65.71 5,146,400 $ 59.81 5,310,381 $ 57.10
At January 2, 2016, the range of exercise prices on outstanding stock options was $30.03 to $109.25. Stock option expense
was $16.7 million, $16.5 million and $21.4 million for the years ended January 2, 2016, January 3, 2015 and December 28,
2013, respectively. At January 2, 2016, the Company had $32.6 million of unrecognized pre-tax compensation expense for
stock options. This expense will be recognized over the remaining vesting periods which are 2.6 years on a weighted average
basis.